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TABLE OF CONTENTS
Index To Consolidated Financial Statements
As filed with the Securities and Exchange Commission on February 7, 2007
Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TECHTARGET, INC.
(Exact Name of Registrant as Specified in Its Charter)
Copies to: |
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John J. Egan, III, Esq.
David J. Powers, Esq. Goodwin Procter LLP Exchange Place Boston, Massachusetts 02109 (617) 570-1000 |
Mark G. Borden, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 (617) 526-6000 |
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. o
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o
CALCULATION OF REGISTRATION FEE
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Title of Each Class of
Securities to be Registered |
Proposed Maximum
Aggregate Offering Price(1) |
Amount of
Registration Fee(2) |
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Common Stock, $0.001 par value per share | $75,000,000 | $8,025 | ||
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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 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), shall determine.
Subject to Completion, dated February 7, 2007
Prospectus
The information contained in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.
Shares
COMMON STOCK
TechTarget, Inc. is offering shares of its common stock and the selling stockholders are offering shares of common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. This is our initial public offering and no public market currently exists for our shares.
We have applied to have our common stock listed on the NASDAQ Global Market under the symbol "TTGT."
Investing in our common stock involves risks. See "Risk Factors" beginning on page 10.
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Per Share
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Total
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Price to the public | $ | $ | ||
Underwriting discounts and commissions | $ | $ | ||
Proceeds to TechTarget (before expenses) | $ | $ | ||
Proceeds to the selling stockholders (before expenses) | $ | $ |
The selling stockholders have granted the underwriters the right to purchase up to an additional shares to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares on , 2007.
MORGAN STANLEY | LEHMAN BROTHERS |
COWEN AND COMPANY |
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PIPER JAFFRAY |
, 2007
You should rely only on the information contained in this prospectus, any free writing prospectus prepared by us or on behalf of us or any information to which we have referred you. Neither we nor the selling stockholders have authorized anyone to provide you with information different from that contained in this prospectus. We and the selling stockholders are offering to sell, and are seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.
Until (25 days after the commencement of this offering), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
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This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the risks of investing in our common stock discussed under "Risk Factors" beginning on page 10, and the consolidated financial statements and notes to those consolidated financial statements, before making an investment decision. Unless the context requires otherwise, we use the terms "TechTarget," "we," "us" and "our" in this prospectus to refer to TechTarget, Inc. and its subsidiaries.
TECHTARGET, INC.
Our Company
We are a leading provider of specialized online content that brings together buyers and sellers of corporate information technology, or IT, products. We sell customized marketing programs that enable IT vendors to reach corporate IT decision makers who are actively researching specific IT purchases. We operate a network of 35 websites, each of which focuses on a specific IT sector, such as storage, security or networking. IT professionals rely on our websites for key decision support information tailored to their specific areas of responsibility. We complement our online offerings with targeted in-person events and three specialized IT magazines that enable advertisers to engage buyers throughout their decision-making process for IT purchases.
As IT professionals have become increasingly specialized, they have come to rely on our sector-specific websites for purchasing decision support. Our content enables IT professionals to navigate the complex and rapidly changing IT landscape where purchasing decisions can have significant financial and operational consequences. We employ over 100 full-time editors who create more than 20,000 pieces of original content per year tailored for specific audiences. We complement this content with targeted information from our network of more than 225 outside industry experts, member- generated content and extensive vendor-supplied information. We have a large and growing base of registered members, which totaled over 4.5 million as of December 31, 2006.
The targeted nature of our user base enables IT vendors to reach a specialized audience efficiently because our content is highly segmented and aligned with the IT vendors' specific products. Since our founding in 1999, we have developed a broad customer base that now comprises more than 1,000 active advertisers, defined as customers who placed business with us in 2006, including Cisco, Dell, EMC, Hewlett Packard, IBM, Intel, Microsoft, Oracle, Research In Motion, SAP and Symantec. We delivered more than 3,400 advertising campaigns in 2006, and our average quarterly advertising renewal rate for our 100 largest customers was 92% in 2006. We also supplied more than 1.1 million sales leads to IT vendors in 2006.
We generated revenues of $67 million in 2005, up from $47 million in 2004. Over the same period, we grew our adjusted EBITDA from $5 million to $13 million.
Industry Background
There is an ongoing shift from traditional print and broad-based advertising to targeted online advertising, causing advertisers to reallocate substantial portions of marketing budgets to online advertising. We believe there are three major trends driving this shift. First, advertisers' desire to reach customers efficiently has led to the development of market-specific content channels, in particular, market-specific websites, which increase advertising efficiency by enabling advertisers to market specifically to the audience they are trying to reach. Second, the Internet is improving advertisers' ability to measure and increase return on investment, or ROI, by enabling advertisers to track individual user responses to their marketing programs. Third, the Internet is increasingly critical in researching large, complex and costly
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purchases, as both the quantity of information and the availability of search engines and directories on the Internet enable potential purchasers to obtain information efficiently from many sources.
Corporate IT professionals increasingly are demanding specialized websites, events and print publications tailored to the sub-sectors of IT solutions that they purchase. Similarly, IT advertisers seek high-ROI marketing platforms that provide access to the specific sectors of IT buyers that align with the solutions they sell. We believe that traditional IT media companies with primarily print-based revenue models have encountered difficulties in responding to these trends. These companies typically offer print publications with large circulations and broad content, associated websites with a similarly broad content focus, and large industry trade shows. We believe these offerings do not enable IT professionals to search efficiently for information related to their specialized IT purchase requirements, and minimize the likelihood of a vendor reaching a buyer while actively researching the purchase of a solution that falls within the vendor's particular market sector. Consequently, there is a need on the part of both IT buyers and IT vendors for highly specialized media offerings that increase efficiency for both parties.
Our Solution
Our specialized content enables IT vendors to reach corporate IT professionals who are actively researching purchases in specific IT sectors. Our solution benefits from the following competitive advantages:
Our solution increases efficiency for both IT professionals and IT vendors. It facilitates the ability of IT professionals to find specific information related to their purchase decisions, while enabling IT vendors
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to reach IT buyers that are actively researching specific solutions related to vendors' products and services. Set forth below are several ways our solution benefits both IT professionals and IT vendors:
Benefits to IT Professionals
Benefits to IT Vendors
Our Strategy
Our goal is to deliver superior performance by enhancing our position as a leading provider of specialized content that connects IT professionals with IT vendors in the sectors and sub-sectors that we serve. In order to achieve this goal, we intend to:
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Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully read the section entitled "Risk Factors" beginning on page 10 for an explanation of these risks before investing in our common stock. In particular, the following considerations, among others, may have a negative effect on our business, financial condition and results of operations:
Our Corporate Information
We were incorporated in Delaware on September 14, 1999 under the name Search Hitech.com, Inc. and changed our name to TechTarget.com, Inc. on September 17, 1999 and to TechTarget, Inc. on October 16, 2003. Our corporate headquarters are located at 117 Kendrick Street, Suite 800, Needham, Massachusetts 02494, and our telephone number is (781) 657-1000. Our website is www.techtarget.com. Information contained on our website does not constitute a part of this prospectus.
TechTarget® and the TechTarget logo are registered trademarks of TechTarget, Inc. This prospectus also includes the registered and unregistered trademarks of other persons or entities.
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Common stock offered by TechTarget |
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shares |
Common stock offered by the selling stockholders |
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shares |
Total |
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shares |
Common stock to be outstanding after this offering |
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shares |
Over-allotment option offered by the selling stockholders |
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shares |
Use of proceeds |
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We expect our net proceeds from the offering to be approximately $ , assuming an initial offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated fees and expenses payable by us. We will not receive any proceeds from the sale of shares by the selling stockholders. We intend to use the net proceeds to us from this offering for working capital and other general corporate purposes, including financing the development of new offerings, sales and marketing activities, and capital expenditures. We may use a portion of the net proceeds to us to expand our current business through acquisitions of other businesses, products and technologies. See "Use of Proceeds" for more information. |
Risk factors |
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You should read the "Risk Factors" section of this prospectus for a discussion of factors that you should consider carefully before deciding to invest in shares of our common stock. |
Proposed NASDAQ Global Market symbol |
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"TTGT" |
The number of shares of our common stock to be outstanding following this offering is based on 129,371,179 shares of our common stock outstanding as of December 31, 2006, and excludes:
Unless otherwise indicated, this prospectus reflects and assumes the following:
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SUMMARY CONSOLIDATED FINANCIAL DATA
The tables below summarize our consolidated financial information for the periods indicated. You should read the following information together with the more detailed information contained in "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," our consolidated financial statements and the accompanying notes included elsewhere in this prospectus. The unaudited results for the nine months ended September 30, 2006 are not necessarily indicative of results expected for the fiscal year ending December 31, 2006 or for any other future period. We have prepared our unaudited consolidated financial statements on the same basis as our audited financial statements. In the opinion of management, our unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information.
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Years Ended December 31,
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Nine Months Ended
September 30, |
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2003
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2004
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2005
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2005
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2006
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(unaudited)
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(in thousands, except per share data)
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Consolidated Statement of Operations Data: | |||||||||||||||||
Revenues: | |||||||||||||||||
Online | $ | 21,023 | $ | 31,342 | $ | 43,662 | $ | 32,545 | $ | 35,752 | |||||||
Events | 7,845 | 9,647 | 14,595 | 9,835 | 13,962 | ||||||||||||
3,598 | 5,738 | 8,489 | 6,088 | 6,181 | |||||||||||||
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Total revenues | 32,466 | 46,727 | 66,746 | 48,468 | 55,895 | ||||||||||||
Cost of revenues: |
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Online (1) | 5,826 | 7,632 | 10,476 | 7,726 | 9,257 | ||||||||||||
Events (1) | 4,798 | 5,948 | 6,202 | 4,149 | 4,641 | ||||||||||||
Print (1) | 2,318 | 3,073 | 5,322 | 3,903 | 4,215 | ||||||||||||
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Total cost of revenues | 12,942 | 16,653 | 22,000 | 15,778 | 18,113 | ||||||||||||
Gross profit |
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19,524 |
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30,074 |
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44,746 |
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32,690 |
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37,782 |
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Operating expenses: |
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Selling and marketing (1) | 10,736 | 15,138 | 18,174 | 13,173 | 14,555 | ||||||||||||
Product development (1) | 3,728 | 4,111 | 5,756 | 4,270 | 4,740 | ||||||||||||
General and administrative (1) | 3,991 | 11,756 | 7,617 | 5,278 | 6,001 | ||||||||||||
Depreciation | 1,153 | 1,168 | 1,792 | 1,297 | 697 | ||||||||||||
Amortization of intangible assets | 428 | 1,304 | 5,172 | 3,925 | 3,886 | ||||||||||||
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Total operating expenses | 20,036 | 33,477 | 38,511 | 27,943 | 29,879 | ||||||||||||
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Operating income (loss) | (512 | ) | (3,403 | ) | 6,235 | 4,747 | 7,903 | ||||||||||
Interest income (expense), net | (21 | ) | 143 | (30 | ) | (91 | ) | 121 | |||||||||
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Income (loss) before income taxes (benefit) | (533 | ) | (3,260 | ) | 6,205 | 4,656 | 8,024 | ||||||||||
Provision for (benefit from) income taxes | | 32 | (2,681 | ) | | 3,623 | |||||||||||
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Net income (loss) | $ | (533 | ) | $ | (3,292 | ) | $ | 8,886 | $ | 4,656 | $ | 4,401 | |||||
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Net loss per common share: |
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Basic and diluted (2) | $ | (0.13 | ) | $ | (0.33 | ) | $ | (0.06 | ) | $ | (0.11 | ) | $ | (0.12 | ) | ||
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Weighted average common shares outstanding: | |||||||||||||||||
Basic and diluted | 31,605 | 30,378 | 29,483 | 29,443 | 31,154 | ||||||||||||
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Unaudited: | |||||||||||||||||
Pro forma net income per common share (3) : | |||||||||||||||||
Basic | $ | 0.07 | $ | 0.03 | |||||||||||||
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Diluted | $ | 0.06 | $ | 0.03 | |||||||||||||
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Pro forma weighted average common shares outstanding (3) : | |||||||||||||||||
Basic | 126,975 | 128,646 | |||||||||||||||
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Diluted | 138,748 | 139,678 | |||||||||||||||
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Other Data: |
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Adjusted EBITDA (unaudited) (4) | $ | 1,104 | $ | 5,352 | $ | 13,277 | $ | 9,980 | $ | 12,642 |
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The pro forma balance sheet data in the table below reflects the conversion of our convertible preferred stock. The pro forma as adjusted balance sheet data in the table below reflects the conversion of our convertible preferred stock and our receipt of estimated net proceeds from our sale of shares of common stock in this offering at an assumed public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
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As of September 30, 2006
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Actual
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Pro Forma
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Pro Forma
As Adjusted |
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(unaudited)
(in thousands) |
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Consolidated Balance Sheet Data: | |||||||||
Cash and cash equivalents | $ | 27,469 | $ | 27,469 | $ | ||||
Total assets | 90,753 | 90,753 | |||||||
Total liabilities | 23,209 | 23,209 | |||||||
Total redeemable convertible preferred stock | 134,094 | | |||||||
Total stockholders' equity (deficit) | (66,550 | ) | 67,544 |
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Years Ended December 31,
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Nine Months Ended
September 30, |
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2003
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(1) | Amounts include stock-based compensation expense as follows: | ||||||||||||||||
Cost of online revenue | $ | | $ | 78 | $ | | $ | | $ | 14 | |||||||
Cost of events revenue | | 236 | | | 5 | ||||||||||||
Cost of print revenue | | | | | 2 | ||||||||||||
Selling and marketing | | 1,025 | | | 69 | ||||||||||||
Product development | | 7 | | | 16 | ||||||||||||
General and administrative | 35 | 4,937 | 78 | 11 | 50 | ||||||||||||
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Total | $ | 35 | $ | 6,283 | (5) | $ | 78 | $ | 11 | $ | 156 | ||||||
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Years Ended December 31,
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Nine Months Ended
September 30, |
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2003
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2004
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2006
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Net income (loss) | $ | (533 | ) | $ | (3,292 | ) | $ | 8,886 | $ | 4,656 | $ | 4,401 | |||
Interest income (expense), net | (21 | ) | 143 | (30 | ) | (91 | ) | 121 | |||||||
Provision for (benefit from) income taxes | | 32 | (2,681 | ) | | 3,623 | |||||||||
Depreciation | 1,153 | 1,168 | 1,792 | 1,297 | 697 | ||||||||||
Amoritization of intangible assets | 428 | 1,304 | 5,172 | 3,925 | 3,886 | ||||||||||
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EBITDA | 1,069 | (931 | ) | 13,199 | 9,969 | 12,486 | |||||||||
Stock-based compensation | 35 | 6,283 | (5) | 78 | 11 | 156 | |||||||||
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Adjusted EBITDA | $ | 1,104 | $ | 5,352 | $ | 13,277 | $ | 9,980 | $ | 12,642 | |||||
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Adjusted EBITDA is a metric used by management to measure operating performance. EBITDA represents net income (loss) before net interest expense, income tax expense, depreciation and amortization. Adjusted EBITDA represents EBITDA less stock-based compensation expense. We present Adjusted EBITDA as a supplemental performance measure because we believe it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses), the age and book depreciation of fixed assets (affecting relative depreciation expense), and the impact of non-cash stock-based compensation expense costs. Because Adjusted EBITDA facilitates internal comparisons of our operating performance on a more consistent basis, we also use Adjusted EBITDA in measuring our performance relative to that of our competitors. We also use Adjusted EBITDA in connection with our compensation of our executive officers. Adjusted EBITDA is not a measurement of our financial performance under generally accepted accounting principles in the United States, or GAAP, and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our profitability or liquidity. We understand that although Adjusted EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
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Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding whether to invest in our common stock. If any of the following risks were to materialize, our business, financial condition and results of operations would suffer. The trading price of our common stock could decline as a result of any of these risks, and you could lose part or all of your investment in our common stock. You should read the section entitled "Forward-Looking Statements" immediately following these risk factors for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this prospectus.
Risks Related to Our Business
Because we depend on our ability to generate revenues from the sale of advertising, fluctuations in advertising spending could have an adverse effect on our operating results.
The primary source of our revenues is the sale of advertising to our customers. Our advertising revenues accounted for approximately 98% of our total revenues for the nine months ended September 30, 2006. We believe that advertising spending on the Internet, as in traditional media, fluctuates significantly as a result of a variety of factors, many of which are outside of our control. These factors include:
Because all of our customers are in the IT industry, our revenues are subject to characteristics of the IT industry that can affect advertising spending by IT vendors.
The IT industry is characterized by, among other things, volatile quarterly results, uneven sales patterns, short product life cycles, rapid technological developments and frequent new product introductions and enhancements. As a result, our customers' advertising budgets, which are often viewed as discretionary expenditures, may increase or decrease significantly over a short period of time. In addition, the advertising budgets of our customers may fluctuate as a result of:
Our quarterly operating results are subject to significant fluctuations, and these fluctuations may adversely affect the trading price of our common stock.
We have experienced and expect to experience significant fluctuations in our quarterly revenues and operating results. Our quarterly revenues and operating results may fluctuate significantly from quarter to quarter due to a number of factors, many of which are outside of our control. In addition to the factors described elsewhere in this "Risk Factors" section, these factors include:
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Due to such risks, you should not rely on quarter-to-quarter comparisons of our results of operations as an indicator of our future results. Due to the foregoing factors, it is also possible that our results of operations in one or more quarters may fall below the expectations of investors and/or securities analysts. In such an event, the trading price of our common stock is likely to decline.
Our revenues are primarily derived from short-term contracts that may not be renewed.
The primary source of our revenues is the sale of advertising to our customers, and we expect that this will continue to be the case for the foreseeable future. Our advertising contracts are almost exclusively short-term, typically less than 90 days, and are subject to termination without substantial penalty by the customer at any time, generally with minimal notice requirements of 30 days or less. We cannot assure you that our current customers will fulfill their obligations under their existing contracts, continue to participate in our existing programs beyond the terms of their existing contracts or enter into any additional contracts for new programs that we offer. If a significant number of advertisers or a few large advertisers decided not to continue advertising on our websites or in our print magazines, or conducting or sponsoring events, we could experience a rapid decline in our revenues over a relatively short period of time.
If we are unable to deliver content and services that attract and retain users, our ability to attract advertisers may be affected, which could in turn have an adverse affect on our revenues.
Our future success depends on our ability to deliver original and compelling content and services to attract and retain users. Our user base is comprised of corporate IT professionals who demand specialized websites, print publications and events tailored to the sectors of the IT products for which they are responsible and that they purchase. Our content and services may not be attractive to a sufficient number of users to attract advertisers and generate revenues consistent with our estimates. We also may not develop new content or services in a timely or cost-effective manner. Our ability to develop and produce this specialized content successfully is subject to numerous uncertainties, including our ability to:
If we are not successful in maintaining and growing our user base, our ability to retain and attract advertisers may be affected, which could in turn have an adverse affect on our revenues.
Our inability to sustain our historical advertising rates could adversely affect our operating results.
The market for advertising has fluctuated over the past few years. If we are unable to maintain historical pricing levels for advertising on our websites and in our print publications and for sponsorships at our events, our revenues could be adversely affected.
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Competition for advertisers is intense, and we may not compete successfully which could result in a material reduction in our market share, the number of our advertisers and our revenues.
We compete for potential advertisers with a number of different types of offerings and companies, including: broad-based media outlets, such as television, newspapers and business periodicals that are designed to reach a wide audience; general purpose portals and search engines; and offline and online offerings of media companies that produce content specifically for IT professionals, including International Data Group, CMP Media Inc. and Ziff Davis Media Inc. Advertisers may choose our competitors over us not only because they prefer our competitors' online events and print offerings to ours, but also because advertisers prefer to utilize other forms of advertising offered by our competitors that are not offered by us.
Although less than 5% of our revenues for the nine months ended September 30, 2006 were derived from advertisers located outside of North America, as we continue to expand internationally, we expect to compete with many of the competitors mentioned above, as well as with established media companies based in particular countries or geographical regions. Many of these foreign-based media companies will be larger than we are and will have established relationships with local advertisers.
Many of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we have. As a result, we could lose market share to our competitors in one or more of our businesses and our revenues could decline.
We depend upon Internet search engines to attract a significant portion of the users who visit our websites, and if we were listed less prominently in search result listings, our business and operating results would be harmed.
We derive a significant portion of our website traffic from users who search for IT purchasing content through Internet search engines, such as Google, MSN and Yahoo! A critical factor in attracting users to our websites is whether we are prominently displayed in response to an Internet search relating to IT content.
Search result listings are determined and displayed in accordance with a set of formulas or algorithms developed by the particular Internet search engine. The algorithms determine the order of the listing of results in response to the user's Internet search. From time to time, search engines revise these algorithms. In some instances, these modifications may cause our websites to be listed less prominently in unpaid search results, which will result in decreased traffic from search engine users to our websites. Our websites may also become listed less prominently in unpaid search results for other reasons, such as search engine technical difficulties, search engine technical changes and changes we make to our websites. In addition, search engines have deemed the practices of some companies to be inconsistent with search engine guidelines and have decided not to list their websites in search result listings at all. If we are listed less prominently or not at all in search result listings for any reason, the traffic to our websites likely will decline, which could harm our operating results. If we decide to attempt to replace this traffic, we may be required to increase our marketing expenditures, which also could harm our operating results.
We may not innovate at a successful pace, which could harm our operating results.
Our industry is rapidly adopting new technologies and standards to create and satisfy the demands of users and advertisers. It is critical that we continue to innovate by anticipating and adapting to these changes to ensure that our content-delivery platforms and services remain effective and interesting to our users, advertisers and partners. In addition, we may discover that we must make significant expenditures to achieve these goals. If we fail to accomplish these goals, we may lose users and the advertisers that seek to reach those users, which could harm our operating results.
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We may be unable to continue to build awareness of our brands, which could negatively impact our business and cause our revenues to decline.
Building and maintaining recognition of our brands is critical to attracting and expanding our online user base, attendance at our events and our offline readership. We intend to continue to build existing brands and introduce new brands that will resonate with our targeted audiences, but we may not be successful. In order to promote these brands, in response to competitive pressures or otherwise, we may find it necessary to increase our marketing budget, hire additional marketing and public relations personnel or otherwise increase our financial commitment to creating and maintaining brand loyalty among our clients. If we fail to promote and maintain our brands effectively, or incur excessive expenses attempting to promote and maintain our brands, our business and financial results may suffer.
Given the tenure and experience of our Chief Executive Officer and President, and their guiding roles in developing our business and growth strategy since our inception, our growth may be inhibited or our operations may be impaired if we were to lose the services of either of them.
Our growth and success depends to a significant extent on our ability to retain Greg Strakosch, our Chief Executive Officer, and Don Hawk, our President, both of whom were founders of our company and have developed, engineered and stewarded the growth and operation of our business since its inception. The loss of the services of either of these persons could inhibit our growth or impair our operations and cause our stock price to decline.
We may not be able to attract, hire and retain qualified personnel cost-effectively, which could impact the quality of our content and services and the effectiveness and efficiency of our management, resulting in increased costs and losses in revenues.
Our success depends on our ability to attract, hire and retain at commercially reasonable rates qualified technical, sales and marketing, customer support, financial and accounting, legal and other managerial personnel. The competition for personnel in the industries in which we operate is intense. Our personnel may terminate their employment at any time for any reason. Loss of personnel may also result in increased costs for replacement hiring and training. If we fail to attract and hire new personnel or retain and motivate our current personnel, we may not be able to operate our businesses effectively or efficiently, serve our customers properly or maintain the quality of our content and services.
In particular, our success depends in significant part on maintaining and growing an effective sales force. This dependence involves a number of challenges, including:
We may fail to identify or successfully acquire and integrate businesses, products and technologies that would otherwise enhance our product offerings to our customers and users, and as a result our revenues may decline or fail to grow.
We have acquired, and in the future may acquire or invest in, complementary businesses, products or technologies. Acquisitions and investments involve numerous risks including:
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Our inability to integrate any acquired business successfully, or the failure to achieve any expected synergies, could result in increased expenses and a reduction in expected revenues or revenue growth. As a result, our stock price could fluctuate or decline. In addition, we cannot assure you that we will be successful in expanding into complementary sectors in the future, which could harm our business, operating results and financial condition.
The costs associated with potential acquisitions or strategic partnerships could dilute your investment or adversely affect our results of operations.
In order to finance acquisitions, investments or strategic partnerships, we may use equity securities, debt, cash, or a combination of the foregoing. Any issuance of equity securities or securities convertible into equity may result in substantial dilution to our existing stockholders, reduce the market price of our common stock, or both. Any debt financing is likely to have financial and other covenants that could have an adverse impact on our business if we do not achieve our projected results. In addition, the related increases in expenses could adversely affect our results of operations.
We have limited protection of our intellectual property and could be subject to infringement claims that may result in costly litigation, the payment of damages or the need to revise the way we conduct our business.
Our success and ability to compete are dependent in part on the strength of our proprietary rights, on the goodwill associated with our trademarks, trade names and service marks, and on our ability to use U.S. and foreign laws to protect them. Our intellectual property includes, among other things, our original content, our editorial features, logos, brands, domain names, the technology that we use to deliver our products and services, the various databases of information that we maintain and make available by license, and the appearance of our websites. We claim common law protection on certain names and marks that we have used in connection with our business activities. Although we have applied for and obtained registration of many of our marks in countries outside of the United States where we do business, we have not been able to obtain registration of all of our key marks in such jurisdictions, in some cases due to prior registration or use by third parties employing similar marks. In addition to U.S. and foreign laws, we rely on confidentiality agreements with our employees and third parties and protective contractual provisions to protect our intellectual property.
Policing our intellectual property rights worldwide is a difficult task, and we may not be able to identify infringing users. We cannot be certain that third party licensees of our content will always take actions to protect the value of our proprietary rights and reputation. Intellectual property laws and our agreements may not be sufficient to prevent others from copying or otherwise obtaining and using our content or technologies. In addition, others may develop non-infringing technologies that are similar or superior to ours.
In seeking to protect our marks, copyrights, domain names and other proprietary rights, or in defending ourselves against claims of infringement that may be with or without merit, we could face costly litigation and the diversion of our management's attention and resources. These claims could result in the need to develop alternative trademarks, content or technology or to enter into costly royalty or licensing agreements, which could have a material adverse effect on our business, results of operations and financial condition.
We may not have, in all cases, conducted formal evaluations to confirm that our technology and products do not or will not infringe upon the intellectual property rights of third parties. As a result, we cannot be certain that our technology, offerings, services or online content do not or will not infringe upon
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the intellectual property rights of third parties. If we were found to have infringed on a third party's intellectual property rights, the value of our brands and our business reputation could be impaired, and our business could suffer.
Our business could be harmed if we are unable to correspond with existing and potential users by e-mail.
We use e-mail as a significant means of communicating with our existing users. The laws and regulations governing the use of e-mail for marketing purposes continue to evolve, and the growth and development of the market for commerce over the Internet may lead to the adoption of additional legislation and/or changes to existing laws. If new laws or regulations are adopted, or existing laws and regulations are interpreted and/or amended or modified, to impose additional restrictions on our ability to send e-mail to our users or potential users, we may not be able to communicate with them in a cost-effective manner.
In addition to legal restrictions on the use of e-mail, Internet service providers and others typically attempt to block the transmission of unsolicited e-mail, commonly known as "spam." If an Internet service provider or software program identifies e-mail from us as "spam," we could be placed on a restricted list that would block our e-mail to users or potential users who maintain e-mail accounts with these Internet service providers or who use these software programs. If we are unable to communicate by e-mail with our users and potential users as a result of legislation, blockage or otherwise, our business, operating results and financial condition could be harmed.
Changes in laws and standards relating to data collection and use practices and the privacy of Internet users and other individuals could impair our efforts to maintain and grow our audience and thereby decrease our advertising revenue.
We collect information from our users who register for services or respond to surveys. Subject to each user's permission (or right to decline, which we refer to as an "opt-out"), we may use this information to inform our users of products and services that may be of interest to them. We may also share this information with our advertising clients for registered members who have elected to receive additional promotional materials and have granted us permission to share their information with third parties. The U.S. federal and various state governments have adopted or proposed limitations on the collection, distribution and use of personal information of Internet users. Several foreign jurisdictions, including the European Union and Canada, have adopted legislation (including directives or regulations) that may limit our collection and use of information from Internet users in these jurisdictions. In addition, growing public concern about privacy, data security and the collection, distribution and use of personal information has led to self-regulation of these practices by the Internet advertising and direct marketing industry, and to increased federal and state regulation. Because many of the proposed laws or regulations are in their early stages, we cannot yet determine the impact these regulations may have on our business over time. Although, to date, our efforts to comply with applicable federal and state laws and regulations have not hurt our business, additional, more burdensome laws or regulations, including consumer privacy and data security laws, could be enacted or applied to us or our customers. Such laws or regulations could impair our ability to collect user information that helps us to provide more targeted advertising to our users, thereby impairing our ability to maintain and grow our audience and maximize advertising revenue from our advertising clients.
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There are a number of risks associated with expansion of our business internationally that could adversely affect our business.
We have 13 license arrangements in various countries and maintain a direct sales presence in the United Kingdom. In addition to facing many of the same challenges we face domestically, there are additional risks and costs inherent in expanding our business in international markets, including:
As a result, we may face difficulties and unforeseen expenses in expanding our business internationally and even if we attempt to do so, we may be unsuccessful, which could harm our business, operating results and financial condition.
Changes in regulations could adversely affect our business and results of operations.
It is possible that new laws and regulations or new interpretations of existing laws and regulations in the United States and elsewhere will be adopted covering issues affecting our business, including:
Increased government regulation, or the application of existing laws to online activities, could:
Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is still evolving. Therefore, we might be unable to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of our trademarks and other proprietary rights. Any impairment in the value of these important assets could cause our stock price
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to decline. We cannot be sure what effect any future material noncompliance by us with these laws and regulations or any material changes in these laws and regulations could have on our business, operating results and financial condition.
As a creator and a distributor of content over the Internet, we face potential liability for legal claims based on the nature and content of the materials that we create or distribute.
Due to the nature of content published on our online network, including content placed on our online network by third parties, and as a creator and distributor of original content and research, we face potential liability based on a variety of theories, including defamation, negligence, copyright or trademark infringement, or other legal theories based on the nature, creation or distribution of this information. Such claims may also include, among others, claims that by providing hypertext links to websites operated by third parties, we are liable for wrongful actions by those third parties through these websites. Similar claims have been brought, and sometimes successfully asserted, against online services. It is also possible that our users could make claims against us for losses incurred in reliance on information provided on our networks. In addition, we could be exposed to liability in connection with material posted to our Internet sites by third parties. For example, many of our sites offer users an opportunity to post unmoderated comments and opinions. Some of this user-generated content may infringe on third party intellectual property rights or privacy rights or may otherwise be subject to challenge under copyright laws. Such claims, whether brought in the United States or abroad, could divert management time and attention away from our business and result in significant cost to investigate and defend, regardless of the merit of these claims. In addition, if we become subject to these types of claims and are not successful in our defense, we may be forced to pay substantial damages. Our insurance may not adequately protect us against these claims. The filing of these claims may also damage our reputation as a high quality provider of unbiased, timely analysis and result in client cancellations or overall decreased demand for our products and services.
We may be liable if third parties misappropriate our users' confidential business information.
We currently retain confidential information relating to our users in secure database servers. Although we observe security measures throughout our operations, we cannot assure you that we will be able to prevent individuals from gaining unauthorized access to these database servers. Any unauthorized access to our servers, or abuse by our employees, could result in the theft of confidential user information. If confidential information is compromised, we could lose customers or become subject to liability or litigation and our reputation could be harmed, any of which could materially and adversely affect our business and results of operations.
Our business, which is dependent on centrally located communications and computer hardware systems, is vulnerable to natural disasters, telecommunication and systems failures, terrorism and other problems, which could reduce traffic on our networks or websites and result in decreased capacity for advertising space.
Our operations are dependent on our communications systems and computer hardware, all of which are located in data centers operated by Verizon, Inc. These systems could be damaged by fire, floods, earthquakes, power loss, telecommunication failures and similar events. Our insurance policies have limited coverage levels for loss or damages in these events and may not adequately compensate us for any losses that may occur. In addition, terrorist acts or acts of war may cause harm to our employees or damage our facilities, our clients, our clients' customers and vendors, or cause us to postpone or cancel, or result in dramatically reduced attendance at, our events, which could adversely impact our revenues, costs and expenses and financial position. We are predominantly uninsured for losses and interruptions to our systems or cancellations of events caused by terrorist acts and acts of war.
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Our systems may be subject to slower response times and system disruptions that could adversely affect our revenues.
Our ability to attract and maintain relationships with users, advertisers and strategic partners will depend on the satisfactory performance, reliability and availability of our Internet infrastructure. Our Internet advertising revenues relate directly to the number of advertisements and other marketing opportunities delivered to our users. System interruptions or delays that result in the unavailability of Internet sites or slower response times for users would reduce the number of advertising impressions and leads delivered. This could reduce our revenues as the attractiveness of our sites to users and advertisers decreases. Our insurance policies provide only limited coverage for service interruptions and may not adequately compensate us for any losses that may occur due to any failures or interruptions in our systems. Further, we do not have multiple site capacity for all of our services in the event of any such occurrence. We may experience service disruptions for the following reasons:
In addition, our networks and websites must accommodate a high volume of traffic and deliver frequently updated information. They have experienced in the past, and may experience in the future, slower response times or decreased traffic for a variety of reasons. There have been instances where our online networks as a whole, or our websites individually, have been inaccessible. Also, slower response times, which have occurred more frequently, can result from general Internet problems, routing and equipment problems involving third party Internet access providers, problems with third party advertising servers, increased traffic to our servers, viruses and other security breaches, many of which problems are out of our control. In addition, our users depend on Internet service providers and online service providers for access to our online networks or websites. Those providers have experienced outages and delays in the past, and may experience outages or delays in the future. Moreover, our Internet infrastructure might not be able to support continued growth of our online networks or websites. Any of these problems could result in less traffic to our networks or websites or harm the perception of our networks or websites as reliable sources of information. Less traffic on our networks and websites or periodic interruptions in service could have the effect of reducing demand for advertising on our networks or websites, thereby reducing our advertising revenues.
Our networks may be vulnerable to unauthorized persons accessing our systems, viruses and other disruptions, which could result in the theft of our proprietary information and/or disrupt our Internet operations making our websites less attractive and reliable for our users and advertisers.
Internet usage could decline if any well-publicized compromise of security occurs. "Hacking" involves efforts to gain unauthorized access to information or systems or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment. Hackers, if successful, could misappropriate proprietary information or cause disruptions in our service. We may be required to expend capital and other resources to protect our websites against hackers.
Our online networks could also be affected by computer viruses or other similar disruptive problems, and we could inadvertently transmit viruses across our networks to our users or other third parties. Any of these occurrences could harm our business or give rise to a cause of action against us. Providing unimpeded access to our online networks is critical to servicing our customers and providing superior customer service. Our inability to provide continuous access to our online networks could cause some of
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our customers to discontinue purchasing advertising programs and services and/or prevent or deter our users from accessing our networks.
Our activities and the activities of third party contractors involve the storage and transmission of proprietary and personal information. Accordingly, security breaches could expose us to a risk of loss or litigation and possible liability. We cannot assure that contractual provisions attempting to limit our liability in these areas will be successful or enforceable, or that other parties will accept such contractual provisions as part of our agreements.
We have never operated as a public company.
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC and the NASDAQ Global Market have imposed various requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
If we fail to maintain proper and effective disclosure controls and procedures and internal controls over financial reporting, our ability to produce accurate financial statements could be impaired, which could adversely affect our operating results, our ability to operate our business and investors' views of us.
Ensuring that we have adequate disclosure controls and procedures, including internal financial and accounting controls and procedures, in place to help ensure that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. We are in the process of documenting, reviewing and, if appropriate, improving our internal controls and procedures in connection with the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent auditors addressing these assessments. Both we and our independent auditors will be testing our internal controls in connection with the Section 404 requirements and, as part of that documentation and testing, identifying areas for further attention and improvement. Implementing any appropriate changes to our internal controls may entail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete and distract our officers, directors and employees from the operation of our business. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. In addition, investors' perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements may seriously affect our stock price.
Our ability to raise capital in the future may be limited.
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds to expand our sales and marketing and product development efforts or to make acquisitions. Additional financing may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable to fund the expansion of our sales and marketing and research and development efforts or take advantage of acquisition or other opportunities, which could seriously harm our business and operating results. If we incur debt, the debt holders would have rights senior to common stockholders to make claims on our assets and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering
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will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.
The impairment of a significant amount of goodwill and intangible assets on our balance sheet could result in a decrease in earnings and, as a result, our stock price could decline.
In the course of our operating history, we have acquired assets and businesses. Some of our acquisitions have resulted in the recording of a significant amount of goodwill and/or intangible assets on our financial statements. We had $42 million of goodwill and net intangible assets as of December 31, 2006. The goodwill and/or intangible assets were recorded because the fair value of the net tangible assets acquired was less than the purchase price. We may not realize the full value of the goodwill and/or intangible assets. As such, we evaluate goodwill and other intangible assets with indefinite useful lives for impairment on an annual basis or more frequently if events or circumstances suggest that the asset may be impaired. We evaluate other intangible assets subject to amortization whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. If goodwill or other intangible assets are determined to be impaired, we will write off the unrecoverable portion as a charge to our earnings. If we acquire new assets and businesses in the future, as we intend to do, we may record additional goodwill and/or intangible assets. The possible write-off of the goodwill and/or intangible assets could negatively impact our future earnings and, as a result, the market price of our common stock could decline.
We will record substantial expenses related to our issuance of stock-based compensation which may have a material negative impact on our operating results for the foreseeable future.
Effective January 1, 2006, we adopted the Statement of Financial Accounting Standards, or SFAS, No. 123(R), Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure for stock-based employee compensation. Our stock-based compensation expenses are expected to be significant in future periods, which will have an adverse impact on our operating income and net income. SFAS No. 123(R) requires the use of highly subjective assumptions, including the option's expected life and the price volatility of the underlying stock. Changes in the subjective input assumptions can materially affect the amount of our stock-based compensation expense. In addition, an increase in the competitiveness of the market for qualified employees could result in an increased use of stock-based compensation awards, which in turn would result in increased stock-based compensation expense in future periods.
Risks Related to This Offering and Ownership of Our Common Stock
No public market for our common stock currently exists, and an active, liquid and orderly market for our common stock may not develop.
Prior to this offering there has been no market for shares of our common stock. Even though we have applied to list our shares on the NASDAQ Global Market, an active trading market for our common stock may never develop or be sustained, which could depress the market price of our common stock and could affect your ability to sell your shares. The initial public offering price will be determined through conversations with us and the representatives of the underwriters and may bear no relationship to the price at which our common stock will trade following the completion of this offering.
The trading value of our common stock may be volatile and decline substantially.
The trading price of our common stock following this offering is likely to be volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In
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addition to the factors discussed in this "Risk Factors" section and elsewhere in this prospectus, these factors include:
In addition, the stock market in general, and historically the market for Internet-related companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These fluctuations may be even more pronounced in the trading market for our stock shortly following this offering. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company's securities. This litigation, if instituted against us, could result in substantial costs, divert our management's attention and resources and harm our business, operating results and financial condition.
Provisions of our certificate of incorporation, bylaws and Delaware law could deter takeover attempts.
Various provisions in our certificate of incorporation and bylaws could delay, prevent or make more difficult a merger, tender offer, proxy contest or change of control. Our stockholders might view any transaction of this type as being in their best interest since the transaction could result in a higher stock price than the then-current market price for our common stock. Among other things, our certificate of incorporation and bylaws:
In addition, with some exceptions, the Delaware General Corporation Law restricts or delays mergers and other business combinations between us and any stockholder that acquires 15% or more of our voting stock.
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Future sales of shares of our common stock by existing stockholders could depress the market price of our common stock.
If our existing stockholders sell, or indicate an intent to sell, substantial amounts of our common stock in the public market after the 180-day contractual lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline significantly and could decline below the initial public offering price. Based on shares outstanding as of December 31, 2006, upon completion of this offering, we will have outstanding approximately shares of common stock, assuming no exercise of the underwriters' over-allotment option. Morgan Stanley & Co. Incorporated and Lehman Brothers Inc. may, in their sole discretion, permit our officers, directors, employees and current stockholders to sell shares prior to the expiration of the lock-up agreements.
After the lock-up agreements pertaining to this offering expire, and based on shares outstanding as of December 31, 2006, an additional shares will be eligible for sale in the public market, of which are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements. In addition, the 31,689,291 shares subject to outstanding options under our 1999 Stock Option Plan as of December 31, 2006 and the shares reserved for future issuance under our 2007 Stock Option and Incentive Plan will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. See "Shares Eligible for Future Sale" for a more detailed description of sales that may occur in the future. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline substantially.
A limited number of stockholders will have the ability to influence the outcome of director elections and other matters requiring stockholder approval.
Immediately after this offering, our directors, executive officers and their affiliated entities will beneficially own more than percent of our outstanding common stock. These stockholders, if they act together, could exert substantial influence over matters requiring approval by our stockholders, including the election of directors, the amendment of our certificate of incorporation and bylaws and the approval of mergers or other business combination transactions. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our stockholders of an opportunity to receive a premium for their stock as part of a sale of our company and might reduce our stock price. These actions may be taken even if they are opposed by other stockholders, including those who purchase shares in this offering.
Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.
Our management will have broad discretion to use the net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply the net proceeds of this offering in ways that increase the value of your investment. We intend to use the net proceeds from this offering for working capital and other general corporate purposes, including financing the development of new offerings, sales and marketing activities and capital expenditures. We may use a portion of the net proceeds to us to expand our current business through acquisitions of other businesses, products and technologies. Until we use the net proceeds from this offering, we plan to invest them, and these investments may not yield a favorable rate of return. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
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You will experience immediate and substantial dilution.
The initial public offering price will be substantially higher than the net tangible book value of each outstanding share of common stock immediately after this offering. If you purchase common stock in this offering, you will suffer immediate and substantial dilution. If previously granted warrants or options are exercised, you will experience additional dilution. As of December 31, 2006, warrants to purchase 292,017 shares of common stock at a weighted average exercise price of $0.57 per share and options to purchase 31,689,291 shares of common stock at a weighted average exercise price of $1.24 were outstanding. For more information refer to "Dilution."
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This prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as "may," "might," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar words. These statements are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. We discuss many of the risks in greater detail under the heading "Risk Factors." Also, these forward-looking statements represent our estimates and assumptions only as of the date of this prospectus. Except as required by law, we assume no obligation to update any forward-looking statements after the date of this prospectus.
This prospectus also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified the statistical and other industry data generated by independent parties and contained in this prospectus and, accordingly, we cannot guarantee their accuracy or completeness. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
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We estimate that the net proceeds to us of the sale of the common stock that we are offering will be approximately $ million, based on an assumed initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses that we must pay. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders. A $1.00 increase (decrease) in the assumed initial public offering price of $ would increase (decrease) the net proceeds to us from this offering by $ million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds to us from this offering for working capital and other general corporate purposes, including financing the development of new offerings, sales and marketing activities, and capital expenditures. We may use a portion of the net proceeds to us to expand our current business through acquisitions of other businesses, products and technologies.
Pending any use, as described above, we plan to invest the net proceeds in investment-grade, or interest-bearing securities.
We have never declared or paid any cash dividends on our capital stock and do not have any plans to pay any cash dividends for the foreseeable future. We intend to use future earnings, if any, in the operation and expansion of our business. In addition, the terms of our credit facility restrict our ability to pay dividends, and any future indebtedness that we may incur could preclude us from paying dividends.
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The following table sets forth our capitalization as of September 30, 2006:
You should read the following table in conjunction with our consolidated financial statements and related notes and the sections entitled "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus.
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As of September 30, 2006
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Actual
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Pro Forma
As Adjusted (2) |
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(unaudited)
(in thousands, except share and per share data) |
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Cash and cash equivalents | $ | 27,469 | $ | ||||
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Bank term loan payable, current portion | $ | 3,000 | $ | 3,000 | |||
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Bank term loan payable, long term portion | $ | 7,000 | $ | 7,000 | |||
Preferred stock, $0.001 par value, 97,621,378 shares authorized and 97,491,861 (1) shares issued, actual; shares authorized, no shares issued, as adjusted: | 134,094 | | |||||
Stockholders' equity (deficit): | |||||||
Common stock, $0.001 par value: 177,378,622 shares authorized; 31,678,220 shares issued, actual; shares authorized, shares issued, as adjusted | 32 | ||||||
Additional paid-in capital | | | |||||
Warrants | 105 | ||||||
Accumulated other comprehensive loss | (73 | ) | |||||
Accumulated deficit | (66,614 | ) | |||||
|
|
||||||
Total stockholders' equity (deficit) | (66,550 | ) | |||||
|
|
||||||
Total capitalization | $ | 74,544 | $ | ||||
|
|
26
Our net tangible book value as of September 30, 2006 was $24.4 million or $0.19 per share of common stock. Net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of shares of common stock outstanding as of September 30, 2006 after giving effect to the assumed conversion of all of our convertible preferred stock.
After giving effect to the sale by us of shares of common stock in this offering at the assumed initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our adjusted net tangible book value as of September 30, 2006 would have been approximately $ million, or approximately $ per share. This amount represents an immediate increase in net tangible book value of $ per share to our existing stockholders and an immediate dilution in net tangible book value of approximately $ per share to new investors purchasing shares of common stock in this offering at the assumed initial public offering price. We determine dilution by subtracting the adjusted net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of common stock.
The following table illustrates this dilution on a per share basis:
Assumed initial public offering price per share (the midpoint of the range listed on the cover page of this prospectus) | $ | |||
Net tangible book value as of September 30, 2006 | 0.19 | |||
Increase attributable to this offering | ||||
|
||||
Adjusted net tangible book value per share after this offering | ||||
|
||||
Dilution in net tangible book value per share to new investors | $ | |||
|
A $1.00 increase (decrease) in the assumed initial public offering price of $ would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by $ per share and the dilution in pro forma net tangible book value to new investors by $ per share, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The following table summarizes, as of September 30, 2006, the differences between the number of shares purchased from us, the total consideration paid to us in cash and the average price per share that existing stockholders and new investors paid. The following table does not reflect any non-cash consideration paid to us, or deemed to be paid to us, by our existing stockholders. The calculation below is based on the assumed initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses that we must pay:
|
Shares Purchased
|
Total Consideration
|
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Average
Price Per Share |
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Number
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Percent
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Amount
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Percent
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|||||||||
Existing stockholders | 129,170,081 | % | 90,464,308 | % | $ | 1.43 | |||||||
New investors | |||||||||||||
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|
|
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|||||||||
Total | 100 | % | $ | 100 | % | $ | |||||||
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27
A $1.00 increase (decrease) in the assumed initial public offering price of $ would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and the average price paid by all stockholders by $ million, $ million, and $ , respectively, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and without deducting the estimated underwriting discounts and commissions and other expenses of the offering.
The above discussion and tables assumes no exercise of outstanding options or outstanding warrants after September 30, 2006. As of September 30, 2006, we had outstanding options to purchase a total of 31,831,452 shares of common stock at a weighted average exercise price of $1.23 per share, and outstanding warrants to purchase a total of 292,017 shares of common stock at a weighted average exercise price of $0.57 per share. To the extent any of these options or warrants are exercised, there will be further dilution to new investors.
28
SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated statements of operations data for the years ended December 31, 2003, 2004 and 2005 and consolidated balance sheet data as of December 31, 2004 and 2005 have been derived from our audited consolidated financial statements and related notes, which are included elsewhere in this prospectus. The statements of operations data for the years ended December 31, 2001 and 2002 and the balance sheet data as of December 31, 2001, 2002 and 2003 have been derived from our audited consolidated financial statements that do not appear in this prospectus. The statement of operations data for the nine months ended September 30, 2005 and 2006 and the balance sheet data as of September 30, 2006 have been derived from our unaudited consolidated financial statements and related notes, which are included elsewhere in the prospectus. In the opinion of management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments necessary for the fair presentation of our financial position and results of operations for these periods. The consolidated selected financial data set forth below should be read in conjunction with our consolidated financial statements, the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The historical results are not necessarily indicative of the results to be expected for any future period. The unaudited results for the nine months ended September 30, 2006 are not necessarily indicative of results expected for the fiscal year ending December 31, 2006 or for any other future period. We have prepared our unaudited consolidated financial statements on the same basis as our audited financial statements. In the opinion of management, our unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information.
29
|
Years Ended December 31,
|
Nine Months Ended
September 30, |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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2001
|
2002
|
2003
|
2004
|
2005
|
2005
|
2006
|
||||||||||||||||
|
|
|
|
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(unaudited)
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|||||||||||||||||
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(in thousands, except per share data)
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||||||||||||||||||||||
Consolidated Statement of Operations Data: | |||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Online | $ | 15,821 | $ | 18,618 | $ | 21,023 | $ | 31,342 | $ | 43,662 | $ | 32,545 | $ | 35,752 | |||||||||
Events | 1,356 | 5,887 | 7,845 | 9,647 | 14,595 | 9,835 | 13,962 | ||||||||||||||||
| 2,026 | 3,598 | 5,738 | 8,489 | 6,088 | 6,181 | |||||||||||||||||
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|
|
|
|
|
|
|||||||||||||||||
Total revenues | 17,177 | 26,531 | 32,466 | 46,727 | 66,746 | 48,468 | 55,895 | ||||||||||||||||
Cost of revenues: |
|
|
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|
|
|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Online (1) | 5,567 | 5,811 | 5,826 | 7,632 | 10,476 | 7,726 | 9,257 | ||||||||||||||||
Events (1) | 744 | 3,083 | 4,798 | 5,948 | 6,202 | 4,149 | 4,641 | ||||||||||||||||
Print (1) | | 1,098 | 2,318 | 3,073 | 5,322 | 3,903 | 4,215 | ||||||||||||||||
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|
|
|
|
|
|
|||||||||||||||||
Total cost of revenues | 6,311 | 9,992 | 12,942 | 16,653 | 22,000 | 15,778 | 18,113 | ||||||||||||||||
Gross profit |
|
|
10,866 |
|
|
16,539 |
|
|
19,524 |
|
|
30,074 |
|
|
44,746 |
|
|
32,690 |
|
|
37,782 |
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|
Operating expenses: |
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|
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|
|
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Selling and marketing (1) | 8,500 | 7,580 | 10,736 | 15,138 | 18,174 | 13,173 | 14,555 | ||||||||||||||||
Product development (1) | 4,440 | 3,843 | 3,728 | 4,111 | 5,756 | 4,270 | 4,740 | ||||||||||||||||
General and administrative (1) | 3,850 | 4,456 | 3,991 | 11,756 | 7,617 | 5,278 | 6,001 | ||||||||||||||||
Depreciation | 2,078 | 1,475 | 1,153 | 1,168 | 1,792 | 1,297 | 697 | ||||||||||||||||
Amortization of intangible assets | 574 | | 428 | 1,304 | 5,172 | 3,925 | 3,886 | ||||||||||||||||
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|
|
|
|
|
|
|||||||||||||||||
Total operating expenses | 19,442 | 17,354 | 20,036 | 33,477 | 38,511 | 27,943 | 29,879 | ||||||||||||||||
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|
|
|
|
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|
|||||||||||||||||
Operating income (loss) | (8,576 | ) | (815 | ) | (512 | ) | (3,403 | ) | 6,235 | 4,747 | 7,903 | ||||||||||||
Interest income (expense), net | (99 | ) | 46 | (21 | ) | 143 | (30 | ) | (91 | ) | 121 | ||||||||||||
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|
|
|
|
|
|
|||||||||||||||||
Income (loss) before income taxes (benefit) | (8,675 | ) | (769 | ) | (533 | ) | (3,260 | ) | 6,205 | 4,656 | 8,024 | ||||||||||||
Provision for (benefit from) income taxes | | | | 32 | (2,681 | ) | | 3,623 | |||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Net income (loss) | $ | (8,675 | ) | $ | (769 | ) | $ | (533 | ) | $ | (3,292 | ) | $ | 8,886 | $ | 4,656 | $ | 4,401 | |||||
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|
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|
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|
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Net loss per common share: | |||||||||||||||||||||||
Basic and diluted (2) | $ | (0.39 | ) | $ | (0.14 | ) | $ | (0.13 | ) | $ | (0.33 | ) | $ | (0.06 | ) | $ | (0.11 | ) | $ | (0.12 | ) | ||
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Weighted average common shares outstanding: |
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|
|
|
|
|
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|
|
|
|
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|
|
|
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Basic and diluted | 29,950 | 30,745 | 31,605 | 30,378 | 29,483 | 29,443 | 31,154 | ||||||||||||||||
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Unaudited: |
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Pro forma net income per common share (3) : | |||||||||||||||||||||||
Basic | $ | 0.07 | $ | 0.03 | |||||||||||||||||||
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|
||||||||||||||||||||||
Diluted | $ | 0.06 | $ | 0.03 | |||||||||||||||||||
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|
||||||||||||||||||||||
Pro forma weighted average common shares outstanding (3) : |
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|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
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Basic | 126,975 | 128,646 | |||||||||||||||||||||
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|
||||||||||||||||||||||
Diluted | 138,748 | 139,678 | |||||||||||||||||||||
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|
||||||||||||||||||||||
Other Data: | |||||||||||||||||||||||
Adjusted EBITDA (unaudited) (4) | $ | (5,719 | ) | $ | 761 | $ | 1,104 | $ | 5,352 | $ | 13,277 | $ | 9,980 | $ | 12,642 |
30
|
As of December 31,
|
As of
September 30, |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
|||||||||||||
|
|
|
|
|
|
(unaudited)
|
|||||||||||||
|
(in thousands)
|
||||||||||||||||||
Consolidated Balance Sheet Data: | |||||||||||||||||||
Cash and cash equivalents | $ | 6,507 | $ | 7,860 | $ | 7,988 | $ | 7,214 | $ | 46,879 | $ | 27,469 | |||||||
Total assets | 10,909 | 12,687 | 15,692 | 92,920 | 95,160 | 90,753 | |||||||||||||
Total liabilities | 2,311 | 4,643 | 7,131 | 39,841 | 32,879 | 23,209 | |||||||||||||
Total redeemable convertible preferred stock | 32,482 | 35,915 | 40,392 | 115,383 | 126,004 | 134,094 | |||||||||||||
Total stockholders' deficit | (23,884 | ) | (27,871 | ) | (31,831 | ) | (62,304 | ) | (63,723 | ) | (66,550 | ) |
|
|
Years Ended December 31,
|
Nine Months Ended
September 30, |
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2002
|
2003
|
2004
|
2005
|
2005
|
2006
|
|||||||||||||||
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|
|
|
|
|
|
(unaudited)
|
||||||||||||||||
|
|
(in thousands)
|
|||||||||||||||||||||
(1) | Amounts include stock-based compensation expense as follows: | ||||||||||||||||||||||
Cost of online revenue | $ | | $ | | $ | | $ | 78 | $ | | $ | | $ | 14 | |||||||||
Cost of events revenue | | | | 236 | | | 5 | ||||||||||||||||
Cost of print revenue | | | | | | | 2 | ||||||||||||||||
Selling and marketing | | | | 1,025 | | | 69 | ||||||||||||||||
Product development | | | | 7 | | | 16 | ||||||||||||||||
General and administrative | 205 | 101 | 35 | 4,937 | 78 | 11 | 50 | ||||||||||||||||
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|
|
|
|
|
|
|||||||||||||||||
Total | $ | 205 | $ | 101 | $ | 35 | $ | 6,283 | (5) | $ | 78 | $ | 11 | $ | 156 | ||||||||
|
|
|
|
|
|
|
|
Years Ended December 31,
|
Nine Months Ended
September 30, |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2001
|
2002
|
2003
|
2004
|
2005
|
2005
|
2006
|
||||||||||||||
|
(in thousands)
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) | $ | (8,675 | ) | $ | (769 | ) | $ | (533 | ) | $ | (3,292 | ) | $ | 8,886 | $ | 4,656 | $ | 4,401 | |||
Interest income (expense), net | (99 | ) | 46 | (21 | ) | 143 | (30 | ) | (91 | ) | 121 | ||||||||||
Provision for (benefit from) income taxes | | | | 32 | (2,681 | ) | | 3,623 | |||||||||||||
Depreciation | 2,078 | 1,475 | 1,153 | 1,168 | 1,792 | 1,297 | 697 | ||||||||||||||
Amortization of intangible assets | 574 | | 428 | 1,304 | 5,172 | 3,925 | 3,886 | ||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
EBITDA | (5,924 | ) | 660 | 1,069 | (931 | ) | 13,199 | 9,969 | 12,486 | ||||||||||||
Stock-based compensation | 205 | 101 | 35 | 6,283 | (5) | 78 | 11 | 156 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
Adjusted EBITDA | $ | (5,719 | ) | $ | 761 | $ | 1,104 | $ | 5,352 | $ | 13,277 | $ | 9,980 | $ | 12,642 | ||||||
|
|
|
|
|
|
|
Adjusted EBITDA is a metric used by management to measure operating performance. EBITDA represents net income (loss) before net interest expense, income tax expense, depreciation and amortization. Adjusted EBITDA represents EBITDA less stock-based compensation expense. We present Adjusted EBITDA as a supplemental performance measure because we believe it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses), the age and book depreciation of fixed assets (affecting relative depreciation expense), and the impact of non-cash stock-based compensation expense costs. Because Adjusted EBITDA facilitates internal comparisons of operating performance on a more consistent basis, we also use Adjusted EBITDA in measuring our performance relative to that of our competitors. We also use Adjusted EBITDA in connection with our compensation of our executive officers. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our profitability or liquidity.
31
We understand that although Adjusted EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
32
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes and the other financial information appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly under the heading "Risk Factors."
Overview
Background
We are a leading provider of specialized online content that brings together buyers and sellers of corporate IT products. We sell customized marketing programs that enable IT vendors to reach corporate IT decision makers who are actively researching specific IT purchases.
Our integrated content platform consists of a network of 35 websites that we complement with targeted in-person events and three specialized IT magazines. Throughout all stages of the purchase decision process, these content offerings meet IT professionals' needs for expert, peer and IT vendor information, and provide a platform on which IT vendors can launch targeted marketing campaigns that generate measurable, high ROI. Based upon the logical clustering of our users' respective job responsibilities and the marketing focus of the products that our customers are advertising, we currently categorize our content offerings across nine distinct media groups: Storage; Security; Networking; Windows and Distributed Computing; Data Center; CIO and IT Management; Enterprise Applications; Application Development; and Channel.
As IT professionals have become increasingly specialized, they have come to rely on our sector-specific websites for purchasing decision support. Our content enables IT professionals to navigate the complex and rapidly changing IT landscape where purchasing decisions can have significant financial and operational consequences. We employ over 100 full-time editors who create more than 20,000 pieces of original content per year tailored for specific audiences. We complement this content with targeted information from our network of more than 225 outside industry experts, member-generated content and extensive vendor-supplied information. We have a large and growing base of registered members, which totaled over 4.5 million as of December 31, 2006.
The targeted nature of our user base enables IT vendors to reach a specialized audience efficiently because our content is highly segmented and aligned with the IT vendors' specific products. Since our founding in 1999, we have developed a broad customer base that now comprises more than 1,000 active advertisers, including Cisco, Dell, EMC, Hewlett Packard, IBM, Intel, Microsoft, Oracle, Research In Motion, SAP and Symantec. We delivered more than 3,400 advertising campaigns in 2006, and our average quarterly advertising renewal rate for our 100 largest customers was 92% in 2006. We also supplied more than 1.1 million sales leads to IT vendors in 2006.
We generated revenues of $67 million in 2005, up from $47 million in 2004. Over the same period, we grew our adjusted EBITDA from $5 million to $13 million.
Sources of Revenues
We sell advertising programs to IT vendors targeting a specific audience within a particular IT sector or sub-sector. We maintain multiple points of contact with our customers to provide support throughout their organizations and the sales cycle. As a result, our customers often run multiple advertising programs with us in order to reach discrete portions of our targeted audience. There are multiple factors that can impact our customers' advertising objectives and spending with us, including but not limited to, product
33
launches, increases or decreases to their advertising budgets, the timing of key industry marketing events, responses to competitor activities and efforts to address specific marketing objectives such as creating brand awareness or generating sales leads. Our services are generally delivered under short-term contracts that run for the length of a given advertising program, typically less than 90 days. For the year ended December 31, 2006, we had one customer representing 11% of our revenues, with no other customers in 2006 representing 10% or more of our revenues. In 2004 and 2005, no customer represented 10% or more of our revenues.
We generate substantially all of our revenues from the sale of targeted advertising campaigns that we deliver via our network of websites, events and print publications.
Online. The majority of our revenue is derived from the delivery of our online offerings from our nine distinct media groups. Online revenue represented 67%, 65% and 64% of total revenues for the years ended December 31, 2004 and 2005 and for the nine months ended September 30, 2006, respectively. We expect the majority of our revenues to be derived through the delivery of online offerings for the foreseeable future. As a result of our customers' advertising objectives and preferences, the specific allocation of online advertising offerings sold and delivered by us, on a period by period basis, can fluctuate.
Through our 35 websites we sell a variety of online media offerings to connect IT vendors to IT professionals. Our lead generation offerings allow IT vendors to capture qualified sales leads from the distribution and promotion of content to our audience of IT professionals. Our branding offerings provide IT vendors exposure to targeted audiences of IT professionals actively researching information related to their products and services.
Our branding offerings include banners and e-newsletters. Banner advertising can be purchased on specific websites within our network. We also offer the ability to advertise in approximately 70 e-newsletters focused on key site sub-topics. These offerings give IT vendors the ability to increase their brand awareness to highly specialized IT sectors.
Our lead generation offerings include the following:
34
Events. Events revenue represented 21%, 22% and 25% of total revenues for the years ended December 31, 2004 and 2005 and the nine months ended September 30, 2006, respectively. Most of our media groups operate revenue generating events. The majority of our events are free to IT professionals and are sponsored by IT vendors. Attendees are pre-screened based on event-specific criteria such as sector-specific budget size, company size, or job title. We offer three types of events: multi-day conferences, single-day seminars and custom events. Multi-day conferences provide independent expert content for our attendees and allow vendors to purchase exhibit space and other sponsorship offerings that enable interaction with the attendees. We also hold single-day seminars on various topics in major cities. These seminars provide independent content on key sub-topics in the sectors we serve, are free to qualified attendees, and offer multiple vendors the ability to interact with specific, targeted audiences actively focused on buying decisions. Our custom events differ from our conferences and seminars in that they are exclusively sponsored by a single IT vendor, and the content is driven primarily by the sole sponsor.
Print. Print revenue represented 12%, 13% and 11% of total revenues for the years ended December 31, 2004 and 2005 and nine months ended September 30, 2006, respectively. We publish monthly three controlled-circulation magazines that are free to subscribers and generate revenue solely based on advertising fees. The highly targeted magazines we publish are: Storage magazine (Storage Media Group), which we began publishing in 2002; Information Security magazine (Security Media Group), which we began publishing in 2003; and CIO Decisions magazine (CIO Media Group), which we began publishing in 2005. Our three magazines provide readers with strategic guidance on important enterprise-level technology decisions. We do not expect print revenue as a percentage of total revenue to increase in the foreseeable future.
Cost of Revenues, Operating Expenses and Other
Expenses consist of cost of revenues, selling and marketing, product development, general and administrative, depreciation, and amortization expenses. Personnel-related costs are a significant component of most of these expense categories. We grew from 233 employees at December 31, 2003 to 454 employees at September 30, 2006.
Cost of Online Revenue. Cost of online revenue consists primarily of: salaries and related personnel costs; member acquisition expenses (primarily keyword purchases from leading Internet search sites); freelance writer expenses; website hosting costs; vendor expenses associated with the delivery of webcast, podcast and list rental offerings; stock-based compensation expenses; and related overhead.
Cost of Events Revenue. Cost of events revenue consists primarily of: facility expenses, including food and beverages for the event attendees; salaries and related personnel costs; event speaker expenses; stock-based compensation expenses; and related overhead.
35
Cost of Print Revenue. Cost of print revenue consists primarily of: printing and graphics expenses; mailing costs; salaries and related personnel costs; freelance writer expenses; subscriber acquisition expenses (primarily telemarketing); stock-based compensation expenses; and related overhead.
Selling and Marketing. Selling and marketing expense consists primarily of: salaries and related personnel costs; sales commissions; travel, lodging and other out-of-pocket expenses; stock-based compensation expenses; and related overhead. Sales commissions are recorded as expense when earned by the employee.
Product Development. Product development includes the creation and maintenance of our network of websites, advertiser offerings and technical infrastructure. Product development expense consists primarily of salaries and related personnel costs; stock-based compensation expenses; and related overhead.
General and Administrative. General and administrative expense consists primarily of: salaries and related personnel costs; facilities expenses; accounting, legal and other professional fees; stock-based compensation expenses; and related overhead. General and administrative expense may continue to increase as a percentage of total revenue for the foreseeable future as we invest in infrastructure to support continued growth and incur additional expenses related to being a publicly traded company, including increased audit and legal fees, costs of compliance with securities and other regulations, investor relations expense, and higher insurance premiums.
Depreciation. Depreciation expense consists of the depreciation of our property and equipment. Depreciation of property and equipment is calculated using the straight-line method over their estimated useful lives ranging from three to five years.
Amortization of Intangible Assets. Amortization of intangible assets expense consists of the amortization of intangible assets recorded in connection with our acquisitions. Separable intangible assets that are not deemed to have an indefinite life are amortized over their useful lives using the straight-line method over periods generally ranging from one to five years.
Interest Income (Expense), Net. Interest income (expense) net consists primarily of interest income earned on cash and cash equivalent balances less interest expense incurred on bank term loan balances. We historically have invested our cash in money market accounts, commercial paper corporate debt securities and money market auction rate securities.
Stock-Based Compensation Expense
Prior to January 1, 2006, we accounted for stock option grants in accordance with Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees , and complied with the disclosure provisions of Statement of Financial Accounting Standards, or SFAS, No. 123, Accounting for Stock-Based Compensation , as amended by SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure . Under APB 25, deferred stock-based compensation expense is recorded for the intrinsic value of options (the difference between the deemed fair value of our common stock and the option exercise price) at the grant date and is amortized ratably over the option's vesting period. In May 2004, we purchased certain employee stock options for which we recorded stock-based compensation expense. We also accounted for non-employee option grants on a fair-value basis using the Black-Scholes model and recognized this expense over the applicable vesting period.
On January 1, 2006, we adopted the requirements of SFAS No. 123(R), Share Based Payment . SFAS No. 123(R) requires us to measure the cost of employee services received in exchange for an award of equity instruments, based on the fair value of the award on the date of grant, and to recognize the cost over the period during which the employee is required to provide the services in exchange for the award. We adopted SFAS 123(R) using the prospective method, which requires us to apply its provisions only to stock-based awards to employees granted on or after January 1, 2006. For the nine months ended September 30, 2006, we recorded expense of $156,000 in connection with share-based payment awards. Unrecognized
36
stock-based compensation expense for non-vested options of $15.4 million is expected to be recognized using the straight-line method over a weighted-average period of 3.97 years. The adoption of SFAS No. 123(R) will have no effect on our cash flow for any period.
Acquisitions
2020software.com
On May 3, 2006, we acquired certain assets associated with 2020software.com from 20/20 Software, Inc., which was a privately-held company based in Los Angeles, California, for a purchase price of $15.0 million in cash. 2020software.com is a website business focused on providing detailed feature-comparison information and access to trial software for businesses seeking trial versions of accounting software, CRM software, or other business analytics software. In connection with this acquisition, we recorded $9.4 million of goodwill and $5.2 million of intangible assets related to customer relationships, customer order backlog and a non-compete agreement, with estimated useful lives ranging from one to five years.
Bitpipe, Inc.
On December 3, 2004, we acquired Bitpipe, Inc., or Bitpipe, which was a privately-held company based in Boston, Massachusetts, for a purchase price of $40.5 million in cash. Bitpipe was a leading online source of in-depth, vendor-supplied content including IT white papers, product literature and case studies. In connection with this acquisition, we recorded $29.4 million of goodwill and $9.2 million of intangible assets related to customer base, user information database, trade name, customer order backlog and proprietary technology, with estimated useful lives ranging from 13 months to five years.
The Middleware Company
On November 16, 2004, we acquired The Middleware Company from Veritas Operating Corporation for a purchase price of $1.1 million in cash. The Middleware Company operated two websites and an event serving the enterprise application developer market. In connection with this acquisition, we recorded $1.1 million of intangible assets related to a proprietary database, advertiser list and trade name, with estimated useful lives ranging from two to five years.
The results of operations for these acquisitions are included in our consolidated financial statements beginning on the closing date of the acquisition.
Application of Critical Accounting Policies and Use of Estimates
The discussion of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue, long-lived assets, the allowance for doubtful accounts, stock-based compensation, and income taxes. We based our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable. In many cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Our actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments used in the preparation of our consolidated financial statements. See the notes to our financial statements included elsewhere in this prospectus for information about these critical accounting policies as well as a description of our other accounting policies.
37
Revenue Recognition
We generate substantially all of our revenue from the sale of targeted advertising campaigns that we deliver via our network of websites, events and print publications. We recognize this revenue in accordance with Staff Accounting Bulletin, or SAB, No. 104, Revenue Recognition , and Financial Accounting Standards Board's, or FASB, Emerging Issues Task Force, or EITF, Issue No. 00-21, Revenue Arrangement With Multiple Deliverables . In all cases, we recognize revenue only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectibility of the resulting receivable is reasonably assured.
Online. We recognize revenue from our specific online media offerings as follows:
With certain online offerings, we will guarantee a minimum number of qualified sales leads to be delivered over the course of the advertising campaign. If this minimum number of qualified sales leads is not met by the end of the advertising program, we extend the program and recognize the revenue ratably over the extended period. As of September 30, 2006, substantially all of the online offerings that guarantee a minimum number of sales leads have been delivered within the original contractual term. Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue.
While each of our online media offerings can be sold separately, most of our online media sales involve multiple online offerings. At inception of the arrangement, we evaluate the deliverables to determine whether they represent separate units of accounting under EITF Issue No. 00-21. Deliverables are deemed to be separate units of accounting if all of the following criteria are met: the delivered item has value to the customer on a standalone basis; there is objective and reliable evidence of the fair value of the item(s); and delivery or performance of the item(s) is considered probable and substantially in our control. We allocate revenue to each unit of accounting in a transaction based upon its fair value as determined by vendor objective evidence. Vendor objective evidence of fair value for all elements of an arrangement is based upon the normal pricing and discounting practices for those online media offerings when sold to other similar customers. If vendor objective evidence of fair value has not been established for all items under the arrangement, no allocation can be made, and we recognize revenue on all items over the term of the arrangement.
Events. We recognize event sponsorship revenue upon completion of the event in the period the event occurs. The majority of our events are free to qualified attendees, however certain events are based on a paid attendee model. We recognize revenue for paid attendee events upon completion of the event and receipt of payment from the attendee. Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue.
38
Print. We recognize print revenue at the time the applicable magazine is distributed. Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue.
Long-Lived Assets
Our long-lived assets consist of property and equipment, goodwill and other intangible assets. Goodwill and other intangible assets have arisen principally from our acquisitions. The amount assigned to intangible assets is subjective and based on our estimates of the future benefit of the intangible assets using accepted valuation techniques, such as discounted cash flow and replacement cost models. Our long-lived assets, other than goodwill, are amortized over their estimated useful lives, which we determined based on the consideration of several factors including the period of time the asset is expected to remain in service. We evaluate the carrying value and remaining useful lives of long-lived assets, other than goodwill, whenever indicators of impairment are present. We evaluate the carrying value of goodwill annually, and whenever indicators of impairment are present. We use a discounted cash flow approach to determine the fair value of goodwill.
Allowance for Doubtful Accounts
We offset gross trade accounts receivable with an allowance for doubtful accounts. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We review our allowance for doubtful accounts on a regular basis, and all past due balances are reviewed individually for collectibility. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Provisions for allowance for doubtful accounts are recorded in general and administrative expense. If our historical collection experience does not reflect our future ability to collect outstanding accounts receivables, our future provision for doubtful accounts could be materially affected. To date, we have not incurred any write-offs of accounts receivable significantly different than the amounts reserved. As of September 30, 2006, the allowance for doubtful accounts was $603,000.
Stock-Based Compensation
Through December 31, 2005, we accounted for our stock-based awards to employees using the intrinsic value method prescribed in APB Opinion No. 25 and related interpretations. Under the intrinsic value method, compensation expense is measured on the date of the grant as the difference between the deemed fair value of our common stock and the exercise or purchase price multiplied by the number of stock options or restricted stock awards granted.
Through December 31, 2005, we accounted for stock-based compensation expense for non-employees using the fair value method prescribed by Statement of Financial Accounting Standards, or SFAS, No. 123 and the Black-Scholes option-pricing model, and recorded the fair value of non-employee stock options as an expense over the vesting term of the option.
In December 2004, FASB issued SFAS No. 123(R), which requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. We adopted SFAS No. 123(R) effective January 1, 2006. SFAS No. 123(R) requires nonpublic companies that used the minimum value method under SFAS No. 123 for either recognition or pro forma disclosures to apply SFAS No. 123(R) using the prospective-transition method. As such, we will continue to apply APB Opinion No. 25 in future periods to equity awards outstanding at the date of adoption of SFAS No. 123(R) that were measured using the minimum value method. In accordance with SFAS No. 123(R), we will recognize the compensation cost of employee stock-based awards in the statement of operations using the straight line method over the vesting period of the award. Effective with the adoption of SFAS No. 123(R), we have elected to use the Black-Scholes option pricing model to determine the fair value of stock options granted.
As there has been no public market for our common stock prior to this offering, we have determined the volatility for options granted in 2006 based on an analysis of reported data for a peer group of
39
companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using an average of the historical volatility measures of this peer group of companies for a period equal to the expected life of the option. The expected volatility for options granted during the nine months ended September 30, 2006 ranged from 58% to 63%. The expected life of options has been determined utilizing the "simplified" method as prescribed by the SEC's Staff Accounting Bulletin No. 107, Share-Based Payment. The expected life of options granted during the nine months ended September 30, 2006 was 6.25 years. For the nine months ended September 30, 2006, the weighted-average risk free interest rate used ranged from 4.68% to 5.05%. The risk-free interest rate is based on a zero coupon United States treasury instrument whose term is consistent with the expected life of the stock options. We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore, the expected dividend yield is assumed to be zero. In addition, SFAS No. 123(R) requires companies to utilize an estimated forfeiture rate when calculating the expense for the period, whereas SFAS No. 123 permitted companies to record forfeitures based on actual forfeitures, which was our historical policy under SFAS No. 123. As a result, we applied an estimated forfeiture rate, based on our historical forfeiture experience during the previous six years, of 8.40% in the nine months ended September 30, 2006 in determining the expense recorded in our consolidated statement of operations.
For the nine months ended September 30, 2006, we recorded expense of $156,000 in connection with stock-based awards. Unrecognized stock-based compensation expense of non-vested stock options of $15.4 million is expected to be recognized using the straight line method over a weighted-average period of 3.97 years. The adoption of SFAS No. 123(R) will have no effect on cash flow for any period.
We have historically granted stock options at exercise prices no less than the fair market value as determined by our board of directors, with input from management. Our board exercised judgment in determining the estimated fair value of our common stock on the date of grant based on a number of objective and subjective factors, including our operating and financial performance, external market conditions affecting our industry sector, an analysis of publicly-traded peer companies, the prices at which we sold shares of convertible preferred stock, the superior rights and preferences of securities senior to our common stock at the time of each grant and, the likelihood of achieving a liquidity event such as an initial public offering or sale of our company. On April 18, 2006, July 25, 2006, and September 27, 2006, our board granted stock options to purchase an aggregate of 668,000, 36,000 and 16.1 million shares of common stock, respectively, with an exercise price of $1.84 per share. On October 30, 2006, our board granted an additional option to purchase 200,000 shares of common stock with an exercise price of $1.95 per share. At the time of these grants, the exercise price was determined by our board with input by management based on the various objective and subjective factors mentioned above. In addition, for certain stock option grants in 2006, we engaged an unrelated third party valuation specialist to assist management in preparing contemporaneous valuation reports to document the fair value of our common stock for income tax considerations.
In connection with the preparation of our financial statements for the nine months ended September 30, 2006 and in preparing for the initial public offering of our common stock, we reexamined the valuations of our common stock during 2006 . In connection with that reexamination, we engaged a valuation specialist to assist us in preparing retrospective valuation reports of the fair value of our common stock for accounting purposes as of July 31, 2006, September 30, 2006 and October 27, 2006. We believe that the valuation methodologies used in the retrospective valuations are consistent with the Practice Aid of the American Institute of Certified Public Accountants entitled Valuation of Privately Held Company Equity Securities Issued as Compensation . In our retrospective valuations, we determined that the fair value of our common stock on July 31, 2006, September 30, 2006 and October 27, 2006 was $1.73, $1.86 and $1.95 per share, respectively. We did not prepare a retrospective valuation for our April 18, 2006 grants.
In each of our retrospective valuations, we used a probability-weighted combination of the guideline public company method and the discounted future cash flow method to estimate the aggregate enterprise value of our company at the applicable valuation date. The guideline public company method estimates the fair market value of a company by applying to that company market multiples, in this case revenue and
40
EBITDA multiples, of publicly traded firms in similar lines of business. The companies used for comparison under the guideline public company method were selected based on a number of factors, including but not limited to, the similarity of their industry, business model, financial risk and other factors to those of ours. We have applied equal weighting to the valuations derived from using the revenue and EBITDA multiples in determining the guideline public company fair market value estimate. The discounted future cash flow method involves applying appropriate risk-adjusted discount rates of approximately 17% to estimated debt-free cash flows, based on forecasted revenues and costs. The projections used in connection with this valuation were based on our expected operating performance over the forecast period. There is inherent uncertainty in these estimates; if different discount rates or assumptions had been used, the valuation would have been different.
In order to allocate the enterprise value determined under the guideline public company method and the discounted future cash flow method to our common stock, we used the probability-weighted expected return method. Under the probability-weighted expected return method, the fair market value of the common stock is estimated based upon an analysis of future values for our company assuming various future outcomes, the timing of which is based on the plans of our board and management. Share value is based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us as well as the rights of each share class. The fair market value of our common stock was estimated using a probability-weighted analysis of the present value of the returns afforded to our shareholders under each of three possible future scenarios. Two of the scenarios assume a shareholder exit, either through an initial public offering, or IPO, or a sale of our company. The third scenario assumes operations continue as a private company and no exit transaction occurs. For the IPO scenario, the estimated future and present values for our common stock was calculated using assumptions including: the expected pre-money valuation (pre-IPO) based on the guideline public company method discussed above; the expected dates of the future expected IPO; and an appropriate risk-adjusted discount rate. For the sale scenario, the estimated future and present values for our common stock were calculated using assumptions including: an equal weighting of the guideline public company method and the discounted cash flow method discussed above; the expected dates of the future expected sale and an appropriate risk-adjusted discount rate. For the private company with no exit scenario, we used an equal weighting of the guideline public company method and the discounted cash flow method based on present day assumptions. Finally, the present value calculated for our common stock under each scenario was probability weighted based on our estimate of the relative occurrence of each scenario. We have increased the probability associated with the occurrence of an IPO from 40% in July 2006 to 45% in September 2006 to 50% in October 2006. We have decreased the probability associated with the occurrence of a sale from 40% in July 2006 to 35% in September 2006 to 30% in October 2006. The probability of continuing operations as a private company remained constant at 20% in each valuation. The estimated fair market value of our common stock at each valuation date is equal to the sum of the probability weighted present values for each scenario.
We have incorporated the fair values determined in the retrospective valuations into the Black-Scholes option pricing model when calculating the compensation expense to be recognized for the stock options granted in July, September and October of 2006. In determining the fair value of the April 2006 grants using the Black-Scholes option pricing model, we have assumed that the fair market value of the common stock was equal to the exercise price of the stock options.
41
Internal Use Software and Website Development Costs
We account for internal-use software and website development costs in accordance with the guidance set forth in Statement of Position, or SOP, 98-1, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use, and EITF Issue No. 00-2, Accounting for Website Development Costs . We capitalize costs of materials, consultants and compensation and related expenses of employees who devote time to the development of internal-use software and website applications and infrastructure involving developing software to operate our websites. However, we expense as incurred website development costs for new features and functionalities since it is not probable that they will result in additional functionality until they are both developed and tested with confirmation that they are more effective than the current set of features and functionalities on our websites. Our judgment is required in determining the point at which various projects enter the states at which costs may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized, which is generally three years. To the extent that we change the manner in which we develop and test new features and functionalities related to our websites, assess the ongoing value of capitalized assets or determine the estimated useful lives over which the costs are amortized, the amount of website development costs we capitalize and amortize in future periods would be impacted. We capitalized internal-use software and website development costs of $404,000, $495,000 and $452,000 for the years ended December 31, 2004 and 2005 and the nine months ended September 30, 2006, respectively.
Income Taxes
We are subject to income taxes in both the United States and foreign jurisdictions, and we use estimates in determining our provision for income taxes. We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes , which is the asset and liability method for accounting and reporting for income taxes. Under SFAS No. 109, deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates.
Our deferred tax assets are comprised primarily of net operating loss, or NOL, carryforwards. As of December 31, 2005, we had federal and state NOL carryforwards of approximately $8.3 million and $6.1 million, respectively, which may be used to offset future taxable income. The NOL carryforwards expire at various times through 2024, and are subject to review and possible adjustment by the Internal Revenue Service. The Internal Revenue Code contains provisions that limit the NOL and tax credit carryforwards available to be used in any given year in the event of certain changes in the ownership interests of significant stockholders. The federal NOL carryforwards of $8.3 million available at December 31, 2005 were acquired from Bitpipe and are subject to limitations on their use in future years.
As of December 31, 2004, a full valuation reserve against the deferred tax asset was deemed appropriate because we did not have sufficient positive evidence to ascertain that it was more likely than not that we would be able to realize our deferred tax assets. In the fourth quarter of 2005, we reversed the valuation allowance because sufficient positive evidence existed to ascertain that it was more likely than not that we would be able to realize our deferred tax assets. This conclusion was based on our operating performance over the past few years and our operating plans for the foreseeable future. In the event that we are unable to generate taxable earnings in the future and determine that it is more likely than not that we can not realize our deferred tax assets, an adjustment to the valuation allowance would be made which may decrease income in the period that such determination is made, and may increase income in subsequent periods.
42
Results of Operations
The following table sets forth our results of operations for the periods indicated:
|
Years Ended December 31,
|
Nine Months Ended
September 30, |
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
2005
|
2005
|
2006
|
||||||||||||||||||||||
|
|
|
|
|
|
|
(unaudited)
|
||||||||||||||||||||
|
(in thousands)
|
||||||||||||||||||||||||||
Consolidated Statement of Operations Data: | |||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||
Online | $ | 21,023 | 65 | % | $ | 31,342 | 67 | % | $ | 43,662 | 65 | % | $ | 32,545 | 67 | % | $ | 35,752 | 64 | % | |||||||
Events | 7,845 | 24 | 9,647 | 21 | 14,595 | 22 | 9,835 | 20 | 13,962 | 25 | |||||||||||||||||
3,598 | 11 | 5,738 | 12 | 8,489 | 13 | 6,088 | 13 | 6,181 | 11 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Total revenues | 32,466 | 100 | 46,727 | 100 | 66,746 | 100 | 48,468 | 100 | 55,895 | 100 | |||||||||||||||||
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online | 5,826 | 18 | 7,632 | 16 | 10,476 | 16 | 7,726 | 16 | 9,257 | 17 | |||||||||||||||||
Events | 4,798 | 15 | 5,948 | 13 | 6,202 | 9 | 4,149 | 9 | 4,641 | 8 | |||||||||||||||||
2,318 | 7 | 3,073 | 7 | 5,322 | 8 | 3,903 | 8 | 4,215 | 8 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Total cost of revenues | 12,942 | 40 | 16,653 | 36 | 22,000 | 33 | 15,778 | 33 | 18,113 | 32 | |||||||||||||||||
Gross profit |
|
|
19,524 |
|
60 |
|
|
30,074 |
|
64 |
|
|
44,746 |
|
67 |
|
|
32,690 |
|
67 |
|
|
37,782 |
|
68 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing | 10,736 | 33 | 15,138 | 32 | 18,174 | 27 | 13,173 | 27 | 14,555 | 26 | |||||||||||||||||
Product development | 3,728 | 11 | 4,111 | 9 | 5,756 | 9 | 4,270 | 9 | 4,740 | 8 | |||||||||||||||||
General and administrative | 3,991 | 12 | 11,756 | 25 | 7,617 | 11 | 5,278 | 11 | 6,001 | 11 | |||||||||||||||||
Depreciation | 1,153 | 4 | 1,168 | 2 | 1,792 | 3 | 1,297 | 3 | 697 | 1 | |||||||||||||||||
Amortization of intangible assets | 428 | 1 | 1,304 | 3 | 5,172 | 8 | 3,925 | 8 | 3,886 | 7 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Total operating expenses | 20,036 | 62 | 33,477 | 72 | 38,511 | 58 | 27,943 | 58 | 29,879 | 53 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Operating income (loss) |
|
|
(512 |
) |
(2 |
) |
|
(3,403 |
) |
(7 |
) |
|
6,235 |
|
9 |
|
|
4,747 |
|
10 |
|
|
7,903 |
|
14 |
|
|
Interest income (expense), net |
|
|
(21 |
) |
* |
|
|
143 |
|
* |
|
|
(30 |
) |
* |
|
|
(91 |
) |
* |
|
|
121 |
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Income (loss) before income taxes (benefit) |
|
|
(533 |
) |
(2 |
) |
|
(3,260 |
) |
(7 |
) |
|
6,205 |
|
9 |
|
|
4,656 |
|
10 |
|
|
8,024 |
|
14 |
|
|
Provision for (benefit from) income taxes |
|
|
|
|
|
|
|
32 |
|
* |
|
|
(2,681 |
) |
(4 |
) |
|
|
|
|
|
|
3,623 |
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Net income (loss) |
|
$ |
(533 |
) |
(2 |
)% |
$ |
(3,292 |
) |
(7 |
)% |
$ |
8,886 |
|
13 |
% |
$ |
4,656 |
|
10 |
% |
$ |
4,401 |
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
43
Comparison of Nine Months Ended September 30, 2005 and 2006
Revenues
|
Nine Months Ended September 30,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
2006
|
Increase
|
Percent
Change |
|||||||||
|
(unaudited)
(in thousands) |
||||||||||||
Revenues: | |||||||||||||
Online | $ | 32,545 | $ | 35,752 | $ | 3,207 | 10 | % | |||||
Events | 9,835 | 13,962 | 4,127 | 42 | |||||||||
6,088 | 6,181 | 93 | 2 | ||||||||||
|
|
|
|||||||||||
Total revenues | $ | 48,468 | $ | 55,895 | $ | 7,427 | 15 | % | |||||
|
|
|
Online. The increase in online revenue was attributable to a $1.8 million increase in online revenue from branding offerings due primarily to an increase in banner sales volume. The increase also reflects a $1.6 million increase in revenue from lead generation offerings due primarily to an increase in software package comparison sales volume.
Events. The increase in events revenue was attributable to a $2.8 million increase in seminar series revenue and a $2.0 million increase in custom event revenue. We introduced both custom event and seminar series offerings in 2005 and, therefore, more events associated with these revenue streams were produced in 2006 as compared to 2005. The increase was partially offset by a $698,000 decrease in multi-day conference revenue due to a reduction in the number of multi-day conferences produced in the first nine months of 2005 when compared to the same period in 2006.
Print. Aggregate print revenue remained flat with the prior period, as advertisers continued to shift advertising budgets towards online offerings.
Cost of Revenues and Gross Profit
|
Nine Months Ended September 30,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
2006
|
Increase
|
Percent
Change |
|||||||||
|
(unaudited)
(in thousands) |
||||||||||||
Cost of revenues: | |||||||||||||
Online | $ | 7,726 | $ | 9,257 | $ | 1,531 | 20 | % | |||||
Events | 4,149 | 4,641 | 492 | 12 | |||||||||
3,903 | 4,215 | 312 | 8 | ||||||||||
|
|
|
|||||||||||
Total cost of revenues | $ | 15,778 | $ | 18,113 | $ | 2,335 | 15 | % | |||||
|
|
|
|||||||||||
Gross profit |
|
$ |
32,690 |
|
$ |
37,782 |
|
$ |
5,092 |
|
16 |
% |
|
Gross profit percentage | 67 | % | 68 | % |
Cost of Online Revenue. The increase in cost of online revenue was attributable to an $841,000 increase in member acquisition expenses primarily related to keyword purchases for 2020software.com, which we acquired in May 2006. The increase also reflects a $586,000 increase in salaries and benefits primarily related to an increase in average headcount of 17 employees in our online editorial and operations organizations, as well as increases in employee compensation. We increased headcount to support the increase in online revenue volume and to provide additional editorial content.
44
Cost of Events Revenue. The increase in cost of events revenue was primarily attributable to a $630,000 increase in custom event and seminar series expenses. We introduced both custom event and seminar series offerings in the second half of 2005, and therefore more events associated with these revenue streams were produced in 2006 when compared to the same period in 2005.
Cost of Print Revenue. The increase in cost of print revenue was attributable to three additional months of publishing CIO Decisions magazine during the first nine months of 2006 compared to the same period in 2005.
Gross Profit. The increase in gross profit reflects a $1.7 million increase in online gross profit and a $3.6 million increase in events gross profit. The increase in online gross profit is attributable to an increase in online revenue at a consistent gross profit percentage. The increase in events gross profit is attributable to an increase in custom event and seminar series revenue at a higher gross profit percentage on these events when compared to the same period in 2005. We expect our gross profit to fluctuate from period to period depending on our mix of revenues.
Operating Expenses and Other
|
Nine Months Ended September 30,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
2006
|
Increase
(Decrease) |
Percent
Change |
|||||||||
|
(unaudited)
(in thousands) |
||||||||||||
Operating expenses: | |||||||||||||
Selling and marketing | $ | 13,173 | $ | 14,555 | $ | 1,382 | 10 | % | |||||
Product development | 4,270 | 4,740 | 470 | 11 | |||||||||
General and administrative | 5,278 | 6,001 | 723 | 14 | |||||||||
Depreciation | 1,297 | 697 | (600 | ) | (46 | ) | |||||||
Amortization of intangible assets | 3,925 | 3,886 | (39 | ) | (1 | ) | |||||||
|
|
|
|||||||||||
Total operating expenses | $ | 27,943 | $ | 29,879 | $ | 1,936 | 7 | % | |||||
|
|
|
|||||||||||
Interest income (expense), net |
|
$ |
(91 |
) |
$ |
121 |
|
$ |
212 |
|
* |
|
|
Provision for income taxes | $ | | $ | 3,623 | $ | 3,623 | * |
Selling and Marketing. The increase in selling and marketing expense was attributable to a $872,000 increase in salaries, commissions, and benefits primarily related to an increase in average headcount of 21 employees in our sales and marketing organizations, as well as increases to employee compensation. The increase in headcount was to support the growth in revenues. The increase also reflects a $262,000 increase in travel expense resulting from the growth in sales personnel.
Product Development. The increase in product development expense was attributable to a $432,000 increase in salaries and benefits primarily related to an increase in average headcount of 7 employees in our product development organizations, as well as increases in employee compensation. We increased our headcount to support the growing number of online offerings and to maintain and upgrade our IT infrastructure.
General and Administrative. The increase in general and administrative expense was attributable primarily to increases in employee compensation.
45
Depreciation. The decrease in depreciation expense was attributable to a change effective January 1, 2006, in the estimated useful life for computer equipment and software from two years to three years to more closely approximate the service lives of the assets placed in service to date.
Amortization of Intangible Assets. The decrease in amortization of intangible assets expense was primarily attributable to intangible assets related to acquisitions in prior years becoming fully amortized, offset in part by the amortization of intangible assets related to our acquisition of 2020software.com in May 2006.
Interest Income (Expense), Net. The increase in interest income (expense), net reflected an increase in interest income attributable to higher interest rates in 2006, partly offset by an increase in interest expense also attributable to higher interest rates in 2006.
Provision for Income Taxes. We recorded a provision for income taxes for the nine months ended September 30, 2006, based upon a 46% effective tax rate. Our effective tax rate increased after the adoption of SFAS No. 123(R) due to the impact of stock-based compensation on our tax provision. The provision for income taxes is net of an $85,000 deferred tax benefit recorded to revalue our deferred tax assets using a federal tax rate of 35%. The effective tax rate is based upon our estimated fiscal 2006 income before the provision for income taxes. To the extent the estimate of fiscal 2006 income before the provision for income taxes changes, our provision for income taxes will change as well. We did not record a provision for income taxes for the nine months ended September 30, 2005, because we utilized net operating loss carryforwards to fully offset taxable income. At September 30, 2005, a full valuation allowance against our deferred tax asset was deemed appropriate because we did not have sufficient positive evidence to ascertain that it was more likely than not that we would be able to realize our deferred tax assets.
Comparison of Fiscal Years Ended December 31, 2004 and 2005
Revenues
|
Years Ended December 31,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2004
|
2005
|
Increase
|
Percent
Change |
|||||||||
|
(in thousands)
|
||||||||||||
Revenues: | |||||||||||||
Online | $ | 31,342 | $ | 43,662 | $ | 12,320 | 39 | % | |||||
Events | 9,647 | 14,595 | 4,948 | 51 | |||||||||
5,738 | 8,489 | 2,751 | 48 | ||||||||||
|
|
|
|||||||||||
Total revenues | $ | 46,727 | $ | 66,746 | $ | 20,019 | 43 | % | |||||
|
|
|
Online. The increase in online revenue was attributable to a $12.7 million increase in revenue from lead generation offerings due primarily to an increase in white paper sales volume. The increase in white paper volume was attributable to the acquisition of Bitpipe in December 2004 and the related introduction of new white paper offerings shortly after the acquisition.
Events. The increase in events revenue was attributable to the introduction of custom event and seminar series offerings in the second half of 2005. The increase also reflects a $1.0 million increase in multi-day conference revenue due to an increase in the average revenue per conference.
46
Print. The increase in print revenue was attributable to a $1.4 million revenue increase due to the launch of CIO Decisions magazine in April 2005 . Our other magazines increased $1.3 million in aggregate due to an increase in integrated advertising campaigns involving all three types of media (online, events and print). The increase also reflects increased sales of print advertising sold in conjunction with our storage and security events.
Cost of Revenues and Gross Profit
|
Years Ended December 31,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2004
|
2005
|
Increase
|
Percent
Change |
|||||||||
|
(in thousands)
|
||||||||||||
Cost of revenues: | |||||||||||||
Online | $ | 7,632 | $ | 10,476 | $ | 2,844 | 37 | % | |||||
Events | 5,948 | 6,202 | 254 | 4 | |||||||||
3,073 | 5,322 | 2,249 | 73 | ||||||||||
|
|
|
|||||||||||
Total cost of revenues | $ | 16,653 | $ | 22,000 | $ | 5,347 | 32 | % | |||||
|
|
|
|||||||||||
Gross profit |
|
$ |
30,074 |
|
$ |
44,746 |
|
$ |
14,672 |
|
49 |
% |
|
Gross profit percentage | 64 | % | 67 | % |
Cost of Online Revenue. The increase in cost of online revenue was attributable to a $1.5 million increase in salaries and benefits primarily related to an increase in average headcount of 21 employees in our online editorial and operations organizations as well as increases to employee compensation. We increased headcount to support the increase in online revenue volume and provide additional editorial content. The increase also reflects a $425,000 increase in keyword purchases from leading internet search engines, a $362,000 increase in vendor expenses associated with the delivery of webcast, podcast and list rental offerings, and a $195,000 increase in freelance writer expenses.
Cost of Events Revenue. The increase in cost of events revenue was attributable to the introduction of custom event and seminar series offerings in the second half of 2005. The increase was partially offset by a decrease in the number of multi-day conferences held in 2005 compared to 2004, and stock-based compensation of $236,000 in 2004 related to our repurchase of certain employee stock options in May 2004.
Cost of Print Revenue. The increase in cost of print revenue reflects expenses associated with the launch of CIO Decisions magazine in April 2005.
Gross Profit. The increase in gross profit reflects a $9.5 million increase in online gross profit and a $4.7 million increase in events gross profit. The increase in online gross profit is attributable to an increase in online revenue at a consistent gross profit percentage. The increase in events gross profit is attributable to an increase in events revenue at a higher gross profit percentage due to the introduction of custom event and seminar series offerings in 2005. We expect our gross profit to fluctuate from period to period depending on our mix of revenues.
47
Operating Expenses and Other
|
Years Ended December 31,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2004
|
2005
|
Increase
(Decrease) |
Percent
Change |
|||||||||
|
(in thousands)
|
||||||||||||
Operating expenses: | |||||||||||||
Selling and marketing | $ | 15,138 | $ | 18,174 | $ | 3,036 | 20 | % | |||||
Product development | 4,111 | 5,756 | 1,645 | 40 | |||||||||
General and administrative | 11,756 | 7,617 | (4,139 | ) | (35 | ) | |||||||
Depreciation | 1,168 | 1,792 | 624 | 53 | |||||||||
Amortization of intangible assets | 1,304 | 5,172 | 3,868 | 297 | |||||||||
|
|
|
|||||||||||
Total operating expenses | $ | 33,477 | $ | 38,511 | $ | 5,034 | 15 | % | |||||
|
|
|
|||||||||||
Interest income (expense), net |
|
$ |
143 |
|
$ |
(30 |
) |
$ |
(173 |
) |
(121 |
)% |
|
Provision for (benefit from) income taxes | $ | 32 | $ | (2,681 | ) | $ | (2,713 | ) | * |
Selling and Marketing. The increase in selling and marketing expense was attributable to a $3.9 million increase in salaries, commissions, and benefits primarily related to an increase in average headcount of 31 employees in our sales and marketing organizations as well as increases to employee compensation. The increase in headcount was to support the growth in revenues. The increase was partially offset by stock-based compensation of $1.0 million in 2004 related to our purchase of certain employee stock options in May 2004.
Product Development. The increase in product development expense was attributable to a $1.7 million increase in salaries and benefits primarily related to an increase in average headcount of 19 employees in our product development organizations as well as increases to compensation paid to existing employees. We increased our headcount to support the growing number of online offerings and integrate Bitpipe's IT infrastructure.
General and Administrative. The decrease in general and administrative expense was attributable to a decrease of $4.9 million in stock-based compensation related to our purchase of certain employee stock options in May 2004 and a decrease of $686,000 related to employee compensation, offset in part by increases of $582,000 related to facilities costs and approximately $800,000 related to various expenses associated with the growth of the business.
Depreciation. The increase in depreciation expense was attributable to purchases of property and equipment of $2.1 million in 2005 and $1.7 million in 2004, offset in part by purchases in prior years becoming fully depreciated.
Amortization of Intangible Assets. The increase in amortization of intangible assets expense was primarily due to the amortization of intangible assets primarily related to our acquisition of Bitpipe in December 2004.
Interest Income (Expense), Net. The decrease in interest income (expense), net reflects an increase in interest expense attributable to higher interest rates and outstanding balances in 2005 under our bank term loan. The decrease was partially offset by an increase in interest income attributable to higher interest rates and average cash balances during 2005.
Provision for (Benefit from) Income Taxes. The decrease in the provision for (benefit from) income taxes was primarily attributable to the release of the valuation allowance against our deferred tax assets. In
48
the fourth quarter of 2005, we determined that it was more likely than not that we would generate sufficient taxable income from operations to be able to realize tax benefits arising from use of our net operating loss carry forwards to reduce the income tax owed on this taxable income.
Comparison of Fiscal Years Ended December 31, 2003 and 2004
Revenues
|
Years Ended December 31,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
Increase
|
Percent
Change |
|||||||||
|
(in thousands)
|
||||||||||||
Revenues: | |||||||||||||
Online | $ | 21,023 | $ | 31,342 | $ | 10,319 | 49 | % | |||||
Events | 7,845 | 9,647 | 1,802 | 23 | |||||||||
3,598 | 5,738 | 2,140 | 59 | ||||||||||
|
|
|
|||||||||||
Total revenues | $ | 32,466 | $ | 46,727 | $ | 14,261 | 44 | % | |||||
|
|
|
Online. The increase in online revenue was attributable to a $7.9 million increase in revenue from lead generation offerings due primarily to an increase in white paper and webcast sales volume. The increase also reflects a $572,000 increase in revenue from branding offerings, primarily due to an increase in banner sales volume.
Events. The increase in events revenue was attributable to an increase in the number of multi-day conferences from nine events in 2003 to 12 events in 2004 as well as revenue growth in the multi-day conferences launched prior to 2004.
Print. The increase in print revenue was attributable an increase in integrated advertising campaigns involving all three types of media (online, events and print) as well as our publishing Information Security magazine for 12 months in 2004 versus six months in 2003.
Cost of Revenues and Gross Profit
|
Years Ended December 31,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
Increase
|
Percent
Change |
|||||||||
|
(in thousands)
|
||||||||||||
Cost of revenues: | |||||||||||||
Online | $ | 5,826 | $ | 7,632 | $ | 1,806 | 31 | % | |||||
Events | 4,798 | 5,948 | 1,150 | 24 | |||||||||
2,318 | 3,073 | 755 | 33 | ||||||||||
|
|
|
|||||||||||
Total cost of revenues | $ | 12,942 | $ | 16,653 | $ | 3,711 | 29 | % | |||||
|
|
|
|||||||||||
Gross profit |
|
$ |
19,524 |
|
$ |
30,074 |
|
$ |
10,550 |
|
54 |
% |
|
Gross profit percentage | 60 | % | 64 | % |
Cost of Online Revenue. The increase in cost of online revenue was attributable to a $1.0 million increase in salaries and benefits primarily related to an increase in average headcount of 16 employees in our online editorial and operations organizations as well as increases in compensation paid to existing employees. We increased headcount to support the increase in online revenue volume and to provide additional editorial content. The increase also reflected greater costs associated with freelance writers and member acquisition efforts.
49
Cost of Events Revenue. The increase in cost of events revenue was attributable to $812,000 associated with the increase in the number of multi-day conferences from nine events in 2003 to 12 events in 2004, a $482,000 increase in salaries and benefits primarily related to an increase in average headcount of five employees in our events organization as well as increases to employee compensation, and $236,000 in stock-based compensation in 2004 related to our purchase of certain employee stock options in May 2004.
Cost of Print Revenue. The increase in cost of print revenue was attributable to publishing Information Security magazine for twelve months during 2004 compared to only six months in 2003.
Gross Profit. The increase in gross profit reflects a $8.5 million increase in online gross profit and a $1.4 million increase in print gross profit. The increase in online gross profit is attributable to an increase in online revenue at a higher gross profit percentage. The increase in print gross profit is attributable to an increase in print revenue at a higher gross profit. We expect our gross profit to fluctuate from period to period depending on our mix of revenues.
Operating Expenses and Other
|
Years Ended December 31,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
Increase
|
Percent
Change |
|||||||||
|
(in thousands)
|
||||||||||||
Operating expenses: | |||||||||||||
Selling and marketing | $ | 10,736 | $ | 15,138 | $ | 4,402 | 41 | % | |||||
Product development | 3,728 | 4,111 | 383 | 10 | |||||||||
General and administrative | 3,991 | 11,756 | 7,765 | 195 | |||||||||
Depreciation | 1,153 | 1,168 | 15 | 1 | |||||||||
Amortization of intangible assets | 428 | 1,304 | 876 | 205 | |||||||||
|
|
|
|||||||||||
Total operating expenses | $ | 20,036 | $ | 33,477 | $ | 13,441 | 67 | % | |||||
|
|
|
|||||||||||
Interest income (expense), net |
|
$ |
(21 |
) |
$ |
143 |
|
$ |
164 |
|
* |
|
Selling and Marketing. The increase in sales and marketing expense was attributable to a $2.8 million increase in salaries, commissions, and benefits primarily related to an increase in average headcount of 19 employees in our sales and marketing organizations as well as increases to employee compensation. The increase in headcount was to support the growth in revenues. The remaining increase was due to stock-based compensation of $1.0 million in 2004 related to our purchase of certain employee stock options in May 2004 and a $343,000 increase in travel expense resulting from the growth in sales personnel.
Product Development. The increase in product development expense was attributable primarily to a $270,000 increase in salaries and benefits related to an increase in average headcount of four employees in our product development organizations. We increased our headcount to support the growing number of online offerings and to maintain and upgrade our IT infrastructure
General and Administrative. The increase in general and administrative expense was attributable to $4.9 million in stock-based compensation in 2004 related to our purchase of certain employee stock options in May 2004 and $3.0 million associated with employee compensation.
Depreciation. The slight increase in depreciation expense was attributable to purchases of property and equipment of $1.8 million in 2004 and $1.2 million in 2003, offset in part by purchases in prior years becoming fully depreciated.
Amortization of Intangible Assets. The increase in amortization of intangible assets expense was primarily due to the amortization of intangible assets related to our acquisition of Information Security magazine in June 2003.
50
Interest Income (Expense), Net. The increase in interest income (expense), net reflected higher average cash balances during 2004, in part from our sale of series B preferred stock in May 2004 and June 2004 and series C preferred stock in December 2004, as well as higher interest rates during 2004. The increase was partially offset by an increase in interest expense attributable to higher outstanding balances and interest rates in 2004 under our bank term loan.
Selected Quarterly Results of Operations
The following table presents our unaudited quarterly consolidated results of operations and our unaudited quarterly consolidated results of operations as a percentage of revenue for the seven quarters ended September 30, 2006. The unaudited quarterly consolidated information has been prepared on the same basis as our audited consolidated financial statements. You should read the following table presenting our quarterly consolidated results of operations in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this prospectus. The operating results for any quarter are not necessarily indicative of the operating results for any future period.
|
Three Months Ended
|
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Mar. 31,
2005 |
June 30,
2005 |
Sept. 30,
2005 |
Dec. 31,
2005 |
Mar. 31,
2006 |
June 30,
2006 |
Sept. 30,
2006 |
||||||||||||||||
|
(unaudited)
(in thousands) |
||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Online | $ | 10,617 | $ | 12,131 | $ | 9,798 | $ | 11,116 | $ | 10,375 | $ | 12,812 | $ | 12,565 | |||||||||
Events | 926 | 4,641 | 4,268 | 4,760 | 2,327 | 5,742 | 5,893 | ||||||||||||||||
1,617 | 2,231 | 2,239 | 2,402 | 2,209 | 2,163 | 1,809 | |||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Total revenues | 13,160 | 19,003 | 16,305 | 18,278 | 14,911 | 20,717 | 20,267 | ||||||||||||||||
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online | 2,322 | 2,672 | 2,732 | 2,750 | 2,621 | 2,992 | 3,644 | ||||||||||||||||
Events | 764 | 1,450 | 1,935 | 2,053 | 1,274 | 1,735 | 1,632 | ||||||||||||||||
1,014 | 1,481 | 1,408 | 1,419 | 1,407 | 1,423 | 1,385 | |||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Total cost of revenues | 4,100 | 5,603 | 6,075 | 6,222 | 5,302 | 6,150 | 6,661 | ||||||||||||||||
Gross profit |
|
|
9,060 |
|
|
13,400 |
|
|
10,230 |
|
|
12,056 |
|
|
9,609 |
|
|
14,567 |
|
|
13,606 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing | 4,084 | 4,779 | 4,310 | 5,001 | 4,432 | 5,191 | 4,932 | ||||||||||||||||
Product development | 1,437 | 1,364 | 1,469 | 1,486 | 1,564 | 1,559 | 1,617 | ||||||||||||||||
General and administrative | 2,070 | 2,085 | 1,123 | 2,339 | 1,791 | 2,084 | 2,126 | ||||||||||||||||
Depreciation | 401 | 414 | 482 | 495 | 218 | 238 | 241 | ||||||||||||||||
Amortization of intangible assets | 1,407 | 1,313 | 1,205 | 1,247 | 1,084 | 1,424 | 1,378 | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Total operating expenses | 9,399 | 9,955 | 8,589 | 10,568 | 9,089 | 10,496 | 10,294 | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Operating income (loss) |
|
|
(339 |
) |
|
3,445 |
|
|
1,641 |
|
|
1,488 |
|
|
520 |
|
|
4,071 |
|
|
3,312 |
|
|
Interest income (expense), net |
|
|
(60 |
) |
|
(43 |
) |
|
12 |
|
|
61 |
|
|
95 |
|
|
42 |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|||||||||||||||||
Income (loss) before income taxes (benefit) |
|
|
(399 |
) |
|
3,402 |
|
|
1,653 |
|
|
1,549 |
|
|
615 |
|
|
4,113 |
|
|
3,296 |
|
|
Provision for (benefit from) income taxes |
|
|
|
|
|
|
|
|
|
|
|
(2,681 |
) |
|
175 |
|
|
1,739 |
|
|
1,709 |
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income (loss) |
|
$ |
(399 |
) |
$ |
3,402 |
|
$ |
1,653 |
|
$ |
4,230 |
|
$ |
440 |
|
$ |
2,374 |
|
$ |
1,587 |
|
|
|
|
|
|
|
|
|
51
Seasonality
The timing of our revenues is affected by seasonal factors. Our revenues are seasonal primarily as a result of the annual budget approval process of many of our customers and the historical decrease in advertising activity in July and August. Revenues are usually the lowest in the first quarter of each calendar year, increase during the second quarter, decrease during the third quarter, and increase again during the fourth quarter. Events revenue may vary depending on which quarters we produce the event, which may vary when compared to previous periods. The timing of revenues in relation to our expenses, much of which does not vary directly with revenue, has an impact on the cost of online revenue, selling and marketing, product development, and general and administrative expenses as a percentage of revenue in each calendar quarter during the year.
The majority of our expenses are personnel-related and include salaries, stock-based compensation, benefits and incentive-based compensation plan expenses. As a result, we have not experienced significant seasonal fluctuations in the timing of our expenses period to period. We accrue expenses related to incentive-based compensation plans based on our estimate of whether or not it is probable that an expense will be incurred under the plans. In the third quarter of 2005, we determined that payment under certain annual incentive-based compensation plans was not probable, and therefore general and administrative compensation expenses previously recorded in the first and second quarters of 2005 were reversed. Based on the achievement of plan targets in the fourth quarter of 2005, we recorded general and administrative compensation expenses related to the incentive-based compensation plans in the fourth quarter of 2005.
Liquidity and Capital Resources
Resources
Since 2003, we have funded our operations principally with cash flows generated by operations. In addition, we have partially funded acquisitions with $42.2 million of net proceeds from issuances of preferred stock and the net borrowings of $10 million under bank term loans. We believe our existing cash and cash equivalents, our cash flow from operating activities, available bank borrowings and the net proceeds of this offering will be sufficient to meet our anticipated cash needs for at least the next twelve months. Our future working capital requirements will depend on many factors, including the operations of our existing business, our potential strategic expansion internationally, future acquisitions we might undertake, and the expansion into complementary businesses. To the extent that our cash and cash equivalents, cash flow from operating activities, and net proceeds of this offering are insufficient to fund our future activities, we may need to raise additional funds through bank credit arrangements or public or private equity or debt financings. We also may need to raise additional funds in the event we determine in the future to effect one or more acquisitions of businesses. In the event additional funding is required, we
52
may not be able to obtain bank credit arrangements or effect an equity or debt financing on terms acceptable to us or at all.
|
As of and for the Years Ended December 31,
|
As of and
for the Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
2005
|
2006
|
|||||||||
|
|
|
|
(unaudited)
|
|||||||||
|
(in thousands)
|
||||||||||||
Cash, cash equivalents and short-term investments | $ | 7,988 | $ | 40,214 | $ | 46,879 | $ | 27,469 | |||||
Accounts receivable, net | 4,404 | 9,620 | 8,817 | 12,301 | |||||||||
Cash provided by operating activities | 1,258 | 6,872 | 11,335 | 7,797 | |||||||||
Cash used in investing activities (1) | (3,471 | ) | (38,481 | ) | (1,908 | ) | (15,986 | ) | |||||
Cash provided by (used in) financing activities | 2,342 | 63,835 | (2,762 | ) | (11,221 | ) |
Cash, Cash Equivalents and Short-Term Investments
Our cash, cash equivalents and short-term investments at September 30, 2006 were held for working capital purposes and were invested primarily in money market accounts and commercial paper corporate debt securities. We do not enter into investments for trading or speculative purposes. The increase in cash, cash equivalents and short-term investments in 2004 reflects $63.5 million of net proceeds from issuances of preferred stock and bank term loan borrowings, partly offset by $35.6 million paid for the acquisition of Bitpipe and $1.1 million paid for the acquisition of The Middleware Company.
Accounts Receivable, Net
Our accounts receivable balance fluctuates from period to period, which affects our cash flow from operating activities. The fluctuations vary depending on the timing of our service delivery and billing activity, cash collections, and changes to our allowance for doubtful accounts. We use days' sales outstanding, or DSO, calculated on a monthly basis, as a measurement of the quality and status of our receivables. We define DSO as accounts receivable divided by total revenue for the applicable period, multiplied by the number of days in the applicable period. DSO was 51 days at December 31, 2003, 51 days at December 31, 2004 (excluding the effects of purchased accounts receivable from Bitpipe), 46 days at December 31, 2005 and 54 days at September 30, 2006.
Operating Activities
Cash provided by operating activities primarily consists of net income (loss) adjusted for certain non-cash items including depreciation and amortization, the provision for bad debt, stock-based compensation, deferred income taxes, and the effect of changes in working capital and other activities. Cash provided by operating activities for the nine months ended September 30, 2006 was $7.8 million and consisted of $4.4 million of net income, and $4.6 million of depreciation and amortization, partly offset by $1.6 million used in working capital and other activities. Cash used in working capital and other activities includes a $3.3 million increase in accounts receivable which is attributable to increases in our online and print revenues, offset in part by a $3.0 million increase in deferred revenue which is associated with increased events revenue.
Cash provided by operating activities for the fiscal year ended 2005 was $11.3 million and consisted of $8.9 million of net income and $7.0 million of depreciation and amortization, offset in part by a $3.0 million non-cash deferred tax benefit and $1.5 million used in working capital and other activities. Working capital and other activities consisted of a $1.6 million decrease in deferred revenue and a
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$756,000 decrease in accounts payable and accrued expenses, offset by a $1.2 million decrease in accounts receivable. The decrease in deferred revenues is primarily attributable to a $1.5 million purchase accounting adjustment to the fair value of deferred revenue acquired from Bitpipe. The decrease in accounts receivable is attributable to increases in cash collections as well as accounts receivable existing as of December 31, 2004 associated with the acquisition of Bitpipe in December 2004, which no longer existed as of December 31, 2005.
Cash provided by operating activities for the fiscal year ended 2004 was $6.9 million and consisted of $3.3 million of net loss, offset by $2.5 million of depreciation and amortization, $6.3 million of stock-based compensation, and $1.3 million provided by working capital and other activities. Of the $6.3 million stock-based compensation, $6.0 million is associated with our repurchase of certain employee stock options in May 2004. Cash provided by working capital and other activities includes a $2.1 million increase in accounts payable and accrued expenses and a $1.6 million increase in deferred revenue, offset in part by a $3.3 million increase in accounts receivable reflecting an overall increase in revenues associated with the growth of our operations.
Cash provided by operating activities for the fiscal year ended 2003 was $1.3 million and consisted of $533,000 of net loss, positive non-cash adjustments of $2.0 million (primarily depreciation and amortization), and $237,000 used in working capital and other activities. Cash used by working capital and other activities was primarily attributable to a $1.4 million increase in accounts receivable, offset in part by a $892,000 increase in accounts payable and accrued expenses and a $270,000 increase in deferred revenue reflecting an overall increase in business activity.
Investing Activities
Cash used in investing activities primarily consists of purchases of property and equipment and acquisitions of businesses. Cash used in investing activities in the nine months ended September 30, 2006 was $16.0 million and consisted of $15.0 million for the acquisition of 2020software.com in May 2006 and $1.0 million for the purchase of property and equipment. Cash used in investing activities in 2005, net of short-term investment activity, was $1.9 million due primarily to $2.1 million for the purchase of property and equipment. Cash used in investing activities in 2004, net of short-term investment activity, was $38.5 million and consisted of $35.6 million for the acquisition of Bitpipe in December 2004, $1.1 million for the acquisition of The Middleware Company in November 2004, and $1.8 million for the purchase of property and equipment. Cash used in investing activities in 2003 was $3.5 million and consisted of $2.0 million for the acquisition of Information Security magazine in June 2003, $280,000 for the acquisition of a website in October 2003, and $1.2 million for the purchase of property and equipment.
Equity Financing Activities
We raised $31.3 million and $1.0 million of net proceeds through sales of our series A preferred stock in 2001 and 2003, respectively. We raised an additional $69.9 million of net proceeds through sales of our series B preferred stock in May 2004 and June 2004. In June 2004, in connection with the series B preferred stock offering, we paid $43.7 million to repurchase a portion of the series A preferred stock, common stock, and certain outstanding employee options. We recorded a $6.0 million stock-based compensation charge associated with the repurchase of the employee options. We raised an additional $15.0 million of net proceeds through sales of our series C preferred stock in December 2004. All of the shares of our preferred stock will convert into common stock upon completion of this offering. In addition, we received proceeds from the exercise of common stock options and warrants in the amounts of $25,000 in 2003, $328,000 in 2004, $238,000 in 2005 and $779,000 during the nine months ended September 30, 2006.
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Term Loan and Credit Facility Borrowings
We previously maintained a term loan with a commercial bank under which we made borrowings net of principal repayments of $1.3 million in 2003, $22.3 million in 2004, and principal repayments of $3.0 million in 2005. On August 30, 2006, we entered into a credit agreement with Citizens Bank of Massachusetts, which included a $10.0 million term loan and a $20.0 million revolving credit facility. Initial borrowings under the credit agreements were used to pay off the prior principal balance of $22.0 million and provide working capital. As of September 30, 2006, outstanding borrowings under the credit agreements were $10.0 million.
Borrowings under our revolving credit facility are collateralized by an interest in and lien on all of our assets and certain other guarantees and pledges. As of September 30, 2006, unused availability under our revolving credit facility totaled $20.0 million. Our revolving credit facility matures on August 30, 2011. Unless earlier payment is required by an event of default, all principal and any unpaid interest will be due and payable on August 30, 2011.
Our $10.0 million term loan requires the payment of 39 consecutive monthly installments of $250,000 each, plus interest, the first such installment was due on September 30, 2006, with a final payment of the entire unpaid principal balance due on December 30, 2009. Borrowings are collateralized by an interest in and lien on all of our assets and certain other guarantees and pledges. In September 2006, we entered into an interest rate swap agreement to mitigate interest rate fluctuation, and fix the interest rate on the term loan at 6.98%.
We are also required to pay an unused line fee on the daily unused amount of our revolving credit facility at a per annum rate of 0.375%. Our credit agreements contain certain affirmative and negative covenants, which require, among other things, that we meet certain financial ratio covenants and limit certain capital expenditures. We were in compliance with all covenants under the credit agreements as of September 30, 2006.
Capital Expenditures
We have made capital expenditures primarily for computer equipment and related software needed to host our websites, internal-use software development costs, as well as for leasehold improvements and other general purposes to support our growth. Our capital expenditures totaled $1.2 million in 2003, $1.8 million in 2004, $2.1 million in 2005 and $1.0 million for the nine months ended September 30, 2006. We expect to spend approximately $300,000 and $2.5 million in capital expenditures in the last three months of 2006 and for the fiscal year ending 2007, respectively, primarily for website development costs, computer equipment and related software, and internal-use software development costs. We are not currently party to any purchase contracts related to future capital expenditures.
Contractual Obligations and Commitments
As of September 30, 2006, our principal commitments consist of obligations under leases for office space and principal and interest payments due under our bank term loan. The offices are leased under
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noncancelable operating lease agreements that expire through March 31, 2010. The following table sets forth our commitments to settle contractual obligations in cash as of September 30, 2006:
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Bank term loan payable | $ | 9,000 | $ | 3,000 | $ | 6,000 | $ | | $ | | |||||
Operating leases (1) | 6,224 | 1,845 | 4,379 | | | ||||||||||
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Total | $ | 15,224 | $ | 4,845 | $ | 10,379 | $ | | $ | | |||||
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Off-Balance Sheet Arrangements
In September 2006, we entered into an interest rate swap agreement to mitigate interest rate fluctuation, and fix the interest on our variable rate bank term loan fixed rate obligation. Our interest rate swap fixed the effective interest rate on the term loan at 6.98% as of September 30, 2006. The fair value of the interest rate swap was ($73,000) at September 30, 2006. We do not have any other off-balance sheet arrangements.
Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign exchange rates and interest rates. We do not hold or issue financial instruments for trading purposes.
Foreign Currency Exchange Risk
Our subsidiary, TechTarget Limited, was established in July 2006 and is located in London, England. As of September 30, 2006 all of our international customer agreements have been denominated in U.S. dollars, and aggregate foreign currency payments made by us through this subsidiary have been less than $100,000 during the period ended September 30, 2006. We currently believe our exposure to foreign currency exchange rate fluctuations is financially immaterial and therefore have not entered into foreign currency hedging transactions. We continue to review this issue and may consider hedging certain foreign exchange risks through the use of currency futures or options in the future.
Interest Rate Risk
At September 30, 2006, we had cash and cash equivalents totaling $27.5 million. These amounts were invested primarily in money market accounts and commercial paper corporate debt securities. The cash and cash equivalents were held for working capital purposes. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce future investment income.
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Recent Accounting Pronouncements
In July 2006, the FASB issued Financial Accounting Standards Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises' financial statements in accordance with SFAS No. 109. FIN 48 prescribes a recognition and measurement method of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently analyzing the effects of FIN 48 on our consolidated financial position and our results of operations.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements , or SFAS No. 157. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, our board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We do not expect the adoption of SFAS No. 157 in 2008 to have a material impact on our results of operations or financial position.
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Overview
We are a leading provider of specialized online content that brings together buyers and sellers of corporate IT products. We sell customized marketing programs that enable IT vendors to reach corporate IT decision makers who are actively researching specific IT purchases. We operate a network of 35 websites, each of which focuses on a specific IT sector, such as storage, security or networking. IT professionals rely on our websites for key decision support information tailored to their specific areas of responsibility. We complement our online offerings with targeted in-person events and three specialized IT magazines that enable advertisers to engage buyers throughout their decision-making process for IT purchases.
As IT professionals have become increasingly specialized, they have come to rely on our sector-specific websites for purchasing decision support. Our content enables IT professionals to navigate the complex and rapidly changing IT landscape where purchasing decisions can have significant financial and operational consequences. We employ over 100 full-time editors who create more than 20,000 pieces of original content per year tailored for specific audiences. We complement this content with targeted information from our network of more than 225 outside industry experts, member-generated content and extensive vendor-supplied information. We have a large and growing base of registered members, which totaled over 4.5 million as of December 31, 2006.
The targeted nature of our user base enables IT vendors to reach a specialized audience efficiently because our content is highly segmented and aligned with the IT vendors' specific products. Since our founding in 1999, we have developed a broad customer base that now comprises more than 1,000 active advertisers, including Cisco, Dell, EMC, Hewlett Packard, IBM, Intel, Microsoft, Oracle, Research In Motion, SAP and Symantec. We delivered more than 3,400 advertising campaigns in 2006, and our average quarterly advertising renewal rate for our 100 largest customers was 92% in 2006. We also supplied more than 1.1 million sales leads to IT vendors in 2006.
We generated revenues of $67 million in 2005, up from $47 million in 2004. Over the same period, we grew our adjusted EBITDA from $5 million to $13 million.
Industry Background
There is an ongoing shift from traditional print and broad-based advertising to targeted online advertising. We believe there are three major trends driving this shift:
Targeted Content Channels Lead to Greater Efficiency for Advertisers
Advertisers' desire to reach customers efficiently has led to the development and proliferation of market-specific content channels throughout all forms of media. Targeted content channels increase advertising efficiency by enabling advertisers to market specifically to the audience they are trying to reach. Content providers are finding new ways, such as specialized cable television channels, magazines and events, to offer increasingly targeted content to their audience and advertisers. The Internet has enabled even more market-specific content offerings, and the proliferation of market-specific websites provides advertisers with efficient and targeted media to reach their customers.
The Internet Improves Advertisers' Ability to Increase and Measure Return on Investment
Advertisers are increasingly focused on measuring and improving ROI. Before the advent of Internet-based marketing, there were limited tools for accurately measuring the results of marketing campaigns in a timely fashion. The Internet has enabled advertisers to track individual user responses to their marketing programs. With the appropriate technology, vendors now have the ability to assess and benchmark the
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efficacy of their online advertising campaigns cost-effectively and in real-time. As a result, advertisers are now increasingly demanding a measurable ROI across all forms of media.
The Internet Is Increasingly Critical in Researching Large, Complex and Costly Purchases
The Internet has improved the efficiency and effectiveness of researching purchases. The vast quantity of information available on the Internet, together with search engines and directories that facilitate information discovery, enables potential purchasers to draw information from many sources, including independent experts, peers and vendors, in an efficient manner. These benefits are most apparent in the research of complex and costly purchases which require information from a variety of sources. By improving the efficiency of product research, the Internet enables potential purchasers to save significant time and review a wider range of product selections.
These three trends are driving the redeployment of marketing budgets from traditional broad-based advertising to online advertising. Despite the high growth of online advertising and marketing directly to corporate purchasers, business-to-business, or B2B, online spending represented only 6.9% of marketing and advertising expenditure in the United States in 2005. eMarketer expects the share of the B2B online advertising to rise to 13.1% of total marketing and advertising expenditure by 2010, predominantly at the expense of print media.
Corporate IT Purchasing
The trends toward targeted content channels, increased focus on ROI by advertisers and Internet-based product research are evident in the corporate IT market. Over the past two decades, corporate IT purchases have grown in size and complexity. IDC estimates that worldwide corporate IT spending was $1.1 trillion in 2005 and projects it to grow to $1.4 trillion by 2009. The corporate IT market is comprised of multiple, large sectors, such as storage, security and networking. Each of these sectors can, in turn, be further divided into sub-sectors that contain products addressing the areas of specialization within an enterprise's IT environment. For example, within the $36 billion storage sector, there are numerous sub-sectors such as storage area networks, storage resource management software and backup software. Furthermore, the products in each sub-sector may service entirely independent markets. For example, backup software for use in Windows environments can be distinct from that designed for use in Linux environments.
In view of the complexities, high cost and importance of IT decision-making, corporate IT purchasing decisions are increasingly being researched by teams of functional experts with specialized knowledge in their particular areas, rather than by one central IT professional, such as a chief information officer. The corporate IT purchasing process typically requires a lengthy sales cycle. Through various stages of this sales cycle, IT professionals rely upon multiple inputs from independent experts, peers and IT vendors. Although there is a vast amount of information available, the aggregation and validation of these inputs from various sources can be difficult and time-consuming.
The long sales cycle for corporate IT purchases as well as the need for information support require substantial investment on the part of IT vendors, which drives the significant marketing expenditures in the corporate IT market. In addition, technology changes at an accelerated pace and there are often multiple solutions to a particular IT need. With each new product or product enhancement, IT vendors implement new advertising campaigns and IT professionals must research new technologies.
The Opportunity
Corporate IT professionals increasingly are demanding specialized websites, events and print publications tailored to the sub-sectors of IT solutions that they purchase. Prior to widespread Internet adoption, corporate IT buyers researching purchases relied largely on traditional IT media, consisting of broad print publications and large industry trade shows. As technology, vendors and IT professionals have
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all become much more specialized, the Internet has emerged as a preferred purchase research medium that has drastically reduced research time. Despite this, most traditional IT media remains general in nature and disproportionately oriented towards print. Consequently, IT professionals continue to expend time searching inefficiently for information that is appropriate to their more specialized IT purchase requirements.
IT advertisers seek high-ROI marketing platforms that provide access to the specific sectors of IT buyers that align with the solutions they sell. Traditional IT media companies with print-based revenue models service a large circulation with broad content. This minimizes the likelihood of a vendor reaching a buyer while he or she is actively researching the purchase of a solution that falls within the vendor's particular market sector. Although the Internet now offers advertisers a superior means to reach IT buyers while they are conducting research, the web properties operated by these traditional IT media companies offer online content and audiences that are derivative of their existing print efforts. Without a more targeted marketing platform oriented to IT professionals' need for decision support for specialized IT purchases, traditional IT media companies have faced difficulty meeting the ROI needs of IT marketers.
Our Solution
Our specialized content enables IT vendors to reach corporate IT professionals who are actively researching purchases in specific IT sectors. The foundation of our network is our 35 websites, which are complemented by in-person events and specialized magazines. IT professionals rely on our platform for decision support information tailored to their specific purchasing needs. Our solution benefits from the following competitive advantages:
Our solution increases efficiency for both IT professionals and IT vendors. It facilitates the ability of IT professionals to find specific information related to their purchase decisions, while enabling IT vendors
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to reach IT buyers that are actively researching specific solutions related to vendors' products and services. Set forth below are several ways our solution benefits both IT professionals and IT vendors:
Benefits to IT Professionals
Benefits to IT Vendors
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our magazines and can have face-to-face interactions with qualified buyers seeking to finalize purchase decisions at our in-person events.
Our Strategy
Our goal is to deliver superior performance by enhancing our position as a leading provider of specialized content that connects IT professionals with IT vendors in the sectors and sub-sectors that we serve. In order to achieve this goal, we intend to:
Platform & Content
Our integrated content platform consists of a network of 35 websites that we complement with targeted in-person events and three specialized IT magazines. Throughout all stages of the purchase decision process, these content offerings meet IT professionals' needs for expert, peer and IT vendor information, and provide a platform on which IT vendors can launch targeted marketing campaigns that generate measurable, high ROI.
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The diagram below provides a representation of our media products provided by our platform and the media groups we currently use to categorize our content offerings:
Media Groups
Based upon the logical clustering of our users' respective job responsibilities and the marketing focus of the products that our customers are advertising, we currently categorize our content offerings across nine distinct media groups. Each of these media groups services a wide range of IT vendor sectors and sub-sectors and is driven by the key areas of IT professionals' interests described below:
The storage sector consists of the market for disk storage systems and tape hardware and software that store and manage data. According to IDC, revenue for these markets reached $36 billion in 2005 and is projected to reach $47 billion in 2010. This growth is fueled by trends inherent in the industry, such as the ongoing need to maintain and supplement data stores, and by external factors, such as expanded compliance regulations and increased focus on disaster recovery solutions. These latter trends have driven overall storage growth and led to new specialized solutions such as remote replication software and information life cycle management solutions. At the same time, established storage sub-sectors, such as backup and SANs have been invigorated by new technologies such as disk-based backup, continuous data protection and storage virtualization.
Our online property in this sector, SearchStorage.com has attracted approximately 425,000 registered members seeking solutions in key sub-sectors such as fibre channel SANs, IP & iSCSI SANs, NAS, backup hardware and software, and storage management software. The audiences at our in-person Storage Decision conferences are comprised almost exclusively of storage decision-makers from within IT organizations. These events are supplemented by regional seminars on topics such as e-mail archiving and
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disaster recovery. Our print magazine, Storage , has an audited circulation of approximately 50,000 qualified IT professionals.
Every aspect of enterprise computing now depends on secure connectivity, data and applications. The security sector is constantly growing to adapt to new forms of threats and to secure new technologies such as mobile devices and wireless networks. IDC estimates that in 2005, security revenue reached $32 billion and projects such revenue to reach $65 billion in 2010. Compliance regulations along with highly publicized identity and intellectual property thefts are driving interest and investment in increasingly sophisticated security solutions that supplement common perimeter security solutions such as firewalls and antivirus software.
Our online property in this sector, SearchSecurity.com has built a database of approximately 550,000 registered members and offers navigable and structured guides on IT vendor and technology solutions in key sub-sectors such as network security, intrusion defense, identity management and authentication, application security, and security information management software. Our annual Security Decisions conference anchors a calendar of topically-focused regional seminars on issues such as compliance monitoring and e-mail security. Information Security magazine offers strategic information for IT security professionals to an audited circulation of approximately 60,000 subscribers.
Broadly defined, the networking market includes the hardware, software and services involved in the infrastructure and management of data networks. In 2005, the global network equipment market, comprised of products such as routers and switches, reached $65 billion, according to IDC. As new sub-sectors of networking have emerged and grown in importance, IT networking professionals have increasingly focused their investments in such technologies as VoIP, wireless and mobile computing.
Our online properties in this sector, SearchNetworking.com, SearchVoIP.com and SearchMobileComputing.com have attracted approximately 700,000 registered members, and aim to address the specialized needs of these IT networking professionals by offering content targeted specifically to these emerging growth areas as well as key initiatives such as network security and access control, application visibility and performance monitoring, WAN acceleration and optimization, voice/data/video convergence, and remote office management and connectivity.
For businesses, the Windows platform no longer represents an offering of discrete operating systems, but rather a diverse computing environment with its own areas of specialization around IT functions such as database administration and security. As Windows servers have become more stable and scalable, they have taken share in data centers, and now represent the largest server sub-sector, with $19 billion in global sales in 2005, and are expected to grow faster than the overall market, according to IDC. Microsoft enterprise applications are growing as well, with Exchange Server commanding the largest number of seats of any e-mail server and SQL Server representing the fastest growing database platform. In addition, 2007 represents the beginning of a major upgrade cycle for Microsoft, with the pending releases of Vista, Office 2007, Longhorn (the next generation of SQL Server), and Exchange 2007. Given the breadth of the Windows market, we have segmented our Windows-focused media based on IT professionals' infrastructure responsibilities and purchasing focus.
Our seven online properties in this sector include SearchWindowsSecurity.com and SearchWinComputing.comcovering servers, storage, and systems management; SearchSQLServer.com, SearchDomino.com, SearchExchange.com and SearchWinIT.comtargeted toward senior management for distributed computing environments; and LabMice.netaddressing desktop issues. This network of sites, includes approximately 900,000 registered members, provides resources and advice to IT
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professionals pursuing solutions related to such topics as Windows backup and storage, server consolidation, and Vista upgrade planning, and is supplemented by in-person regional seminars on topics such as e-mail security.
Data centers house the systems and components, such as servers, storage devices, routers and switches, utilized in large-scale, mission critical computing environments. A variety of trends and new technologies have reinvigorated the data center as a priority among IT professionals. Technologies, such as blade servers and server virtualization, have driven renewed investment in data center-class computing solutions. Server consolidation is now a focus, driven by the decline in large-scale computing prices relative to distributed computing models. These trends have put pressure on existing data center infrastructure and are driving demand for solutions that address this. For example, the deployment of high-density servers has led to increased heat output and energy consumption in data centers. Power and cooling have thus become a significant cost in IT budgets, making data center energy efficiency a priority.
Our key online properties in this sector provide targeted information on the IT vendors, technologies and solutions that serve these sub-sectors. These properties have approximately 480,000 registered members, and include SearchDataCenter.comcovering disaster recovery, power and cooling, mainframe and UNIX servers, systems management, and server consolidation; SearchOpenSource.comfocused on Linux migration and infrastructures; Search400.comcovering mid-range computing; and SearchServerVirtualization.com. The solutions and sub-sectors addressed at Data Center Decisions our 2-day event hosting key decision makers from large data center computing environments, mirror those covered on our sites.
Our CIO and IT Management media group provides content targeted at Chief Information Officers, or CIOs, and senior IT executives, enabling them to make informed IT purchases throughout all stages of the purchase decision process. CIOs' areas of interest generally align with the major sectors of the IT market; however, CIOs increasingly are focused on the alignment between IT and their businesses' operations. Because businesses' IT strategies vary significantly based upon company size, we have segmented the CIO market by providing specific guidance to CIOs of large enterprises, mid-market enterprises and SMBs. IT spending by SMBs represents a significant portion of overall IT spending, and was projected to account for nearly 48% of US IT spending in 2006 according to Forrester Research.
Data center consolidation, compliance, ITIL/ IT service management, risk management and Service-Oriented Architecture, or SOA, have all drawn the attention of IT executives who need to understand the operational and strategic implications of these issues and technologies on their businesses. Accordingly, our targeted information resources for senior IT executives focus on ROI, implementation strategies, best practices and comparative assessment of vendor solutions related to these initiatives. SearchSMB.com targets IT managers at small to medium-sized businesses. SearchCIO.com provides CIOs in medium to large enterprises with strategic information focused on critical purchasing decisions. Together, our CIO and IT Management Media Group's websites have approximately 650,000 registered members. Our annual CIO Decisions Conference delivers content specifically targeted to an invitation-only audience of IT executives from midsize enterprises. We believe our CIO Decisions magazine is the only publication exclusively dedicated to serving CIOs and senior IT executives at mid-market companies.
Our Enterprise Applications media group focuses on mission critical software such as databases, enterprise resource planning, or ERP, customer-facing applications such as CRM, and other business software. In 2005, over $75 billion was spent worldwide on business applications, according to IDC. Oracle and SAP are two of the largest business application software companies.
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SearchCRM.com, SearchDataManagement.com, SearchOracle.com and SearchSAP.com are leading online resources for the management of business applications and data, and cover CRM, business intelligence, or BI, data management, sales force automation, databases and ERP software. Within the broad market for business applications, the market for SMBs is significant, with approximately 8.2 million SMBs in the United States as of December, 2006, according to IDC. 2020software.com offers side-by-side comparisons and trial downloads of the leading ERP, CRM, human resources, or HR, financial and accounting software for the SMB market. Together our Enterprise Applications Media Group's websites have built a database of approximately 700,000 registered members.
The application development sector is comprised of a broad landscape of tools and languages that enable developers to build, customize and integrate software for their businesses. Our application development media focuses on development in enterprise environments, the underlying languages such as .NET, Java and XML as well as related application development tools and integrated development environments or IDEs. In 2005, the application development and deployment software market in total, including information access and data management solutions, generated over $46 billion in revenue worldwide according to IDC. Several trends have had a profound impact on this sector and are driving growth. The desire for more flexible and interoperable applications architecture continues to propel interest in SOA and Web services technologies. IDC estimated that in 2004 SOA-driven software spending in total reached $547 million and projects it to reach nearly $9.0 billion in 2009. In addition, new technology introductions such as Microsoft's 2007 Vista launch will influence developers' activity as they create new applications that run on the .NET platform. Application integration, application testing and security, as well as AJAX and rich Internet applications, are also key areas of continuing focus for vendors and developers.
Our Application Development properties address these trends and have attracted approximately 1.1 million registered members. TheServerSide.com and TheServerSide.NET host independent communities of developers and architects using Java and .NET, respectively. SearchWebServices.com provides senior architects and developers with targeted content on integrating web services across platforms. SearchVB.com serves the Visual Basic development community. SearchAppSecurity.com offers content focused on the deployment of secure applications. Our Server Side Java Symposium events in Las Vegas and Barcelona are leading conferences on enterprise Java technologies.
Our Channel media group's properties address the information needs of channel companiesclassified as resellers, value added resellers, solution providers, and consultantsin the enterprise IT market. As IT professionals have become more specialized, IT vendors actively have sought resellers with specific expertise in the vendors' sub-sectors. Like IT professionals, channel solution providers now require more focused technical content in order to operate successfully in their sectors.
The resulting dynamics in the channel are well-suited to our integrated, targeted content strategy, and we recently have launched several properties addressing specific sectors within the channel including SearchITchannel.com, SearchStorageChannel.com, SearchSecurityChannel.com, SearchNetworking-Channel.com and SearchSystemsChannel.com. As channel companies resell hardware and software from vendors in a particular IT sector, the key areas of focus tend to parallel those for the sub-sectors addressed by our IT-focused properties: for storage, backup, storage virtualization and network storage solutions such as fibre channel SANs, NAS, IP SANs; for security, intrusion defense, compliance and identity management; for networking, wireless, network security and VoIP; for systems, blade servers, consolidation and server virtualization.
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Media Offerings
We use the following online, event and print offerings to provide IT vendors with numerous touch points to reach key IT decision-makers and to provide IT professionals with highly specialized content across multiple forms of media. We are experienced in assisting advertisers to develop custom advertising programs that maximize branding and ROI. The following is a description of the products we offer:
Our branding offerings include banners and e-newsletters. Banner advertising can be purchased on specific websites within our network. We also offer the ability to advertise in approximately 70 e-newsletters focused on key site sub-topics. These offerings give IT vendors the ability to increase their brand awareness to highly specialized IT sectors.
Our lead generation offerings include the following:
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specific content. IT vendors have the option to purchase exclusive sponsorship of content related to their product or category.
Customers
We market to IT vendors targeting a specific audience within an IT sector or sub-sector. We maintain multiple points of contact with our customers in order to provide support throughout a given organization and throughout the sales cycle. As a result, individual customers often run multiple advertising programs with us in order to reach discrete portions of our targeted audience. Our services are generally delivered under short-term contracts that run for the length of a given advertising program, typically less than 90 days.
Since our founding in 1999, we have developed a broad customer base that now comprises more than 1,000 active advertisers. We delivered more than 3,400 advertising campaigns in 2006, and our average quarterly advertising renewal rate of our 100 largest customers was 92% in 2006, which is defined as the percentage of our 100 largest advertisers each quarter who ran advertising programs with us in the subsequent quarter. A representative sample of our active customers in 2006 includes:
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Adobe
APC AT&T BMC Software Brocade Business Objects CA CDW CipherTrust Cisco Citrix |
Cognos
CommVault Compuware Dell EMC Emulex Epicor EqualLogic Fair Isaac Corporation Fluke Networks Forsythe Technology |
Hitachi Data Systems
Hewlett-Packard Hyperion IBM Intel Iona Technologies McAfee Microsoft NetSuite Network Appliance Nokia |
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|
|
|
||
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Novell
Oracle Pillar Data Systems Pivotal Polyserve ProofPoint |
QLogic
Quantum Quest Software Research In Motion SAGE Software SAP |
Sony
Sun Microsystems Symantec Verisign Webex Communications |
Sales and Marketing
Since our inception in 1999, we have maintained an internal direct sales department that works closely with existing and potential customers to develop customized marketing programs that provide highly targeted access to IT professionals. We organize the sales force by the sector-specific media groups that we operate, as well as a national accounts team that works with our largest advertisers. We believe that our sector-specific sales organization and integrated approach to our product offerings allows our sales personnel to develop a high level of expertise in the specific sectors they cover, and to create effective marketing programs tailored to the customer's specific objectives. As of December 31, 2006, our sales and marketing staff consisted of 129 people. The majority of our sales staff is located in our Needham, Massachusetts headquarters and our office in San Francisco, California.
We pursue a variety of marketing initiatives designed to support our sales activities by building awareness of our brand to IT vendors, and positioning ourselves as a "thought leader" in ROI-based marketing. These initiatives include purchasing online, event and print sponsorships in media vehicles that target the technology advertising market, as well as engaging in direct communications with the database of advertising contacts we have built since inception. Examples of our direct communications include our monthly e-newsletter, The IT Agenda, which delivers advice for technology marketers, as well as selected direct mail updates on new product launches and initiatives. We also produce in-person events for technology marketers where we provide information on the latest best practices in the field of online marketing.
Online User Acquisition
Our primary source of traffic to our websites is through non-paid traffic sources, such as our existing registered member base and organic results search engine traffic. Organic result search engine traffic is also the primary source of new registered members for our sites. Because our sites focus on specific sectors of the IT market, our content is highly targeted and is an effective means for attracting search engine traffic and resulting members.
We also make user-focused marketing expenditures designed to supplement our non-paid traffic and registered members. We employ a variety of online marketing vehicles such as keyword advertising on the major search engines and targeted list rentals of opt-in e-mail subscribers from a variety of targeted media sources.
Technological Infrastructure
We have developed an expandable operations infrastructure using hardware and software systems from established IT vendors to maintain our websites and online offerings. Our system hardware is co-located at Verizon's Billerica, Massachusetts data center. All of the critical components of the system are redundant, allowing us to withstand unexpected component failure and to undergo maintenance and upgrades. Our infrastructure is scalable, enabling us to make incremental additions that fit into the existing environment as our system requirements grow based on traffic and member growth. Our critical data is copied to backup tapes daily, which are sent to an off-site storage facility. We maintain a quality assurance process to monitor constantly our servers, processes and network connectivity. We have implemented these various redundancies and backup systems in order to minimize the risk associated with damage from fire, power loss, telecommunications failure, break-ins, computer viruses and other events beyond our control.
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We believe that continued development of our technological infrastructure is critical to our success. We have made, and expect to continue to make, technological improvements in this infrastructure to improve our ability to service our users and customers.
Competition
We compete for potential advertisers with a number of different types of companies, including: broad-based media outlets, such as television, newspapers and business periodicals that are designed to reach a wide audience; general purpose portals and search engines; and offline and online offerings of media companies that produce content specifically for IT professionals, including CMP Media Inc., International Data Group and Ziff Davis Media Inc.
In the online market we generally compete on the basis of target audience, quality and uniqueness of information content, ease of use of our websites for IT professionals, and the quality and quantity of sales leads generated for advertisers. Our print publications generally compete on the basis of editorial quality and integrity, as well as the demographic quality of the circulations that receive the publications. Our events generally compete on the basis of the quality and integrity of our content offerings, the quality of our attendees, and the ability to provide events that meet the needs of particular sector segments.
User Privacy
We gather in-depth information about our registered members who elect to provide us information through one or more of the online registration forms displayed on our websites. We post our privacy policies on our websites so that our users can access and understand the terms and conditions applicable to the collection and use of that information. Our privacy policies also disclose the types of information we gather, how we use it, and how a user can correct or change this information. Our privacy policies also explain the circumstances under which we share this information and with whom. Users who register for our websites have the option of indicating specific areas of interest in which they are willing to receive offers via e-mail or postal mail; these offers contain content created either by us or our third-party IT vendor customers.
To protect our disclosures and obligations to our users, we impose constraints that are generally consistent with our commitments to our user community on the customers to whom we provide user data. Additionally, when we provide lists to third parties, including to our advertiser customers, it is under contractual terms that are generally consistent with our obligations to our users and with applicable laws and regulations.
Consumer Protection Regulation
General. Advertising and promotional activities presented to visitors on our websites are subject to federal and state consumer protection laws that regulate unfair and deceptive practices. We are also subject to various other federal and state consumer protection laws, including the ones described below.
CAN-SPAM Act. Effective January 1, 2004, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or the CAN-SPAM Act, became effective. The CAN-SPAM Act regulates commercial e-mails and provides a right on the part of the recipient to request the sender to stop sending messages, and establishes penalties for the sending of e-mail messages that are intended to deceive the recipient as to source or content. Under the CAN-SPAM Act, senders of commercial e-mails (and other persons who initiate those e-mails) are required to make sure that those e-mails do not contain false or misleading transmission information. Commercial e-mails are required to include a valid return e-mail address and other subject heading information so that the sender and the Internet location from which the message has been sent are accurately identified. Recipients must be furnished with an electronic method of informing the sender of the recipient's decision not to receive further commercial e-mails. In addition, the e-mail must include a postal address of the sender and notice that the e-mail is an advertisement. The CAN-SPAM Act may apply to the e-newsletters that our public portals distribute to registered members
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and to some of our other commercial e-mail communications. However, there may be additional FTC regulations indicating that our e-newsletters are outside the scope of CAN-SPAM Act. At this time, we are applying the CAN-SPAM requirements to these e-mail communications, and believe that our e-mail practices comply with the requirements of the CAN-SPAM Act.
In addition, several foreign governments have regulations dealing with the collection and use of personal information obtained from their citizens. Those governments may attempt to apply such laws extraterritorially or through treaties or other arrangements with U.S. governmental entities. We might unintentionally violate such laws, such laws may be modified and new laws may be enacted in the future. Any such developments (or developments stemming from enactment or modification of other laws) or the failure to anticipate accurately the application or interpretation of these laws could create liability to us, result in adverse publicity and affect negatively our businesses.
Intellectual Property
We regard our copyrights, domain names, marks, trade secrets and similar intellectual property as critical to our success, and rely upon copyright, trademark and trade secrets laws, as well as confidentiality agreements with our employees and others, and protective contractual provisions to protect the proprietary technologies that we have developed. We pursue the registration of our material trademarks in the United States. Currently, our TechTarget trademark and logo are registered federally in the United States and selected foreign jurisdictions and we have applied for U.S. and foreign registrations for our various other marks. In addition, we have registered approximately 550 domain names that are or may be relevant to our business, including "www.techtarget.com," "www.bitpipe.com," and those leveraging the "search" prefix used in the branding of many of our websites.
We also incorporate a number of third-party software products into our technology platform pursuant to relevant licenses. Some of this software is proprietary and some is open source. We use third-party software to maintain and enhance, among other things, the content generation and delivery, and support our technology infrastructure. We are not substantially dependent upon these third-party software licenses and we believe the licensed software is generally replaceable, by either licensing or purchasing similar software from another vendor or building the software functions ourselves.
Employees
As of December 31, 2006, we had approximately 457 employees. Our current employees are not represented by a labor union and are not the subjects of a collective bargaining agreement. We believe that we have a good relationship with our employees.
Facilities
Our corporate headquarters are located in Needham, Massachusetts, where we currently lease approximately 60,073 square feet. We also have entered into a lease amendment for an additional 14,533 square feet within the same building, which will commence in May 2007. The combined square footage of the current lease and the lease amendment is approximately 74,606; 56,863 square feet of this space expires in December 2009 and the remaining square footage of 17,743 expires in March 2010. We also lease the following office space; approximately 9,645 square feet of space in Boston, Massachusetts which expires in July 2008 (approximately 6,636 square feet of which is subleased through the end of the term, with the sublease of the other 3,009 square feet expiring in April 2007); approximately 6,712 square feet of space in San Francisco, California, which expires in January 2008, and approximately 4,838 square feet in Westborough, Massachusetts, which expires in July 2007. We do not own any real property. We believe that our leased facilities are, in general, in good operating condition and adequate for our current operations and that additional leased space can be obtained if needed.
Legal Proceedings
From time to time we may be involved in disputes or litigation relating to claims arising out of our operations. We are not currently a party to any material legal proceedings.
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Executive Officers and Directors
The following table sets forth information regarding our executive officers and directors, including their ages as of December 31, 2006.
Name
|
Age
|
Position
|
||
---|---|---|---|---|
Greg Strakosch | 44 | Chairman and Chief Executive Officer | ||
Don Hawk | 35 | President | ||
Eric Sockol | 45 | Chief Financial Officer and Treasurer | ||
Kevin Beam | 43 | Executive Vice President | ||
Rick Olin | 49 | Vice President, General Counsel and Secretary | ||
Leonard Forman (1)(2)(3) | 61 | Director | ||
Jay C. Hoag (1)(2) | 48 | Director | ||
Bruce Levenson (3) | 57 | Director | ||
Roger M. Marino (1)(2)(3) | 68 | Director | ||
Alan G. Spoon (1)(2) | 55 | Director |
Greg Strakosch has served as our chief executive officer and a director since our incorporation in September of 1999 and our chairman since 2007. Prior to co-founding TechTarget, Mr. Strakosch was the President of the Technology Division of United Communications Group, or UCG, a business-to-business information provider. Mr. Strakosch joined UCG in 1992 when the company acquired Reliability Ratings, an IT publishing company that he founded in 1989. Before Reliability Ratings, Mr. Strakosch spent six years at EMC Corporation, a provider of enterprise information storage systems. Mr. Strakosch holds a B.A. from Boston College.
Don Hawk has served as our president since our incorporation in September of 1999. Prior to co-founding TechTarget, Mr. Hawk was a Director of New Media Products for the Technology Division of UCG from 1997 to 1999. Prior to joining UCG, Mr. Hawk was the director of electronic business development for Telecommunications Reports International, a telecommunications publishing company. Mr. Hawk holds a B.A. and an M.A. from George Washington University.
Eric Sockol has served as our chief financial officer since our incorporation in September of 1999 and our treasurer since March 2001. Before joining TechTarget, Mr. Sockol was the Chief Financial Officer of ObTech, Inc., a system integration company, from December 1996 to August 1999. Prior to ObTech, Mr. Sockol was the Chief Financial Officer of OneWave, Inc., a business applications software company, from October 1995 to November 1996. Prior to joining OneWave, Mr. Sockol served as Finance Director and Corporate Controller of Corporate Software, Inc., a global reseller of software and support services, from June 1990 to September 1995. Mr. Sockol is a certified public accountant and holds a B.B.A. from the University of Massachusetts, Amherst.
Kevin Beam has been employed by us since 2000, serving as our executive vice president since July 2004, and as one of our vice presidents from March 2000 until July 2004. Prior to joining TechTarget, Mr. Beam was a Vice President in the Technology Division of UCG from 1992 to 1999. Prior to joining UCG, Mr. Beam spent five years in sales and sales management positions at Reliability Ratings, an IT publishing company. Before Reliability Ratings, Mr. Beam spent five years at EMC Corporation. Mr. Beam holds a B.A. from Boston College.
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Rick Olin has served as our general counsel since October of 2006 and as our secretary since December 2006. Prior to joining us, Mr. Olin was the Senior Vice President of Corporate Development, General Counsel and Secretary of Workscape, Inc., a provider of outsourced human resource technology solutions from March 2005 through October 2006 and its Vice President, General Counsel and Secretary from March 2002 through February 2005. Prior to joining Workscape, Mr. Olin was Vice President and General Counsel at SpeechWorks International, Inc., a provider of speech technology software solutions, from March 1999 through February 2002. Mr. Olin holds a B.A. from Brandeis University, an M.Ed from Harvard University and a J.D. from Northeastern University.
Leonard Forman has served as a director since December of 2006. Since January 1, 2007, Mr. Forman has served as a consultant for the New York Times Company, a media company. Mr. Forman served as the Chief Financial Officer and Executive Vice President of the New York Times Company from 2001 to 2006. Mr. Forman also serves on the board of directors of Wolters Kluwer, N.V. Mr. Forman holds a B.A. from Queens College, City University of New York and a Ph.D from New York University.
Jay C. Hoag has served as a director since 2004. Mr. Hoag is the co-founder of Technology Crossover Ventures, a venture capital firm and one of our stockholders. Prior to founding Technology Crossover Ventures in 1995, Mr. Hoag was a managing director of Chancellor Capital Management from 1982 to 1994. Mr. Hoag also serves on the boards of directors of Altiris, Inc., eLoyalty Corporation, Netflix, Inc. and several private companies. Mr. Hoag holds a B.A. from Northwestern University and a M.B.A. from the University of Michigan.
Bruce Levenson has served as a director since 1999. Mr. Levenson is the co-founder of UCG, where he has worked since 1977. Mr. Levenson is currently a Partner at UCG, where he is involved in company strategy and directs the firm's acquisition efforts. Mr. Levenson also is a member of the advisory board of BIA Digital Partners, a private equity firm. In addition. Mr. Levenson is a partner in Atlanta Spirit, LLC, which is the majority owner of the NBA Atlanta Hawks franchise and the NHL Atlanta Thrashers franchise. Atlanta Spirit LLC also owns the operating rights to the Philips Arena, the major sports and entertainment venue in Atlanta. Mr. Levenson holds a B.A. from Washington University and a J.D. from American University.
Roger M. Marino has served as a director since 2000. Mr. Marino is an active private investor in numerous technology start-up companies. In 2001 Mr. Marino founded Revere Pictures, a film production company. Prior to founding Revere Pictures, Mr. Marino co-founded EMC Corporation and retired as its president in 1992. Mr. Marino holds a B.S. from Northeastern University and is a member of Northeastern's Board of Trustees.
Alan G. Spoon has served as a director since 2001. Mr. Spoon is a managing general partner at Polaris Ventures, a venture capital firm and one of our stockholders, where he has worked since May of 2000. Prior to joining Polaris Ventures, Mr. Spoon served at The Washington Post Company for eighteen years in a variety of capacities. He was that company's Chief Operating Officer and a Director from March 1991 through May 2000 and served as President from September 1993 through May 2000. Mr. Spoon also serves on the boards of directors of Danaher Corporation, InterActiveCorp, Getty Images, Inc. and several private companies. Mr. Spoon holds a B.S. from Massachusetts Institute of Technology, an M.S. from M.I.T.'s Sloan School of Management and a J.D. from Harvard Law School.
There are no family relationships among any of our directors or executive officers.
Board Composition
We currently have six directors, five of whom were elected to serve as directors under the board composition provisions of a stockholders' agreement and our certificate of incorporation. The board composition provisions of the stockholders' agreement and our certificate of incorporation will be terminated upon the closing of this offering. Upon the termination of these provisions, there will be no
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further contractual obligations regarding the election of our directors. Our directors hold office until their successors have been elected and qualified or until the earlier of their resignation or removal.
Following this offering, our board of directors will be divided into three classes with members of each class of directors serving for staggered three-year terms. Our board of directors will consist of two Class I directors (currently Roger M. Marino and Jay C. Hoag), two Class II directors (currently Bruce Levenson and Alan G. Spoon) and two Class III directors (currently Greg Strakosch and Leonard Forman), whose initial terms will expire at the annual meetings of stockholders held in 2008, 2009 and 2010, respectively. Our classified board could have the effect of making it more difficult for a third party to acquire control of us.
Greg Strakosch, our chief executive officer, serves as the chairman of our board of directors. Jay C. Hoag serves as our lead independent director.
Board Committees
Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Each committee operates under a separate charter adopted by our board of directors. Our board of directors has determined that all of the members of each of our board's three standing committees are independent as defined under the rules of the NASDAQ Global Market, including, in the case of all members of the audit committee, the independence requirements contemplated by Rule 10A-3 under the Securities Exchange Act of 1934.
Audit Committee. Leonard Forman, Bruce Levenson and Roger M. Marino currently serve on the audit committee. Our board of directors has determined that Mr. Forman is an "audit committee financial expert" as defined in applicable SEC Rules. Mr. Forman is the chairman of our audit committee. The audit committee's responsibilities include but are not limited to:
Compensation Committee. Leonard Forman, Jay C. Hoag, Roger M. Marino and Alan G. Spoon currently serve on the compensation committee. Mr. Spoon is the chairman of our compensation committee. The compensation committee's responsibilities include but are not limited to:
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Nominating and Corporate Governance Committee. Leonard Forman, Jay C. Hoag, Roger M. Marino and Alan G. Spoon currently serve on the nominating and corporate governance committee. Mr. Hoag is the chairman of our nominating and corporate governance committee. The nominating and corporate governance committee's responsibilities include but are not limited to:
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Compensation Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or compensation committee. None of the current members of our compensation committee has ever been one of our employees.
Director Compensation
In fiscal 2006, none of our directors received any compensation for service as a member of our board of directors or board committees. Upon consummation of this offering, directors who are also employees will continue to receive no compensation for their service as a director. However, as of January 1, 2007, non-employee directors will:
In addition, each non-employee director will be paid, on an annual basis, the following amounts for service as follows: each member of the audit committee: $5,000; each member of the compensation committee: $2,500; and each member of the nominating and corporate governance committee: $2,500. In addition, each committee chairperson will receive the following additional annual cash payments: chairperson of the audit committee: $10,000; chairperson of the compensation committee: $5,000; and chairperson of the nominating and corporate governance committee: $5,000. In lieu of receiving cash payments for their service on our board of directors or our board committees, directors may be paid in restricted stock units under our 2007 Stock Option Plan. In the event that we add additional non-employee directors to our board, we will determine the amount of equity compensation, if any, based on the available benchmarking data for directors of comparable companies as well as other relevant factors, such as that person's experience in our industry, unique skills and knowledge, and the extent to which we expect that person will serve on and/or chair any committees.
In consideration of Mr. Forman's agreement to join our board and to serve as chairman of our audit committee, we have agreed to grant to Mr. Forman an option to purchase 300,000 shares of our common stock. The option will vest and become exercisable over a two-year period as follows: 150,000 shares will vest on December 19, 2007, which will be the first anniversary of Mr. Forman joining our board; and the remaining 150,000 shares will vest and become exercisable in four equal installments of 37,500 shares following the expiration of each three-month period thereafter. The exercise price for the shares underlying Mr. Forman's stock option shall be equal to the midpoint of the range listed on the cover page of this prospectus. Any future grants to Mr. Forman will be provided in accordance with our then applicable director compensation guidelines. In determining the amount of Mr. Forman's initial grant, our board reviewed the individual factors detailed above and, in this case, Mr. Forman's business and financial experience in highly-relevant industry sectors, and the fact that he will be serving as chairman of our audit committee.
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Compensation Discussion and Analysis
Overview
Our executive compensation program is designed to attract and retain those individuals with the skills necessary for us to achieve our long-term business plan, to motivate and reward individuals who perform at or above the levels that we expect and to link a portion of each executive officer's compensation to the achievement of business objectives. It is also designed to reinforce a sense of ownership, urgency and overall entrepreneurial spirit. Further, our executive compensation program is designed to align the interests of our executive officers with those of our stockholders by providing a portion of our executive officers' compensation through equity-based awards. We want our executive officers to take appropriate risks with our capital in order to generate returns for our stockholders, but, at the same time, share the downside risk if those risks cause poor performance or even loss.
Compensation Committee
Our compensation committee reviews and recommends to our board of directors the compensation of our chief executive officer, Mr. Strakosch, and, with input from our chief executive officer, the compensation for our other executive officers. Mr. Strakosch plays no role in determining his own salary, bonus or equity compensation.
Our compensation committee intends to perform at least annually a review of our executive compensation program to determine whether such program provides adequate incentives and motivation to our executive officers, and whether it adequately compensates our executive officers relative to comparable executive officers employed by other private and public companies with which we believe we compete for executives. In addition to addressing cash compensation matters for our executive officers, our compensation committee reviews stock option grants to executive officers, as well as stock option grants to employees who are not executive officers. In September 2006, the compensation committee reviewed and approved a material stock option grant to approximately 300 employees, including Messrs. Strakosch, Sockol, Hawk and Beam. See "Compensation Discussion and AnalysisSeptember 2006 Grants" for further information.
Compensation Components
Our executive compensation program has three primary components: base salary, annual bonuses under a performance-based plan, and equity awards. We view these three components of compensation as related but distinct. Although our compensation committee reviews total compensation, we do not believe that significant compensation derived from one component of compensation should negate or reduce compensation from other components. Our compensation committee has not adopted any formal policies or guidelines for allocating compensation between long-term and currently paid out compensation, between cash and non-cash compensation, or among different forms of non-cash compensation. We determine the appropriate level for each compensation component based in part, on competitive benchmarking consistent with our recruiting and retention goals, our view of internal equity and consistency and other considerations we deem relevant, such as rewarding extraordinary performance. We believe that stock option awards are an important motivator in attracting and retaining employees in addition to salary and cash bonus awards.
Base Salary. We determine base salary compensation for our executive officers at a level we believe enables us to retain and motivate and, as needed, hire individuals in a competitive environment, so that such executive officers will contribute to our overall business goals. We also take into account the base salary compensation that is payable by companies that we believe to be our competitors and by other comparable private and public companies with which we believe we generally compete for executives. Base
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salaries are reviewed annually and adjusted from time to time to realign salaries with market levels after taking into account an individual's responsibilities, performance, skills specific to us and industry experience. In December 2006, our compensation committee recommended, and our board of directors approved, base salaries for 2007 for our executive officers.
Annual Performance Bonus. We designed our executive team bonus plan to focus our management on achieving key company financial objectives and to reward our management for achievement of these financial objectives. In December 2006, our board of directors approved the 2007 Executive Team Bonus Plan, which we refer to as the 2007 Bonus Plan. The 2007 Bonus Plan provides for the payment of an annual cash bonus based on an individual targeted bonus amount for each executive officer. The specific targeted bonus amount for each executive officer is determined by the compensation committee based on a recommendation by Mr. Strakosch and the various factors noted above. Mr. Strakosch's targeted bonus amount is determined by the compensation committee without input from Mr. Strakosch. Each of the executive officers is eligible to earn greater than their targeted bonus amount in the event the financial objectives are exceeded. The terms of the 2007 Bonus Plan are consistent with the terms of annual performance bonus plans that have been in place for our executive officers since 2002.
Historically, and in connection with the 2007 Bonus Plan, financial targets were established in conjunction with our annual budget process. Our compensation committee has chosen Adjusted EBITDA, as defined as net income (loss) before net interest expense, income tax expense, depreciation, amortization and stock-based compensation expense, as the target metric for payment under the 2007 Bonus Plan (as has been the case since 2002). As in past years, the Adjusted EBITDA target under the 2007 Bonus Plan is the same as our budget target for the fiscal year. Adjusted EBITDA was chosen by our compensation committee because it believes that Adjusted EBITDA is the appropriate measurement of our performance.
In order for any of our executive officers to be paid any amounts under the 2007 Bonus Plan, we must reach or exceed a minimum threshold of 90% of the targeted Adjusted EBITDA. If the 90% threshold is achieved, then each of our executive officers will earn 50% of their targeted bonus amount. Furthermore, each of our executive officers will earn an additional 5% of their targeted bonus amount for each additional 1% of the target Adjusted EBITDA achieved over 90% until 100% of the targeted Adjusted EBITDA is achieved. If greater than 100% of the Adjusted EBITDA is achieved, then the executive officers will earn an additional bonus in excess of their targeted amount. For 2007, the additional amount will be paid in the form of an equity award. The maximum bonus amount that the executive officers collectively can earn in the aggregate is capped at $1,600,000, which represents approximately two times their aggregate bonus target.
We expect that bonus amounts, if earned, will be paid during the fiscal quarter following the release of our audited financial statements for the applicable fiscal year. All bonus amounts earned are accounted for in accordance with GAAP throughout the applicable fiscal year.
Equity Incentive Compensation. We intend to continue, as we have in the past, to utilize stock options, and in the future, expect to utilize other similar equity awards, in each case to attract, motivate and retain employees. We believe that stock options and other equity awards are an important component of an executive's overall compensation package, and that the equity element of such package can be effective in rewarding long-term performance of our executives. We believe that this compensation philosophy, in turn, contributes to long-term value for our stockholders. All of our executive officers and a majority of our key employees have received stock option grants under our 1999 Stock Option Plan. As a private company, from time to time, we have retained an independent valuation firm to assist our board of directors in establishing the exercise price of stock options. We do not have any written program, plan or obligation relating to the grant of equity compensation on specified dates. We intend, however, to grant stock options at regularly scheduled meetings of our compensation committee or specially-convened meetings of our committee at other times, if necessary. It is possible that, following this offering, we will
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establish programs or policies relating to our equity grant practices. The authority to make equity grants to our executive officers rests with our compensation committee, although, as noted above, our compensation committee does, in determining the grants of equity awards, consider the recommendations of our chief executive officer.
September 2006 Grants. During the second quarter of 2006, our board of directors, compensation committee and executive officers held numerous discussions, both together and independently, regarding the importance of retaining and motivating key employees in order to plan for our next stage of growth. Based upon those discussions, our compensation committee determined that it was appropriate and in the best interest of our stockholders to grant stock options to approximately 300 of our employees, including our executive officers based on various factors, including but not limited to: (a) available public information related to equity holdings of executive officers at public companies; (b) discussions among the executive officers regarding the performance of individual employees; (c) the importance of retaining key employees; (d) individual and company-wide retention goals; and (e) the competitiveness of the employment marketplace. The amount of Mr. Strakosch's option grant was determined by our compensation committee based on a similar analysis. In addition, we retained an independent valuation firm to assist our board of directors in determining the exercise price of the options. On September 27, 2006, an aggregate of 16,070,000 stock options were granted to approximately 300 employees, including our executive officers.
Benchmarking of Compensation and Equity
Our compensation committee believes that using a benchmark to measure the performance of our executive officers may not always be appropriate but also believes that it can be a meaningful factor in determining cash and equity compensation. Determining the appropriate compensation for each of our executive officers involves various objective and subjective compensation principles. Therefore, our compensation committee, when assessing our compensation plans, both by component and in the aggregate, reviews the following information and data. With regard to our chief executive officer and chief financial officer, historically, and for our recent hire of our general counsel, given that we believe the role and responsibilities for those positions are generally consistent from company to company, we review the compensation of those titled positions as detailed in public company filings and certain private company data for companies with similar financial and operational characteristics. Those characteristics include market capitalization (where applicable), revenue, profitability, headcount, industry and geography. Additionally, for the other two members of our executive management team whose positions are more distinct and may not be as readily benchmarked by title, we attempt to find analogous positions in other public and private companies with similar financial and operational characteristics by function and responsibilities. Following this review, our compensation committee considers additional individual factors that contribute to an individual's value to our company, such as length of service and specific skills that make an executive officer uniquely key to our success.
We have not retained a compensation consultant to develop or review our policies and procedures with respect to executive compensation. Until February 6, 2007 our compensation committee was comprised of Jay C. Hoag, Bruce Levenson, Roger M. Marino, Alan G. Spoon, all of whom, either personally or on behalf of their respective funds, represented substantial stockholders in our company. These compensation committee members reviewed and approved the compensation of our executive officers, relying in part on their substantial business experience.
Summary Compensation Table
The following table sets forth the compensation earned during fiscal 2006 by our chief executive officer, our chief financial officer and our three other most highly compensated executive officers who
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were serving as executive officers as of December 31, 2006. We refer to these officers collectively as our named executive officers.
Name and Principal Position
|
Salary($)
|
Bonus($)
(1)
|
Option
Awards($) (2) |
All Other
Compensation($) (3) |
Total($)
|
|||||
---|---|---|---|---|---|---|---|---|---|---|
Greg Strakosch, Chairman and Chief Executive Officer | 420,000 | 1,848,333 | 1,500 | 2,269,833 | ||||||
Don Hawk, President | 330,000 | 1,848,333 | 1,500 | 2,179,833 | ||||||
Eric Sockol, Chief Financial Officer and Treasurer | 240,000 | 924,167 | 1,500 | 1,165,667 | ||||||
Kevin Beam, Executive Vice President | 325,000 | 1,386,250 | 1,500 | 1,712,750 | ||||||
Rick Olin, Vice President, General Counsel and Secretary (4) | 33,333 | (4) | | 190,916 | | 224,249 |
Grants of Plan-Based Awards
The following table provides information regarding plan-based awards granted during fiscal year 2006 to our named executive officers.
Name
|
Grant
Date |
Number of
Securities Underlying Options(#) (1) |
Exercise
Price of Option Awards($/sh) (2) |
|||
---|---|---|---|---|---|---|
Greg Strakosch | 9/27/2006 | 2,000,000 | 1.84 | |||
Don Hawk | 9/27/2006 | 2,000,000 | 1.84 | |||
Eric Sockol | 9/27/2006 | 1,000,000 | 1.84 | |||
Kevin Beam | 9/27/2006 | 1,500,000 | 1.84 | |||
Rick Olin | 10/30/2006 | 200,000 | 1.95 |
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Potential Payments upon Termination or Change in Control
We have entered into employment agreements that may require us to make certain payments and/or provide certain benefits to our named executive officers in the event of a termination of employment or change in control. The following narrative and tabular disclosure summarizes the potential payments to each named executive officer assuming that one of the events described below occurs. The table assumes that the event occurred on December 31, 2006, the last day of the fiscal year.
The employment agreement of each named executive officer entitles him to severance benefits if we terminate his employment without "cause" (as defined in the employment agreement) or if the executive officer terminates his employment for "good reason" (as defined in the employment agreement).
In the event of a termination by us without cause or by the executive officer for good reason, the executive is entitled to a payment, in the case of Mr. Strakosch, equal to his annual salary, in the case of Messrs. Hawk, Beam and Sockol, equal to nine months of their respective annual salary, and, in the case of Mr. Olin, six months of his annual salary. Additionally, each executive in entitled to (a) a payment of a portion of their annual targeted bonus equal to the greater of (i) 50% of such targeted amount and (ii) a pro rated portion thereof based on the applicable period in the then-current fiscal year that has passed; (b) payment by us of all health and welfare benefits pursuant to the same financial arrangement as was in place prior to the termination for a period equal to, in the case of Mr. Strakosch, one year, in the case of Messrs. Hawk, Beam and Sockol, nine months, and, in the case of Mr. Olin, six months; and (c) acceleration of unvested option shares in an amount equal to an additional ten percent for each year of service with us (except, in the case of Mr. Olin, equal to the greater of (1) 50% of the then-unvested number of his option shares and (2) an additional ten percent for each year of his service to the Company). Additionally, a failure of the Company to renew the employment agreement (unless as a result of "cause") is deemed to be a termination without cause, entitling the executive to his severance benefits.
In the event that the executive is terminated for cause or terminates his employment other than for good reason, the executive is not entitled to any of the foregoing severance benefits.
In the event of a change in control of us, all unvested options to purchase shares of our common stock become fully-exercisable by each named executive officer. Under the terms of the employment agreements "change in control" is defined as: (i) a merger or consolidation of us with or into any other corporation or other business entity (except one in which the holders of our capital stock immediately prior to such merger or consolidation continue to hold at least a majority of the outstanding securities having the right to vote in an election of our board of directors, which we refer to as voting stock, of the surviving corporation); (ii) a sale, lease, exchange or other transfer (in one transaction or a related series of transactions) of all or substantially all of our assets; (iii) the acquisition by any person or any group of persons (other than us, any of our direct or indirect subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of us or any of our direct or indirect subsidiaries) acting together in any transaction or related series of transactions, of such number of shares of the voting stock as causes such person, or group of persons, to own beneficially, directly or indirectly, as of the time immediately after such transaction or series of transactions, more than 50% of the combined voting power of the voting stock other than as a result of an acquisition of securities directly from us, or solely as a result of an acquisition of securities by us which by reducing the number of shares of the voting stock outstanding increases the proportionate voting power represented by the voting stock owned by any such person to more than 50% of the combined voting power of such voting stock; (iv) a change in the composition of our board of directors following a tender offer or proxy contest, as a result of which persons who, immediately prior to such tender offer or proxy contest, constituted our board of directors shall cease to constitute at least a majority of the members of our board of directors; and (v) any liquidation, reorganization in bankruptcy, dissolution or winding up of us (whether voluntary or involuntary).
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Payments upon a Triggering Event
The following table sets forth information regarding the amounts payable under employment agreements to the named executive officers by us if a termination by us other than for cause or termination by the named executive officers for good reason occurred on December 31, 2006.
Name
|
Annual Salary($)
(1)
|
Bonus($)
|
Equity
Payments($) (3) |
Health Care Benefits($)
|
Total($)
|
|||||
---|---|---|---|---|---|---|---|---|---|---|
Greg Strakosch | 420,000 | 240,000 | 499,000 | 8,796 | 1,167,796 | |||||
Don Hawk | 247,500 | 200,000 | 386,031 | 6,597 | 840,128 | |||||
Eric Sockol | 180,000 | 60,000 | 131,344 | 6,597 | 377,941 | |||||
Kevin Beam | 243,750 | 150,000 | 257,969 | 6,597 | 658,316 | |||||
Rick Olin (2) | 100,000 | | | 4,398 | 104,398 |
Upon a change in control only, Messrs. Strakosch, Hawk, Sockol, and Beam would be entitled to receive payments as a result of the acceleration of all unvested stock options in the amount of $565,000, $452,031, $164,344 and $323,969, respectively.
Equity Compensation Plans
1999 Stock Option Plan
Our 1999 Stock Option Plan, as amended, was adopted by our board of directors and approved by our stockholders in September of 1999 and most recently amended on September 27, 2006. Our 1999 Stock Option Plan is administered by our compensation committee, which has full authority and discretion to interpret and apply the provisions of the 1999 Stock Option Plan. The 1999 Stock Option Plan provides for the grant of incentive stock options, non statutory stock options, restricted stock and other stock based awards. Our employees, officers, directors, consultants and advisors are eligible to receive awards under the 1999 Stock Option Plan.
As of December 31, 2006, there were outstanding options under our 1999 Stock Option Plan to purchase a total of 31,689,291 shares of our common stock. In connection with the adoption of our 2007 Stock Option Plan, our board of directors determined not to make any further grants under the 1999 Stock Option Plan.
2007 Stock Option and Incentive Plan
Our 2007 Stock Option Plan, was adopted by our board of directors and approved by our stockholders in . Our 2007 Stock Option Plan permits us to make grants of incentive stock options, non-qualified stock options, stock appreciation rights, deferred stock awards and restricted stock awards. We have initially reserved shares of our common stock for the issuance of awards under the 2007 Stock Option Plan. The 2007 Stock Option Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each year, beginning in 2008, by of the outstanding number of shares of common stock on the immediately preceding December 31. This number is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.
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Generally, shares that are forfeited or canceled from awards under the 2007 Stock Option Plan also will be available for future awards. In addition, stock options returned to our 1999 Stock Option Plan, as of result of their expiration, cancellation or termination, are automatically made available for issuance under our 2007 Stock Option Plan.
Our 2007 Stock Option Plan is administered by our compensation committee. Our compensation committee has full power and authority to select the participants to whom awards will be granted, to make any combination of awards to participants, to accelerate the exercisability or vesting of any award and to determine the specific terms and conditions of each award, subject to the provisions of the 2007 Stock Option Plan. All full-time and part-time officers, employees, directors and other key persons (including consultants and prospective employees) are eligible to participate in the 2007 Stock Option Plan.
The exercise price of stock options awarded under the 2007 Stock Option Plan may not be less than the fair market value of the common stock on the date of the option grant and it is expected that the term of each option granted under the 2007 Stock Option Plan will not exceed ten years from the date of grant. The compensation committee will determine at what time or times each option may be exercised (provided that in no event may it exceed ten years from the date of grant) and, subject to the provisions of the 2007 Stock Option Plan, the period of time, if any, after retirement, death, disability or other termination of employment during which options may be exercised.
Stock appreciation rights may be granted under our 2007 Stock Option Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. The compensation committee determines the terms of stock appreciation rights, including when such rights become exercisable and whether to pay the increased appreciation in cash or with shares of our common stock, or a combination thereof.
Restricted stock and deferred stock awards may also be granted under our 2007 Stock Option Plan. Restricted stock awards are shares of our common stock that vest in accordance with terms and conditions established by our compensation committee. The compensation committee may impose whatever conditions to vesting it determines to be appropriate. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture. Deferred stock awards are units entitling the recipient to receive shares of stock paid out on a deferred basis, and subject to such restrictions and conditions, as the compensation committee shall determine. Our compensation committee will determine the number of shares of restricted stock or deferred stock awards granted to any employee. Our 2007 Stock Option Plan also gives the compensation committee discretion to grant stock awards free of any restrictions.
Our compensation committee also may grant awards under our 2007 Stock Option Plan that are intended to be "qualified performance-based" compensation under Section 162(m) of the Internal Revenue Code. Dividend equivalent rights may also be granted under our 2007 Stock Option Plan. Dividend equivalent rights are awards entitling the grantee to current or deferred payments equal to dividends on a specified number of shares of stock. Dividend equivalent rights may be settled in cash or shares and are subject to other conditions as the committee shall determine.
Unless our compensation committee provides otherwise, our 2007 Stock Option Plan does not generally allow for the transfer of awards and only the recipient of an award may exercise an award during his or her lifetime. In the event of a change in control of TechTarget, our board of directors and the board of directors of the surviving or acquiring entity shall, as to outstanding awards under the 2007 Stock Option Plan, make appropriate provision for the continuation or assumption of such awards.
No awards may be granted under the 2007 Stock Option Plan after . In addition, our board of directors may amend or discontinue the 2007 Stock Option Plan at any time and the compensation committee may amend or cancel any outstanding award for the purpose of satisfying changes in law or for any other lawful purpose. No such amendment may adversely affect the rights under any outstanding award without the holder's consent. Other than in the event of a necessary adjustment in
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connection with a change in our stock or a merger or similar transaction, the compensation committee may not "reprice" or otherwise reduce the exercise price of outstanding stock options.
As of , there were no outstanding options to purchase shares of our common stock under our 2007 Stock Option Plan and, assuming that no shares are returned to our 1999 Stock Option Plan and made available for issuance under our 2007 Stock Option Plan, shares of our common stock are available for future issuance or grant under our 2007 Stock Option Plan.
Employee Benefit Plans
Our employees, including our executive officers, are entitled to various employee benefits. These benefits include: medical and dental care plans; flexible spending accounts for healthcare; life, accidental death and dismemberment and disability insurance; and a 401(k) plan.
401(k) Plan. We offer a 401(k) Plan to eligible employees. Under our 401(k) Plan, we may provide a discretionary matching contribution to all employees after they meet all eligibility requirements. Currently, we match dollar-for-dollar up to a maximum of $1,500 per year. The employer contributions vest over a four-year period commencing on the employee's hire date.
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Outstanding Equity Awards at December 31, 2006
The following table summarizes the outstanding equity award holdings held by our named executive officers as of December 31, 2006.
|
Number of Securities
Underlying Unexercised Options |
|
|
|||||
---|---|---|---|---|---|---|---|---|
Name
|
Option
Exercise Price($) |
Option
Expiration Date |
||||||
Exercisable(#)
|
Unexercisable(#)
|
|||||||
Greg Strakosch |
2,000,000
2,750,000 1,500,000 500,000 |
500,000 (1) 2,000,000 (2) |
0.05
0.54 0.54 1.26 1.84 |
9/17/2009
11/1/2011 8/4/2013 12/17/2014 9/27/2016 |
||||
Don Hawk |
1,000,000
18,750 288,750 103,125 250,000 |
46,875 (3) 250,000 (1) 2,000,000 (2) |
0.05
0.45 0.54 0.68 1.26 1.84 |
9/17/2009
12/12/2010 1/18/2012 1/9/2014 12/17/2014 9/27/2016 |
||||
Eric Sockol |
214,250
174,880 80,000 34,375 50,000 |
15,625 (3) 50,000 (1) 1,000,000 (2) |
0.05
0.45 0.54 0.68 1.26 1.84 |
9/17/2009
12/12/2010 1/18/2012 1/9/2014 12/17/2014 9/27/2016 |
||||
Kevin Beam |
442,500
500,000 100,000 162,500 34,375 125,000 |
37,500 (4) 15,625 (3) 125,000 (1) 1,500,000 (2) |
0.05
0.59 0.54 0.54 0.68 1.26 1.84 |
9/17/2009
3/15/2010 1/18/2012 7/30/2013 1/9/2014 12/17/2014 9/27/2016 |
||||
Rick Olin | | 200,000 (5) | 1.95 | 10/30/2016 |
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Limitation of Liability and Indemnification
As permitted by the Delaware General Corporation Law, we have adopted provisions in our certificate of incorporation and bylaws to be in effect at the closing of this offering that limit or eliminate the personal liability of our directors. Consequently, a director will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director, except for liability for:
These limitations of liability do not alter director liability under the federal securities laws and do not affect the availability of equitable remedies such as an injunction or rescission.
In addition, our bylaws provide that:
Contemporaneously with the completion of this offering, we intend to enter into indemnification agreements with each of our executive officers and directors. These agreements provide that we will indemnify each of our directors to the fullest extent permitted by law and advance expenses to each indemnitee in connection with any proceeding in which indemnification is available.
We also maintain general liability insurance that covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers, including liabilities under the Securities Act of 1933, as amended. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling the registrant pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder's investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. We believe that these provisions, the indemnification agreements and the insurance are necessary to attract and retain talented and experienced directors and officers.
At present, there is no pending litigation or proceeding involving any of our directors or officers where indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that might result in a claim for such indemnification.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Other than compensation agreements and other arrangements which are described as required in "Management" and the transactions described below, since January 1, 2004, there has not been, and there is not currently proposed, any transaction or series of similar transactions to which we were or will be a party in which the amount involved exceeded or will exceed $120,000 and in which any director, executive officer, holder of five percent or more of any class of our capital stock or any member of their immediate family had or will have a direct or indirect material interest.
All of the transactions set forth below were approved by a majority of our board of directors, including a majority of the independent and disinterested members of the board of directors. We believe that we have executed all of the transactions set forth below on terms no less favorable to us than we could have obtained from unaffiliated third parties. It is our intention to ensure that all future transactions between us and our officers, directors and principal stockholders and their affiliates, are approved by our nominating and corporate governance committee or another independent committee of our board of directors, and are on terms no less favorable to us than those that we could obtain from unaffiliated third parties.
Historical corporate transactions
In February 2001, we issued and sold an aggregate of 45,154,005 shares of series A preferred stock at a price of $0.5411 per share and 12,734,036 shares of Series A preferred stock at a price per of $0.4163 per share plus the cancellation of debt. In June 2003, we issued and sold an additional 1,848,093 shares of series A preferred stock at a price of $0.5411 per share. In May 2004 and June 2004, we issued and sold an aggregate of 51,470,588 shares of series B preferred stock at a price of $1.36 per share. In December 2004, we issued and sold an aggregate of 10,141,302 shares of series C preferred stock at a price of $1.4791 per share.
The following table summarizes, on a common stock equivalents basis, the participation by our five percent stockholders and stockholders associated with some of our directors in these private placements.
Purchaser
(1)
|
Total Common
Stock Equivalents |
Aggregate
Consideration Paid |
Investment Participation
|
||||
---|---|---|---|---|---|---|---|
Stockholders Associated with Directors: | |||||||
Technology Crossover Ventures | 41,835,356 | $ | 57,499,999 | Series B and C | |||
Polaris Venture Partners | 36,759,655 | 36,689,568 | Series A, B and C | ||||
RLLM Limited Partnership | 1,848,087 | 1,000,000 | Series A | ||||
GRAM Limited Partnership | 1,848,087 | 1,000,000 | Series A |
In connection with the above transactions, we entered into agreements with all of the investors participating therein providing for registration rights with respect to the shares sold in these transactions. The most recent such agreement restates the registration rights of the above investors and the other parties thereto. For more information regarding this agreement, see "Description of Capital StockRegistration Rights."
In May 2004, we offered to repurchase for cash (i) up to 100% of our issued and outstanding shares of our series A preferred stock and (ii) up to 45% of the aggregate issued and outstanding shares of common stock and/or options to purchase the same. We paid $1.36 per share (in the case of options, less the exercise price per share of the applicable option). We repurchased an aggregate of 29,423,859 shares from four of our named executive officers and three of our five percent stockholders that are affiliated with our directors for an aggregate of purchase price $38,980,979.
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Transactions with Our Executive Officers and Directors
We entered into a stockholders' agreement with certain of our stockholders, including Roger M. Marino and Bruce Levenson, two of our directors, in connection with our series A preferred stock placement in February 2001. This stockholders' agreement was amended at the time of our series B preferred stock placement and our series C preferred stock placement. The stockholders' agreements contains co-sale rights and certain voting obligations with respect to shares of our common stock held be them and shall terminate in accordance with its terms upon the closing of this offering.
We entered into an investors' rights agreement with certain of our stockholders, including Roger M. Marino and Bruce Levenson, two of our directors, in connection with our series A preferred stock placement in February 2001. This investors' rights agreement was amended at the time of our series B preferred stock placement and our series C preferred stock placement. The investors' rights agreement contains registration rights and rights of first refusal with respect to shares of our common stock held by them. For more information regarding this agreement, see "Description of Capital StockRegistration Rights."
Contemporaneous with the completion of this offering, we intend to enter into indemnification agreements with each of our executive officers and directors, providing for indemnification against expenses and liabilities reasonably incurred in connection with their service for us on our behalf. For more information regarding these agreements, see "ManagementLimitation of Liability and Indemnification."
Purchase of Shares in this Offering
In connection with our series C preferred stock financing in December 2004, we entered into a stockholders' agreement with TCV V, L.P. and TCV Member Fund, L.P. (collectively the "TCV Funds") and other of our investors. Under this agreement, the investors have the right to participate in this offering with respect to their pro rata ownership of common stock, on an as-converted basis. Certain of the entities affiliated with the TCV Funds have expressed an interest in purchasing shares in this offering. The entities affiliated with the TCV Funds collectively beneficially own approximately 32.34% of our common shares immediately prior to this offering and Jay C. Hoag, one of our directors, is the co-founder of the TCV Funds. The entities affiliated with the TCV Funds are under no obligation to purchase any shares in this offering, and their interest in purchasing shares in this offering is not a commitment to do so. The other investors have indicated that they do not intend to exercise their right to purchase shares in this offering.
Stock Options
For information regarding stock options granted to our named executive officers and directors, see "ManagementExecutive Compensation" and "ManagementDirector Compensation."
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership information of our common stock at December 31, 2006 and as adjusted to reflect the sale of the shares of common stock in this offering, for:
We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock reflected as beneficially owned, subject to applicable community property laws. We have based our calculation of the percentage of beneficial ownership on 129,371,179 shares of common stock outstanding on December 31, 2006 and shares of common stock outstanding upon completion of this offering, which includes an aggregate of shares of common stock to be sold by certain selling stockholders in this offering that will be issued upon the exercise of outstanding options as of December 31, 2006.
In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of December 31, 2006. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Beneficial ownership representing less than 1% is denoted with an asterisk (*).
|
|
|
|
|
|
Number of
Shares Being Offered Pursuant to an Option Granted to the Underwriters |
Percentage of
Shares Owned Assuming Full Exercise of an Option Granted to the Underwriters |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shares Beneficially Owned Prior to the Offering
|
|
Shares Beneficially Owned After the Offering
|
||||||||||||
Beneficial Owner
|
Shares Sold in Offering
|
||||||||||||||
Number
|
Percent
|
Number
|
Percent
|
||||||||||||
5% Stockholders, Directors and Named Executive Officers: (1) | |||||||||||||||
Technology Crossover Ventures (2) | 41,835,356 | 32.34 | % | ||||||||||||
Polaris Venture Partners (3) | 36,759,655 | 28.41 | |||||||||||||
Greg Strakosch (4) | 6,750,000 | 4.96 | |||||||||||||
Eric Sockol (5) | 663,755 | * | |||||||||||||
Kevin Beam (6) | 1,380,000 | 1.06 | |||||||||||||
Don Hawk (7) | 1,670,000 | 1.27 | |||||||||||||
Rick Olin | | * | |||||||||||||
Roger M. Marino (8) | 18,896,850 | 14.61 | |||||||||||||
Jay C. Hoag (9) | 41,835,356 | 32.34 | |||||||||||||
Alan G. Spoon (10) | 36,759,655 | 28.41 | |||||||||||||
Leonard Forman | | * | |||||||||||||
Bruce Levenson (11) | 13,478,199 | 10.42 | |||||||||||||
Edwin Peskowitz (12) | 13,478,199 | 10.42 | |||||||||||||
All executive officers and directors as a group (10 persons) | 121,433,815 | 86.91 | |||||||||||||
Other Selling Stockholders: | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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General
Upon completion of this offering, our authorized capital stock will consist of shares of common stock, par value $0.001 per share, and shares of preferred stock, par value $0.001 per share. The following description of our capital stock is intended as a summary only and is qualified in its entirety by reference to our fourth amended and restated certificate of incorporation and amended and restated bylaws to be in effect at the closing of this offering, which are filed as exhibits to the registration statement, of which this prospectus forms a part, and to the applicable provisions of the Delaware General Corporation Law. We refer in this section to our fourth amended and restated certificate of incorporation as our certificate of incorporation, and we refer to our amended and restated bylaws as our bylaws.
Common Stock
As of December 31, 2006, there were 129,371,179 shares of our common stock outstanding and held of record by approximately 143 stockholders, assuming conversion of all outstanding shares of preferred stock.
Holders of our common stock are entitled to one vote for each share of common stock held of record for the election of directors and on all matters submitted to a vote of stockholders. Holders of our common stock are entitled to receive dividends ratably, if any, as may be declared by our board of directors out of legally available funds, subject to any preferential dividend rights of any preferred stock then outstanding. Upon our dissolution, liquidation or winding up, holders of our common stock are entitled to share ratably in our net assets legally available after the payment of all our debts and other liabilities, subject to the preferential rights of any preferred stock then outstanding. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future. Except as described below in "Provisions of our Certificate of Incorporation and Bylaws and Delaware Anti-Takeover Law," a majority vote of common stockholders is generally required to take action under our certificate of incorporation and bylaws.
Preferred Stock
Upon completion of this offering, our board of directors will be authorized, without action by the stockholders, to designate and issue up to an aggregate of shares of preferred stock in one or more series. The board of directors can fix the rights, preferences and privileges of the shares of each series and any of its qualifications, limitations or restrictions. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible future financings and acquisitions and other corporate purposes could, under certain circumstances, have the effect of delaying, deferring or preventing a change in control of our company and might harm the market price of our common stock.
Our board of directors will make any determination to issue such shares based on its judgment as to our company's best interests and the best interests of our stockholders. We have no current plans to issue any shares of preferred stock.
Warrants
As of December 31, 2006, warrants to purchase a total of 292,017 shares of our common stock are outstanding with a weighted average exercise price of $0.57. These warrants expire July 13, 2008 through May 30, 2010. Upon the closing of this offering, the expiration dates of two warrants to purchase
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129,517 shares of common stock will be automatically extended and will not expire until the third anniversary of the closing of this offering.
Registration Rights
We entered into a second amended and restated investors' rights agreement, dated as of December 17, 2004, with the holders of shares of our common stock issuable upon conversion of the shares of preferred stock, including shares of preferred stock held by some of our directors and for purposes of registration rights, Cowen and Company, LLC, who we refer to collectively as holders of registrable shares. Under this agreement, holders of registrable shares can demand that we file a registration statement or request that their shares be covered by a registration statement that we are otherwise filing. These registration rights are subject to conditions and limitations, including the right of the underwriters of an offering to limit the number of shares included in such registration and our right not to effect a requested registration within three months following any offering of our securities, including this offering.
S-1 and S-2 demand registration rights. Following the closing of this offering, the holders of registrable shares common stock issued upon conversion of our preferred stock and Cowen and Company, LLC may require us to file up to two registration statements under the Securities Act on a Form S-1 or Form S-2 at our expense with respect to their shares of common stock issued upon conversion of our preferred stock having an aggregate offering price of at least $7,500,000.
S-3 demand registration rights. Following the closing of this offering, the holders of registrable shares are entitled to demand registration rights pursuant to which they may require us to file up to two registration statements under the Securities Act on Form S-3 having an aggregate offering price of at least $1,000,000 with respect to their shares of common stock, and we are required to use our best efforts to effect that registration. In addition, upon our eligibility to file a registration statement on Form S-3, Central Xchange, Inc., which holds a warrant to purchase shares of our common stock, may make one request that we effect their registration under the Securities Act on a Form S-3, and we are required to use our best efforts to effect that registration.
Piggyback registration rights. Following the closing of this offering, if we propose to register any of our securities under the Securities Act for our own account or the account of any other holder, the holders of registrable shares are entitled to notice of such registration and are entitled to include shares of their common stock issued upon such conversion therein, subject to the right of any underwriter to limit the number of shares included in such registration.
We will pay all registration expenses, other than underwriting discounts and commissions, related to any demand or piggyback registration. The registration rights agreement contains customary cross-indemnification provisions, pursuant to which we are obligated to indemnify the selling stockholders in the event of material misstatements or omissions in the registration statement attributable to us, and they are obligated to indemnify us for material misstatements or omissions attributable to them.
Provisions of Our Certificate of Incorporation and Bylaws and Delaware Anti-Takeover Law
Our certificate of incorporation and bylaws will, upon completion of this offering, include a number of provisions that may have the effect of encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions include the items described below.
Board Composition and Filling Vacancies. In accordance with our certificate of incorporation, our board is divided into three classes serving staggered three-year terms, with one class being elected each year. Our certificate of incorporation also provides that directors may be removed only for cause and then only by the affirmative vote of the holders of 75% or more of the shares then entitled to vote at an election of directors. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy
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resulting from an increase in the size of our board, may only be filled by the affirmative vote of a majority of our directors then in office even if less than a quorum.
No Written Consent of Stockholders. Our certificate of incorporation affected herewith provides that all stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting, and that stockholders may not take any action by written consent in lieu of a meeting.
Meetings of Stockholders. Our bylaws provide that only a majority of the members of our board of directors then in office may call special meetings of stockholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders. Our bylaws limit the business that may be conducted at an annual meeting of stockholders to those matters properly brought before the meeting.
Advance Notice Requirements. Our bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year. The notice must contain certain information specified in the bylaws.
Amendment to Bylaws and Certificate of Incorporation. As required by the Delaware General Corporation Law, any amendment of our certificate of incorporation must first be approved by a majority of our board of directors and, if required by law or our certificate of incorporation, thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment, and a majority of the outstanding shares of each class entitled to vote thereon as a class, except that the amendment of the provisions relating to stockholder action, directors, limitation of liability and the amendment of our bylaws and certificate of incorporation must be approved by not less than 75% of the outstanding shares entitled to vote on the amendment, and not less than 75% of the outstanding shares of each class entitled to vote thereon as a class. Our bylaws may be amended by the affirmative vote of a majority vote of the directors then in office, subject to any limitations set forth in the bylaws; and may also be amended by the affirmative vote of at least 75% of the outstanding shares entitled to vote on the amendment, or, if the board of directors recommends that the stockholders approve the amendment, by the affirmative vote of the majority of the outstanding shares entitled to vote on the amendment, in each case voting together as a single class.
Blank Check Preferred Stock. Our certificate of incorporation provides for authorized shares of preferred stock. The existence of authorized but unissued shares of preferred stock may enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. For example, if in the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is not in the best interests of us or our stockholders, our board of directors could cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group. In this regard, our certificate of incorporation grants our board of directors broad power to establish the rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares of common stock. The issuance may also adversely affect the rights and powers, including voting rights, of these holders and may have the effect of delaying, deterring or preventing a change in control of us.
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Section 203 of the Delaware General Corporation Law
Upon completion of this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a three-year period following the time that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes, among other things, a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder status, 15% or more of the corporation's voting stock. Under Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:
NASDAQ Global Market Listing
We have applied to have our common stock listed on the NASDAQ Global Market under the trading symbol "TTGT."
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is .
94
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our common stock. Future sales of substantial amounts of common stock in the public market, or the perception that such sales may occur, could adversely affect the market price of our common stock. Although we have applied to have our common stock approved for quotation on the NASDAQ Global Market, we cannot assure you that there will be an active public market for our common stock.
Upon completion of this offering, we will have outstanding an aggregate of shares of common stock, assuming no other exercise of options or the outstanding warrants after December 31, 2006. Of these shares, shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by our "affiliates," as that term is defined in Rule 144 under the Securities Act, whose sales would be subject to certain limitations and restrictions described below.
The remaining shares of common stock held by existing stockholders were issued and sold by us in reliance on exemptions from the registration requirements of the Securities Act. Of these shares, shares will be subject to "lock-up" agreements with the underwriters described below on the effective date of this offering. On the effective date of this offering, there will be shares that are not subject to lock-up agreements and eligible for sale pursuant to Rule 144(k). Upon expiration of the lock-up agreements 180 days after the effective date of this offering, shares will become eligible for sale, subject in most cases to the limitations of Rule 144. In addition, holders of stock options could exercise such options and sell certain of the shares issued upon exercise as described below.
Days After Date of this Prospectus
|
Shares Eligible for Sale
|
Comment
|
||
---|---|---|---|---|
Upon Effectiveness | Shares sold in the offering | |||
Upon Effectiveness | Freely tradable shares saleable under Rule 144(k) that are not subject to a lock-up | |||
90 Days | Shares saleable under Rules 144 and 701 that are not subject to a lock-up | |||
180 Days | Lock-ups released, subject to extension; shares saleable under Rules 144 and 701 | |||
Thereafter | Restricted securities held for one year or less |
Lock-Up Agreements
We, as well as each of our directors and executive officers, the selling stockholders and certain of our other stockholders, who collectively own shares of our common stock, have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated and Lehman Brothers Inc. on behalf of the underwriters, we and they will not, subject to limited exceptions, during the period ending 180 days after the date of this prospectus, subject to extension in specified circumstances:
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whether any transaction described above is to be settled by delivery of our common stock or such other securities, in cash or otherwise. Any determination to release any shares subject to the lock-up agreements would be made on a case-by-case basis based on a number of factors at the time of determination, including the market price of the common stock, the liquidity of the trading market for the common stock, general market conditions, the number of shares proposed to be sold and the timing, purpose and terms of the proposed sale. Morgan Stanley & Co. Incorporated and Lehman Brothers Inc. on behalf of the underwriters will have discretion in determining if, and when, to release any shares subject to lock-up agreements.
We do not currently expect any release of shares subject to lock-up agreements prior to the expiration of the applicable lock-up periods. Upon the expiration of the applicable lock-up periods, substantially all of the shares of common stock subject to such lock-up restrictions will become eligible for sale, subject to the limitations discussed above.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year, including an affiliate, would be entitled to sell in "broker's transactions" or to market makers, within any three-month period, a number of shares that does not exceed the greater of:
Sales under Rule 144 are generally subject to the availability of current public information about us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been an affiliate of ours at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without having to comply with the manner of sale, public information, volume limitation or notice filing provisions of Rule 144. Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately upon the completion of this offering.
Rule 701
In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchases shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to sell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period and notice filing requirements of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, volume limitation or notice filing provisions of Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold by persons other than affiliates subject only to the manner of sale provisions of Rule 144 and by affiliates without compliance with its one year minimum holding period requirements.
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Stock Options
We intend to file one or more registration statements on Form S-8 under the Securities Act to register all shares of common stock subject to outstanding stock options and common stock issued or issuable under our stock plans. We have agreed with the underwriters not to file any registration statement covering shares offered pursuant to our stock plans until at least 90 days following the date of this prospectus.
Registration Rights
Upon completion of this offering, the holders of approximately shares of our common stock will be eligible to exercise certain rights with respect to the registration of such shares under the Securities Act. See "Description of Capital StockRegistration Rights." Upon the effectiveness of a registration statement covering these shares, the shares would become freely tradable.
97
Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. Incorporated and Lehman Brothers Inc. are acting as representatives and joint book-running managers, have severally agreed to purchase, and we and the selling stockholders have agreed to sell to them, severally, the number of shares indicated below:
Name
|
Number of Shares
|
|
---|---|---|
Morgan Stanley & Co. Incorporated | ||
Lehman Brothers Inc. | ||
Cowen and Company, LLC | ||
Piper Jaffray & Co. | ||
|
||
Total: | ||
|
The underwriters and the representatives are collectively referred to as the "underwriters." The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters' over-allotment option described below.
The underwriters initially propose to offer part of the shares of common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives.
The selling stockholders have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriter's name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table.
The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us and the selling stockholders. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase up to an additional shares of common stock.
|
Total
|
||||||
---|---|---|---|---|---|---|---|
|
Per Share
|
No Exercise
|
Full Exercise
|
||||
Public offering price | |||||||
Underwriting discounts and commissions to be paid by: | |||||||
Us | |||||||
The selling stockholders | |||||||
Proceeds, before expenses, to us | |||||||
Proceeds, before expenses, to selling stockholders |
98
The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $ .
The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of common stock offered by them.
We have applied to have our common stock listed on the NASDAQ Global Market under the trading symbol "TTGT."
We, the selling shareholders and all directors and officers and certain holders of our outstanding stock and stock options have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated and Lehman Brothers Inc. on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus:
whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. In addition, we and each such person agrees that, without the prior written consent of Morgan Stanley & Co. Incorporated and Lehman Brothers Inc. on behalf of the underwriters, it will not, during the period ending 180 days after the date of this prospectus, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock.
The restrictions described in the immediately preceding paragraph to do not apply to:
The 180 day restricted period described in the preceding paragraph will be extended if:
in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18 day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available
99
for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time. These transactions may be effected on the NASDAQ Global Market or otherwise and, if commenced, may be discontinued at any time.
We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act and liabilities incurred in connection with the directed share program below.
A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares of common stock to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.
Other than the prospectus in electronic format, the information on any underwriter's or selling group member's website and any information contained in any other website maintained by an underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.
If you purchase shares of common stock offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.
Cowen and Company, LLC, one of the underwriters, holds 736,931 shares of our common stock, which it acquired in February 2006 upon exercise of a warrant granted by us in February 2001 as compensation for services in connection with the private placement of our series A preferred stock.
The underwriters may in the future perform investment banking and advisory services for us from time to time for which they may in the future receive customary fees and expenses.
Pricing of the Offering
Prior to this offering, there has been no public market for our common stock. The initial public offering price was determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price were our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours.
100
Directed Share Program
At our request, the underwriters have reserved up to five percent of the shares of common stock to be issued by us and offered by this prospectus for sale, at the initial public offering price, to our employees. If purchased by these persons, these shares will be subject to a 180-day lock-up restriction. This 180-day lock up period shall be extended with respect to our issuance of an earnings release or if a material news or a material event relating to us occurs, in the same manner as described above. The number of shares of common stock available for sale to the general public will be reduced to the extent these individuals purchase such reserved shares. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, with effect from and including the date on which the Prospectus Directive is implemented in that Member State, offers can not be made to the public in that Member State, except, with effect from and including such date, an offer of shares to the public in that Member State may be made:
For the purposes of the above, the expression an "offer of shares to the public" in relation to any shares in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in that Member State.
United Kingdom
This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive, whom we refer to as "Qualified Investors" that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, which we refer to as the "Order" or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
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Goodwin Procter LLP, Boston, Massachusetts, will pass upon the validity of the shares of common stock offered hereby. Wilmer Cutler Pickering Hale and Dorr LLP, Boston, Massachusetts, will pass upon legal matters relating to this offering for the underwriters.
The consolidated financial statements of TechTarget, Inc. at December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Bitpipe, Inc., as of December 31, 2003 and December 31, 2004 and for each of the two years in the period then ended included in this prospectus have been so included in reliance on the report or have been audited by PricewaterhouseCoopers LLP, independent auditors, given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 (File Number 333- ) under the Securities Act with respect to the shares of common stock we are offering by this prospectus. This prospectus does not contain all of the information included in the registration statement. For further information pertaining to us and our common stock, you should refer to the registration statement and to its exhibits. 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 copies of the actual contract, agreement or other document.
Upon the closing of the offering, we will be subject to the informational requirements of the Securities Exchange Act of 1934 and will file annual, quarterly and current 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 website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facility at 100 F Street, N.E., Room 1580, Washington, D.C. 20549.
You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.
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Index To Consolidated Financial Statements
F-1
Report of Independent Registered Public Accounting Firm
The
Board of Directors and Stockholders of
TechTarget, Inc.
We have audited the accompanying consolidated balance sheets of TechTarget, Inc. as of December 31, 2004 and 2005, and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders' deficit, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TechTarget, Inc. at December 31, 2004 and 2005, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston,
Massachusetts
April 12, 2006
F-2
TechTarget, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
|
As of
December 31, |
As of
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
September 30,
2006 |
Pro Forma
September 30, 2006 |
||||||||||||
|
2004
|
2005
|
||||||||||||
|
|
|
(unaudited)
|
|||||||||||
Assets | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 7,214 | $ | 46,879 | $ | 27,469 | $ | 27,469 | ||||||
Short-term investments | 33,000 | | | | ||||||||||
Accounts receivable, net of allowance for doubtful accounts of $1,015, $500 and $603 as of December 31, 2004 and 2005 and September 30, 2006, respectively | 9,620 | 8,817 | 12,301 | 12,301 | ||||||||||
Prepaid expenses and other current assets | 613 | 913 | 1,518 | 1,518 | ||||||||||
Deferred tax asset | | 1,965 | 2,011 | 2,011 | ||||||||||
|
|
|
|
|||||||||||
Total current assets | 50,447 | 58,574 | 43,299 | 43,299 | ||||||||||
Property and equipment, net |
|
|
2,132 |
|
|
2,401 |
|
|
2,673 |
|
|
2,673 |
|
|
Goodwill | 29,362 | 26,535 | 35,975 | 35,975 | ||||||||||
Intangible assets, net of accumulated amortization | 10,866 | 5,915 | 7,209 | 7,209 | ||||||||||
Other assets | 113 | 172 | 81 | 81 | ||||||||||
Deferred tax asset | | 1,563 | 1,516 | 1,516 | ||||||||||
|
|
|
|
|||||||||||
Total assets | $ | 92,920 | $ | 95,160 | $ | 90,753 | $ | 90,753 | ||||||
|
|
|
|
|||||||||||
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) | ||||||||||||||
Current liabilities: | ||||||||||||||
Current portion of bank term loan payable | $ | 3,000 | $ | 3,000 | $ | 3,000 | $ | 3,000 | ||||||
Accounts payable | 2,465 | 3,669 | 3,128 | 3,128 | ||||||||||
Accrued expenses and other current liabilities | 1,901 | 1,820 | 1,842 | 1,842 | ||||||||||
Accrued compensation expenses | 4,181 | 1,875 | 1,642 | 1,642 | ||||||||||
Deferred revenue | 5,863 | 2,962 | 6,011 | 6,011 | ||||||||||
|
|
|
|
|||||||||||
Total current liabilities | 17,410 | 13,326 | 15,623 | 15,623 | ||||||||||
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities | 431 | 553 | 586 | 586 | ||||||||||
Bank term loan payable, net of current portion | 22,000 | 19,000 | 7,000 | 7,000 | ||||||||||
|
|
|
|
|||||||||||
Total liabilities | 39,841 | 32,879 | 23,209 | 23,209 | ||||||||||
Commitments (Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A redeemable convertible preferred stock, $0.001 par value; 36,009,488 shares authorized in 2004, 2005 and 2006, 35,879,971 shares issued and outstanding in 2004, 2005 and 2006, (aggregate preference in liquidation of $30,166 at September 30, 2006) (unaudited) | 26,338 | 28,440 | 29,945 | | ||||||||||
Series B redeemable convertible preferred stock, $0.001 par value; 51,470,588 shares authorized, issued and outstanding in 2004, 2005 and 2006, (aggregate preference in liquidation of $86,532 at September 30, 2006) (unaudited) | 74,035 | 81,048 | 86,491 | | ||||||||||
Series C redeemable convertible preferred stock, $0.001 par value; 10,141,302 shares authorized, issued and outstanding in 2004, 2005 and 2006, (aggregate preference in liquidation of $17,679 at September 30, 2006) (unaudited) | 15,010 | 16,516 | 17,658 | | ||||||||||
|
|
|
|
|||||||||||
Total redeemable convertible preferred stock | 115,383 | 126,004 | 134,094 | | ||||||||||
Stockholders' equity (deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 152,378,622 shares authorized in 2004 and 2005 and 177,378,622 authorized in 2006, 32,432,991, 32,432,991, 31,678,220 and 129,170,081 shares issued and outstanding at December 31, 2004 and 2005 and at September 30, 2006 and September 30, 2006 pro forma, respectively | 32 | 33 | 32 | 129 | ||||||||||
Additional paid-in capital | | | | 108,749 | ||||||||||
Treasury stock, 3,344,041 shares outstanding in 2004 and 2005, 0 shares outstanding in 2006, at cost | (4,548 | ) | (4,548 | ) | | | ||||||||
Warrants | 364 | 364 | 105 | 105 | ||||||||||
Deferred compensation | (33 | ) | (28 | ) | | | ||||||||
Accumulated other comprehensive loss | | | (73 | ) | (73 | ) | ||||||||
Accumulated deficit | (58,119 | ) | (59,544 | ) | (66,614 | ) | (41,366 | ) | ||||||
|
|
|
|
|||||||||||
Total stockholders' equity (deficit) | (62,304 | ) | (63,723 | ) | (66,550 | ) | 67,544 | |||||||
|
|
|
|
|||||||||||
Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit) | $ | 92,920 | $ | 95,160 | $ | 90,753 | $ | 90,753 | ||||||
|
|
|
|
See accompanying notes.
F-3
TechTarget, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
|
Years Ended
December 31, |
Nine Months Ended September 30,
|
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
2005
|
2005
|
2006
|
||||||||||||
|
|
|
|
(unaudited)
|
|||||||||||||
Revenues: | |||||||||||||||||
Online | $ | 21,023 | $ | 31,342 | $ | 43,662 | $ | 32,545 | $ | 35,752 | |||||||
Events | 7,845 | 9,647 | 14,595 | 9,835 | 13,962 | ||||||||||||
3,598 | 5,738 | 8,489 | 6,088 | 6,181 | |||||||||||||
|
|
|
|
|
|||||||||||||
Total revenues | 32,466 | 46,727 | 66,746 | 48,468 | 55,895 | ||||||||||||
|
|
|
|
|
|||||||||||||
Cost of revenues: | |||||||||||||||||
Online (1) | 5,826 | 7,632 | 10,476 | 7,726 | 9,257 | ||||||||||||
Events (1) | 4,798 | 5,948 | 6,202 | 4,149 | 4,641 | ||||||||||||
Print (1) | 2,318 | 3,073 | 5,322 | 3,903 | 4,215 | ||||||||||||
|
|
|
|
|
|||||||||||||
Total cost of revenues | 12,942 | 16,653 | 22,000 | 15,778 | 18,113 | ||||||||||||
|
|
|
|
|
|||||||||||||
Gross profit | 19,524 | 30,074 | 44,746 | 32,690 | 37,782 | ||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing (1) | 10,736 | 15,138 | 18,174 | 13,173 | 14,555 | ||||||||||||
Product development (1) | 3,728 | 4,111 | 5,756 | 4,270 | 4,740 | ||||||||||||
General and administrative (1) | 3,991 | 11,756 | 7,617 | 5,278 | 6,001 | ||||||||||||
Depreciation | 1,153 | 1,168 | 1,792 | 1,297 | 697 | ||||||||||||
Amortization of intangible assets | 428 | 1,304 | 5,172 | 3,925 | 3,886 | ||||||||||||
|
|
|
|
|
|||||||||||||
Total operating expenses | 20,036 | 33,477 | 38,511 | 27,943 | 29,879 | ||||||||||||
|
|
|
|
|
|||||||||||||
Operating income (loss) | (512 | ) | (3,403 | ) | 6,235 | 4,747 | 7,903 | ||||||||||
Interest income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | 79 | 378 | 1,219 | 812 | 1,225 | ||||||||||||
Interest expense | (100 | ) | (235 | ) | (1,249 | ) | (903 | ) | (1,104 | ) | |||||||
|
|
|
|
|
|||||||||||||
Total interest income (expense) | (21 | ) | 143 | (30 | ) | (91 | ) | 121 | |||||||||
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes (benefit) | (533 | ) | (3,260 | ) | 6,205 | 4,656 | 8,024 | ||||||||||
Provision for (benefit from) income taxes |
|
|
|
|
|
32 |
|
|
(2,681 |
) |
|
|
|
|
3,623 |
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) | $ | (533 | ) | $ | (3,292 | ) | $ | 8,886 | $ | 4,656 | $ | 4,401 | |||||
|
|
|
|
|
|||||||||||||
Net loss per common share: | |||||||||||||||||
Basic and diluted | $ | (0.13 | ) | $ | (0.33 | ) | $ | (0.06 | ) | $ | (0.11 | ) | $ | (0.12 | ) | ||
|
|
|
|
|
|||||||||||||
Weighted average common shares outstanding: | |||||||||||||||||
Basic and diluted | 31,605,026 | 30,377,878 | 29,482,720 | 29,442,923 | 31,153,758 | ||||||||||||
|
|
|
|
|
|||||||||||||
Unaudited: | |||||||||||||||||
Pro forma net income per common share: | |||||||||||||||||
Basic | $ | 0.07 | $ | 0.03 | |||||||||||||
|
|
||||||||||||||||
Diluted | $ | 0.06 | $ | 0.03 | |||||||||||||
|
|
||||||||||||||||
Pro forma weighted average common shares outstanding: | |||||||||||||||||
Basic | 126,974,581 | 128,645,619 | |||||||||||||||
|
|
||||||||||||||||
Diluted | 138,748,014 | 139,678,483 | |||||||||||||||
|
|
F-4
|
Years Ended
December 31, |
Nine
Months Ended September 30, |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
2005
|
2005
|
2006
|
|||||||||||
|
|
|
|
(unaudited)
|
||||||||||||
(1) Amounts include stock-based compensation expense as follows: | ||||||||||||||||
Cost of online revenue | $ | | $ | 78 | $ | | $ | | $ | 14 | ||||||
Cost of events revenue | | 236 | | | 5 | |||||||||||
Cost of print revenue | | | | | 2 | |||||||||||
Selling and marketing | | 1,025 | | | 69 | |||||||||||
Product development | | 7 | | | 16 | |||||||||||
General and administrative | 35 | 4,937 | 78 | 11 | 50 | |||||||||||
|
|
|
|
|
||||||||||||
$ | 35 | $ | 6,283 | $ | 78 | $ | 11 | $ | 156 | |||||||
|
|
|
|
|
See accompanying notes.
F-5
TechTarget, Inc.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
(in thousands, except share and per share data)
|
Redeemable Convertible
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Common Stock
|
Treasury Stock
|
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
|
|
|
|
Accumulated
Other Comprehensive Loss |
|
||||||||||||||||||||||||||||||
|
Number of
Shares |
Redemption
Value |
Number of
Shares |
$0.001
Par Value |
Number of
Shares |
Value
|
Additional
Paid-In Capital |
Warrants
|
Deferred
Compensation |
Accumulated
Deficit |
Total
Stockholders' Equity (Deficit) |
|||||||||||||||||||||||||
Balance, December 31, 2002 | 57,888,041 | $ | 35,915 | 31,556,837 | $ | 31 | | $ | | $ | 5,169 | $ | 576 | $ | (61 | ) | $ | (33,587 | ) | $ | | $ | (27,872 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Sale of Series A redeemable convertible preferred, net of issuance costs of $9 | 1,848,093 | 991 | | | | | | | | | | | ||||||||||||||||||||||||
Accretion of redeemable convertible preferred stock | | 3,486 | | | | | (3,486 | ) | | | | | (3,486 | ) | ||||||||||||||||||||||
Issuance of common stock from exercise of options | | | 162,706 | | | | 25 | | | | | 25 | ||||||||||||||||||||||||
Amortization of deferred compensation | | | | | | | | | 35 | | | 35 | ||||||||||||||||||||||||
Net loss | | | | | | | | | | (533 | ) | | (533 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Balance, December 31, 2003 | 59,736,134 | $ | 40,392 | 31,719,543 | $ | 31 | | | $ | 1,708 | $ | 576 | $ | (26 | ) | $ | (34,120 | ) | $ | | $ | (31,831 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Purchase of Series A redeemable convertible preferred, including accretion write-off of $4,687 and net of issuance costs write-off of $639 through tender offer | (23,856,163 | ) | (16,956 | ) | | | | | (15,488 | ) | | | | | (15,488 | ) | ||||||||||||||||||||
Purchase of common stock through tender offer | | | | | 3,344,041 | (4,548 | ) | | | | | | (4,548 | ) | ||||||||||||||||||||||
Purchase of nonqualified stock options through tender offer | | | | | | | (685 | ) | | | | | (685 | ) | ||||||||||||||||||||||
Sale of Series B redeemable convertible preferred, net of issuance costs of $76 | 51,470,588 | 69,924 | | | | | | | | | | | ||||||||||||||||||||||||
Sale of Series C redeemable convertible preferred, net of issuance costs of $36 | 10,141,302 | 14,964 | | | | | | | | | | | ||||||||||||||||||||||||
Accretion of redeemable convertible preferred stock | | 6,847 | | | | | (6,847 | ) | | | | | (6,847 | ) | ||||||||||||||||||||||
Issuance of common stock from exercise of warrants | | 212 | 602,943 | 1 | | | 490 | (212 | ) | | | | 279 | |||||||||||||||||||||||
Issuance of common stock from exercise of options | | | 110,505 | | | | 50 | | | | | 50 | ||||||||||||||||||||||||
Deferred compensation related to nonqualified stock options | | | | | | | 65 | | (65 | ) | | | | |||||||||||||||||||||||
Amortization of deferred compensation | | | | | | | | | 58 | | | 58 | ||||||||||||||||||||||||
Reclassification from additional paid-in capital to accumulated deficit | | | | | | | 20,707 | | | (20,707 | ) | | | |||||||||||||||||||||||
Net loss | | | | | | | | | | (3,292 | ) | | (3,292 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Balance, December 31, 2004 | 97,491,861 | $ | 115,383 | 32,432,991 | $ | 32 | 3,344,041 | $ | (4,548 | ) | $ | | $ | 364 | $ | (33 | ) | $ | (58,119 | ) | $ | | $ | (62,304 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Accretion of redeemable convertible preferred stock | | 10,621 | | | | | (10,621 | ) | | | | | (10,621 | ) | ||||||||||||||||||||||
Issuance of common stock from exercise of options | | | 566,900 | 1 | | | 237 | | | | | 238 | ||||||||||||||||||||||||
Deferred compensation related to nonqualified stock options | | | | | | | 73 | | (73 | ) | | | | |||||||||||||||||||||||
Amortization of deferred compensation | | | | | | | | | 78 | | | 78 | ||||||||||||||||||||||||
Reclassification from additional paid-in capital to accumulated deficit | | | | | | | 10,311 | | | (10,311 | ) | | | |||||||||||||||||||||||
Net income | | | | | | | | | | 8,886 | | 8,886 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Balance, December 31, 2005 | 97,491,861 | $ | 126,004 | 32,999,891 | 33 | 3,344,041 | $ | (4,548 | ) | $ | | $ | 364 | $ | (28 | ) | $ | (59,544 | ) | $ | | $ | (63,723 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Accretion of redeemable convertible preferred stock | | 8,090 | | | | | (8,090 | ) | | | | | (8,090 | ) | ||||||||||||||||||||||
Issuance of common stock from exercise of warrants | | | 736,931 | 1 | | | 597 | (259 | ) | | | | 339 | |||||||||||||||||||||||
Issuance of common stock from exercise of options | | | 1,285,439 | 1 | | | 439 | | | | | 440 | ||||||||||||||||||||||||
Retirement of treasury stock | | | (3,344,041 | ) | (3 | ) | (3,344,041 | ) | 4,548 | (4,545 | ) | | | | | | ||||||||||||||||||||
Amortization of deferred compensation | | | | | | | | | 28 | | | 28 | ||||||||||||||||||||||||
Stock-based compensation expense | | | | | | | | | | 128 | | 128 | ||||||||||||||||||||||||
Change in fair value of interest rate swap | | | | | | | | | | | (73 | ) | (73 | ) | ||||||||||||||||||||||
Reclassification from additional paid-in capital to accumulated deficit | | | | | | | 11,599 | | | (11,599 | ) | | | |||||||||||||||||||||||
Net income | | | | | | | | | | 4,401 | | 4,401 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Balance, September 30, 2006 (unaudited) | 97,491,861 | $ | 134,094 | 31,678,220 | $ | 32 | $ | | $ | | $ | | $ | 105 | $ | | $ | (66,614 | ) | $ | (73 | ) | $ | (66,550 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Assumed conversion of redeemable convertible preferred stock | (97,491,861 | ) | (134,094 | ) | 97,491,861 | 97 | | | 108,749 | | | 25,248 | | 134,094 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Pro-forma balance, September 30, 2006 (unaudited) | | $ | | 129,170,081 | $ | 129 | $ | | $ | | $ | 108,749 | $ | 105 | $ | | $ | (41,366 | ) | $ | (73 | ) | $ | 67,544 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-6
TechTarget, Inc.
Consolidated Statements of Cash Flows
(in thousands)
|
Years Ended December 31,
|
Nine Months Ended September 30,
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
2005
|
2005
|
2006
|
|||||||||||||
|
|
|
|
(unaudited)
|
||||||||||||||
Operating Activities | ||||||||||||||||||
Net income (loss) | $ | (533 | ) | $ | (3,292 | ) | $ | 8,886 | $ | 4,656 | $ | 4,401 | ||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||
Depreciation and amortization | 1,581 | 2,472 | 6,964 | 5,222 | 4,583 | |||||||||||||
Provision for bad debt | 390 | 11 | (124 | ) | | 215 | ||||||||||||
Stock-based compensation | 35 | 6,283 | 78 | 11 | 156 | |||||||||||||
Noncash interest expense | 22 | 65 | 24 | 18 | 91 | |||||||||||||
Deferred tax benefit | | | (2,995 | ) | | | ||||||||||||
Changes in operating assets and liabilities, net of business acquired: | ||||||||||||||||||
Accounts receivable | (1,432 | ) | (3,316 | ) | 1,161 | 1,677 | (3,283 | ) | ||||||||||
Prepaid expenses and other current assets | 54 | 672 | (300 | ) | (787 | ) | (604 | ) | ||||||||||
Other assets | (21 | ) | (125 | ) | (83 | ) | (2 | ) | (18 | ) | ||||||||
Accounts payable | 1,107 | 67 | 1,204 | 282 | (541 | ) | ||||||||||||
Accrued expenses and other current liabilities | 57 | (1,572 | ) | 345 | (426 | ) | 22 | |||||||||||
Accrued compensation expenses | (272 | ) | 3,616 | (2,305 | ) | (3,383 | ) | (233 | ) | |||||||||
Deferred revenue | 270 | 1,585 | (1,642 | ) | 1,792 | 3,049 | ||||||||||||
Other liabilities | | 406 | 122 | 115 | (41 | ) | ||||||||||||
|
|
|
|
|
||||||||||||||
Net cash provided by operating activities | 1,258 | 6,872 | 11,335 | 9,175 | 7,797 | |||||||||||||
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Purchases of property and equipment, and other assets | (1,187 | ) | (1,756 | ) | (2,141 | ) | (1,497 | ) | (969 | ) | ||||||||
Purchases of short-term investments | | (66,000 | ) | | | | ||||||||||||
Proceeds from sale and maturities of short-term investments | | 33,000 | 33,000 | 33,000 | | |||||||||||||
Proceeds from sale of assets | | | 233 | 233 | | |||||||||||||
Acquisition of businesses, net of cash acquired | (2,284 | ) | (36,725 | ) | | | (15,017 | ) | ||||||||||
|
|
|
|
|
||||||||||||||
Net cash (used in) provided by investing activities | (3,471 | ) | (71,481 | ) | 31,092 | 31,736 | (15,986 | ) | ||||||||||
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Proceeds from issuance of Series A redeemable convertible preferred stock, net of issuance costs | 991 | | | | | |||||||||||||
Proceeds from issuance of Series B redeemable convertible preferred stock, net of issuance costs | | 69,924 | | | | |||||||||||||
Proceeds from issuance of Series C redeemable convertible preferred stock, net of issuance costs | | 14,964 | | | | |||||||||||||
Proceeds from bank term loan payable | 1,999 | 25,415 | | | 10,000 | |||||||||||||
Payments on bank term loan payable | (673 | ) | (3,107 | ) | (3,000 | ) | (2,250 | ) | (22,000 | ) | ||||||||
Proceeds from exercise of warrants and stock options | 25 | 328 | 238 | 143 | 779 | |||||||||||||
Purchase of stock options through tender offer | | (6,697 | ) | | | | ||||||||||||
Purchase of common and preferred stock through tender offer | | (36,992 | ) | | | | ||||||||||||
|
|
|
|
|
||||||||||||||
Net cash (used in) provided by financing activities | 2,342 | 63,835 | (2,762 | ) | (2,107 | ) | (11,221 | ) | ||||||||||
|
|
|
|
|
||||||||||||||
Net (decrease) increase in cash and cash equivalents | 129 | (774 | ) | 39,665 | 38,804 | (19,410 | ) | |||||||||||
Cash and cash equivalents at beginning of period | 7,859 | 7,988 | 7,214 | 7,214 | 46,879 | |||||||||||||
|
|
|
|
|
||||||||||||||
Cash and cash equivalents at end of period | $ | 7,988 | $ | 7,214 | $ | 46,879 | $ | 46,018 | $ | 27,469 | ||||||||
|
|
|
|
|
||||||||||||||
Supplemental Disclosure of Cash Flow Information | ||||||||||||||||||
Cash paid for interest | $ | 75 | $ | 95 | $ | 1,192 | $ | 858 | $ | 1,076 | ||||||||
|
|
|
|
|
||||||||||||||
Cash paid for income taxes | $ | | $ | | $ | | $ | | $ | 4,165 | ||||||||
|
|
|
|
|
See accompanying notes.
F-7
TechTarget, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2003, 2004 and 2005 and
Nine Months Ended September 30, 2005 and 2006 (unaudited)
(In thousands, except share and per share data)
1. Organization and Operations
TechTarget, Inc. (the Company) is a leading provider of specialized online content that brings together buyers and sellers of corporate information technology, or IT, products. The Company sells customized marketing programs that enable IT vendors to reach corporate IT decision makers who are actively researching specific IT purchases.
The Company's integrated content platform consists of a network of 35 websites that are complemented with targeted in-person events and three specialized IT magazines. Throughout all stages of the purchase decision process, these content offerings meet IT professionals' needs for expert, peer and IT vendor information, and provide a platform on which IT vendors can launch targeted marketing campaigns that generate measurable, high return on investment, or ROI. Based upon the logical clustering of users' respective job responsibilities and the marketing focus of the products that the Company's customers are advertising, content offerings are currently categorized across nine distinct media groups: Storage; Security; Networking; Windows and Distributed Computing; Data Center; CIO and IT Management; Enterprise Applications; Application Development; and Channel.
2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the consolidated financial statements.
Unaudited Interim Financial Information
The accompanying interim consolidated balance sheet as of September 30, 2006, the consolidated statements of operations and cash flows for the nine months ended September 30, 2005 and 2006, and the consolidated statements of redeemable convertible preferred stock and stockholders' deficit for the nine months ended September 30, 2006 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company's financial position at September 30, 2006 and its results of operations and its cash flows for the nine months ended September 30, 2005 and 2006. The results for the nine months ended September 30, 2006 are not necessarily indicative of the results to be expected for the year ending December 31, 2006.
Unaudited Pro Forma Presentation
The unaudited pro forma consolidated balance sheet and the unaudited pro forma statement of redeemable convertible preferred stock and stockholders' equity as of September 30, 2006 reflects the assumed conversion of all outstanding shares of the Company's redeemable convertible preferred stock into an aggregate of 97,491,861 shares of common stock based on the shares of redeemable convertible preferred stock outstanding at September 30, 2006 upon the assumed completion of the Company's initial public offering. The carrying value of the redeemable convertible preferred stock in excess of par value has been allocated first to accumulated deficit for the aggregate amount of accretion charged to accumulated deficit, and second to additional paid-in capital.
F-8
Unaudited pro forma net income per common share and pro forma weighted average common shares outstanding reflect the automatic conversion of all outstanding shares of series A preferred stock, series B preferred stock and series C preferred stock into shares of common stock on a one-for-one basis, to be effectuated upon the closing of the Company's initial public offering.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Management's Estimates and Uncertainties
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with original maturities of 90 days or less. Cash equivalents are carried at cost, which approximates fair market value. Cash and cash equivalents consist of the following:
|
As of
December 31, |
|
|||||||
---|---|---|---|---|---|---|---|---|---|
|
As of
September 30, 2006 |
||||||||
|
2004
|
2005
|
|||||||
|
|
|
(unaudited)
|
||||||
Cash | $ | 3,204 | $ | 2,953 | $ | 3,217 | |||
Money market funds | 4,010 | 5,113 | 2,917 | ||||||
Commercial paper corporate debt securities | | 38,813 | 21,335 | ||||||
|
|
|
|||||||
Total cash and cash equivalents | $ | 7,214 | $ | 46,879 | $ | 27,469 | |||
|
|
|
Unrealized holding gains on the commercial paper corporate debt securities totaled $157 and $28 as of December 31, 2005 and September 30, 2006, respectively.
Investments
The Company classifies investments with maturities between three and twelve months as short-term investments. Short-term investments consisted entirely of money market auction rate securities at December 31, 2004. Auction rate securities are securities that are structured with short-term reset dates of generally less than 90 days but with maturities in excess of 90 days. At the end of the reset period, investors
F-9
can sell or continue to hold the securities at par. As of December 31, 2005 and September 30, 2006, the Company did not hold any auction rate securities.
Revenue Recognition
The Company generates substantially all of its revenue from the sale of targeted advertising campaigns that are delivered via its network of websites, events and print publications. Revenue is recognized in accordance with Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition , and Financial Accounting Standards Board's (FASB) Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements With Multiple Deliverables . Revenue is recognized only when the service has been provided and when there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured.
Online Media. Revenue for online media offerings is recognized for specific online media offerings as follows:
White Papers. White paper revenue is recognized ratably in the period in which the white paper is available on the Company's websites.
Webcasts and Podcasts. Webcast revenue is recognized in the period in which the webcast occurs. Podcast revenue is recognized in the period in which it is posted and becomes available on the Company's websites.
Software Package Comparisons. Software package comparison revenue is recognized ratably in the period in which the software information is available on the Company's websites.
Dedicated E-mails and E-newsletters. Dedicated e-mail and e-newsletter revenue is recognized in the period in which the e-mail or e-newsletter is sent to registered members.
List Rentals. List rental revenue is recognized in the period in which the e-mails are sent to the list of registered members.
Banners. Banner revenue is recognized in the period in which the banner impressions occur.
While each of the Company's online media offerings can be sold separately, most of the Company's online media sales involve multiple online offerings. At inception of the arrangement the Company evaluates the deliverables to determine whether they represent separate units of accounting under EITF Issue No. 00-21. Deliverables are deemed to be separate units of accounting if all of the following criteria are met: the delivered item has value to the customer on a standalone basis; there is objective and reliable evidence of the fair value of the item(s); and delivery or performance of the item(s) is considered probable and substantially in our control. The Company allocates revenue to each unit of accounting in a transaction based upon its fair value as determined by vendor objective evidence. Vendor objective evidence of fair value for all elements of an arrangement is based upon the normal pricing and discounting practices for those online media offerings when sold to other similar customers. If vendor objective evidence of fair value has not been established for all items under the arrangement, no allocation can be made, and the Company recognizes revenue on all items over the term of the arrangement.
F-10
Event Sponsorships. Sponsorship revenues from events are recognized upon completion of the event in the period that the event occurs. Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue. The majority of the Company's events are free to qualified attendees, however certain of the Company's events are based on a paid attendee model. Revenue is recognized for paid attendee events upon completion of the event and receipt of payment from the attendee. Deferred revenue relates to collection of the attendance fees in advance of the event.
Print Publications. Advertising revenues from print publications are recognized at the time the applicable publication is distributed. Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue.
Allowance for Doubtful Accounts
The Company reduces gross trade accounts receivable by an allowance for doubtful accounts. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company reviews its allowance for doubtful accounts on a regular basis and all past due balances are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Provisions for allowance for doubtful accounts are recorded in general and administrative expenses.
Below is a summary of the changes in the Company's allowance for doubtful accounts for the years ended December 31, 2003, 2004, and 2005 and for the nine months ended September 30, 2006.
|
Balance at
Beginning of Period |
Acquisitions
|
Provision
|
Write-offs
|
Balance at End of Period
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year ended December 31, 2003 | $ | 560 | $ | | $ | 390 | $ | (186 | ) | $ | 764 | ||||
Year ended December 31, 2004 | 764 | 325 | 11 | (85 | ) | 1,015 | |||||||||
Year ended December 31, 2005 | 1,015 | (236 | ) | (124 | ) | (155 | ) | 500 | |||||||
Nine Months ended September 30, 2006 (unaudited) | $ | 500 | $ | | $ | 215 | $ | (112 | ) | $ | 603 |
F-11
Property and Equipment
Property and equipment is stated at cost. Property and equipment acquired through acquisitions of businesses are initially recorded at fair value. Depreciation is calculated on the straight-line method based on the month the asset is placed in service over the following estimated useful lives:
|
Estimated
Useful Life |
|
---|---|---|
Furniture and fixtures | 5 years | |
Computer equipment and software | 23 years | |
Internal-use software and website development costs | 34 years | |
Leasehold improvements | Shorter of useful life or life of lease |
Property and equipment consists of the following:
|
As of
December 31, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
As of
September 30, 2006 |
|||||||||
|
2004
|
2005
|
||||||||
|
|
|
(unaudited)
|
|||||||
Furniture and fixtures | $ | 630 | $ | 728 | $ | 758 | ||||
Computer equipment and software | 7,842 | 8,959 | 9,413 | |||||||
Leasehold improvements | 309 | 658 | 691 | |||||||
Internal-use software and website development costs | 404 | 899 | 1,351 | |||||||
|
|
|
||||||||
9,185 | 11,244 | 12,213 | ||||||||
Less accumulated depreciation | (7,053 | ) | (8,843 | ) | (9,540 | ) | ||||
|
|
|
||||||||
$ | 2,132 | $ | 2,401 | $ | 2,673 | |||||
|
|
|
Depreciation expense was $1,153, $1,168, $1,792, $1,297 and $697 for the years ended December 31, 2003, 2004 and 2005, and the nine months ended September 30, 2005 and 2006, respectively. Repairs and maintenance charges that do not increase the useful life of the assets are charged to operations as incurred. Effective January 1, 2006, the Company changed the estimated useful life for computer equipment and software from two years to three years to more closely approximate the service lives of computer equipment and software assets placed in service to date. The change in accounting estimate did not have a material effect on the Company's results from operations for the nine months ended September 30, 2006. Management does not expect this change in accounting estimate to have a material effect on results of operations in future periods.
The Company accounts for website development costs according to the guidance in the EITF Issue No. 00-2, Accounting for Web Site Development Costs which requires that costs incurred during the development of website applications and infrastructure involving developing software to operate a website
F-12
be capitalized. Additionally, all costs relating to internal use software are accounted for under Statement of Position (SOP) 98-1, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use . The estimated useful life of costs capitalized is evaluated for each specific project. Internal-use software and website development costs of $404, $495 and $452 were capitalized for the years ended December 31, 2004 and 2005, and the nine months ended September 30, 2006, respectively.
Financial Instruments
Financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, a term loan payable and an interest rate swap. The carrying value of these instruments approximates their estimated fair values.
Concentrations of Credit Risk and Off-Balance Sheet Risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist mainly of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents principally in accredited financial institutions of high credit standing. The Company routinely assesses the credit worthiness of its customers. The Company generally has not experienced any significant losses related to individual customers or groups of customers in any particular industry or area. The Company does not require collateral. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the Company's accounts receivable.
One customer accounted for 27% and 15% of total accounts receivable at September 30, 2006 and December 31, 2005, respectively. No other customer represented 10% or more of our accounts receivable at September 30, 2006 and December 31, 2005. No single customer accounted for more than 10% of total accounts receivable at December 31, 2004. One customer accounted for 12% of revenue through September 30, 2006. No other customer accounted for more than 10% of revenue through September 30, 2006. During fiscal years 2003, 2004 and 2005, no single customer accounted for greater than 10% of the Company's total revenue.
Derivative Instruments
The Company has adopted the accounting and disclosure requirements of Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities . SFAS No. 133 requires that all derivative instruments be recorded on the consolidated balance sheet at their fair value. In September, 2006, the Company entered into an interest rate swap agreement to mitigate interest rate fluctuations on its variable rate bank term loan, as further described in Note 7. Under SFAS No. 133, the interest rate swap agreement is deemed to be a cash flow hedge and qualifies for hedge accounting using the shortcut method. Accordingly, changes in the fair value of the interest rate swap agreement are recorded in "accumulated other comprehensive loss" on the consolidated statements of redeemable convertible preferred stock and stockholders' deficit. The Company has no foreign exchange contracts, option contracts, or other hedging arrangements.
F-13
Long-lived Assets
Long-lived assets consist of property and equipment, goodwill and other intangible assets. Goodwill and other intangible assets arise from acquisitions and are recorded in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets . In accordance with this statement, a specifically identified intangible asset must be recorded as a separate asset from goodwill if either of the following two criteria is met: (1) the intangible asset acquired arises from contractual or other legal rights; (2) the intangible asset is separable. Accordingly, intangible assets consist of specifically identified intangible assets. Goodwill is the excess of any purchase price over the estimated fair market value of net tangible assets acquired not allocated to specific intangible assets.
As required by SFAS No. 142, goodwill and indefinite-lived intangible assets are not amortized, but are reviewed annually for impairment or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have an indefinite life are amortized over their useful lives using the straight-line method over periods generally ranging from one to five years, and are reviewed for impairment when events or changes in circumstances suggest that the assets may not be recoverable under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets . The Company performs its annual test of impairment of goodwill on December 31 st of each year, and whenever events or changes in circumstances suggest that the carrying amount may not be recoverable. Based on this evaluation, the Company believes that, as of each of the balance sheet dates presented, none of the Company's goodwill or other long-lived assets was impaired.
Advertising Expense
Advertising expense primarily includes promotional expenditures and are expensed as incurred. Advertising expense was $227, $120, $129, $89 and $95 for the years ended December 31, 2003, 2004 and 2005, and the nine months ended September 30, 2005 and 2006, respectively.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes , which is the asset and liability method for accounting and reporting for income taxes. Under SFAS No. 109, deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. In addition, SFAS No. 109 requires a valuation allowance against net deferred tax assets if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Stock-Based Compensation
At December 31, 2005, the Company had one stock-based employee compensation plan which is more fully described in Note 11. Through December 31, 2005, the Company accounted for its stock-based awards to employees using the intrinsic value method prescribed in APB Opinion No. 25 and related interpretations. Under the intrinsic value method, compensation expense is measured on the date of the
F-14
grant as the difference between the deemed fair value of the Company's common stock and the exercise or purchase price multiplied by the number of stock options or restricted stock awards granted.
Through December 31, 2005, the Company accounted for stock-based compensation expense for non-employees using the fair value method prescribed by SFAS No. 123 and the Black-Scholes option-pricing model, and recorded the fair value of non-employee stock options as an expense over the vesting term of the option.
In December 2004, FASB issued SFAS No. 123(R), which requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. The Company adopted SFAS No. 123(R) effective January 1, 2006. SFAS No. 123(R) requires nonpublic companies that used the minimum value method in SFAS No. 123 for either recognition or pro forma disclosures to apply SFAS No. 123(R) using the prospective-transition method. As such, the Company will continue to apply APB Opinion No. 25 in future periods to equity awards outstanding at the date of SFAS No. 123(R)'s adoption that were measured using the minimum value method. In accordance with SFAS No. 123(R), the Company will recognize the compensation cost of employee stock-based awards using the straight line method over the vesting period of the award. Effective with the adoption of SFAS No. 123(R), the Company has elected to use the Black-Scholes option pricing model to determine the fair value of stock options granted.
Comprehensive Income (Loss)
SFAS No. 130, Reporting Comprehensive Income , establishes standards for reporting and displaying comprehensive income (loss) and its components in financial statements. Comprehensive income (loss) is defined to include all changes in equity during a period, except those resulting from investments by stockholders and distributions to stockholders. For the years ended December 31, 2003, 2004, and 2005, comprehensive income (loss) was equal to the reported net income (loss). For the nine months ended September 30, 2006, comprehensive income is the sum of net income and the change in the fair value of the Company's cash flow hedge, as follows:
|
Nine Months Ended
September 30, 2006 |
||||
---|---|---|---|---|---|
|
(unaudited)
|
||||
Net income | $ | 4,401 | |||
Other comprehensive income: | |||||
Change in fair value of cash flow hedge | (73 | ) | |||
|
|||||
Total comprehensive income | $ | 4,328 | |||
|
F-15
Net Income (Loss) Per Share
The Company calculates net income (loss) per share in accordance with SFAS No. 128, Earnings Per Share , as clarified by EITF Issue No. 03-6, Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share . EITF Issue No. 03-6 clarifies the use of the "two-class" method of calculating earnings per share as originally prescribed in SFAS No. 128. Effective for periods beginning after March 31, 2004, EITF Issue No. 03-6 provides guidance on how to determine whether a security should be considered a "participating security" for purposes of computing earnings per share and how earnings should be allocated to a participating security when using the two-class method for computing basic earnings per share. The Company has determined that its redeemable convertible preferred stock represents a participating security and therefore has adopted the provisions of EITF Issue No. 03-6 retroactively for all periods presented.
Under the two-class method, basic net income (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted-average number of common shares outstanding for the fiscal period. Diluted net income (loss) per share is computed using the more dilutive of (a) the two-class method or (b) the if-converted method. The Company allocates net income first to preferred stockholders based on dividend rights under the Company's charter and then to preferred and common stockholders based on ownership interests. Net losses are not allocated to preferred stockholders. Diluted net income (loss) per share is the same as basic net income (loss) per share as losses have been allocated to the common stockholders in all periods presented.
F-16
A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share is as follows:
|
Years Ended December 31,
|
Nine Months Ended September 30,
|
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
2005
|
2005
|
2006
|
||||||||||||||
|
|
|
|
(unaudited)
|
|||||||||||||||
Numerator: | |||||||||||||||||||
Net income (loss) | $ | (533 | ) | $ | (3,292 | ) | $ | 8,886 | $ | 4,656 | $ | 4,401 | |||||||
|
|
|
|
|
|||||||||||||||
Allocation of net income (loss): | |||||||||||||||||||
Basic and diluted: | |||||||||||||||||||
Accretion of preferred stock | $ | 3,486 | $ | 6,847 | $ | 10,621 | $ | 7,944 | $ | 8,090 | |||||||||
|
|
|
|
|
|||||||||||||||
Net income applicable to preferred stockholders | 3,486 | 6,847 | 10,621 | 7,944 | 8,090 | ||||||||||||||
Net loss applicable to common stockholders | (4,019 | ) | (10,139 | ) | (1,735 | ) | (3,288 | ) | (3,689 | ) | |||||||||
|
|
|
|
|
|||||||||||||||
Net income (loss) | $ | (533 | ) | $ | (3,292 | ) | $ | 8,886 | $ | 4,656 | $ | 4,401 | |||||||
|
|
|
|
|
|||||||||||||||
Denominator: | |||||||||||||||||||
Weighted average shares of common stock outstanding | 31,605,026 | 30,377,878 | 29,482,720 | 29,442,923 | 31,153,758 | ||||||||||||||
|
|
|
|
|
|||||||||||||||
Calculation of Net Loss Per Common Share: | |||||||||||||||||||
Basic and diluted: | |||||||||||||||||||
Net loss applicable to common stockholders | $ | (4,019 | ) | $ | (10,139 | ) | $ | (1,735 | ) | $ | (3,288 | ) | $ | (3,689 | ) | ||||
|
|
|
|
|
|||||||||||||||
Weighted average shares of common stock outstanding | 31,605,026 | 30,377,878 | 29,482,720 | 29,442,923 | 31,153,758 | ||||||||||||||
|
|
|
|
|
|||||||||||||||
Net loss per common share | $ | (0.13 | ) | $ | (0.33 | ) | $ | (0.06 | ) | $ | (0.11 | ) | $ | (0.12 | ) | ||||
|
|
|
|
|
In calculating diluted earnings per share, shares related to redeemable convertible preferred stock and outstanding stock options and warrants were excluded because they were anti-dilutive.
Recent Accounting Pronouncements
In July 2006, the FASB issued Financial Accounting Standards Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises' financial statements in accordance with SFAS No. 109. FIN 48 prescribes a recognition and measurement method of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. FIN 48 is effective for fiscal years beginning after December 15, 2006.
F-17
We are currently analyzing the effects of FIN 48 on our consolidated financial position and our results of operations.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS No. 157"). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not expect the adoption of SFAS No. 157 in 2008 to have a material impact on its results of operations or financial position.
3. Acquisitions
2020Software.com
On May 3, 2006, the Company acquired certain assets associated with 2020Software.com from 20/20 Software, Inc., which was a privately-held company based in Los Angeles, California, for $15.0 million in cash, plus $17 in acquisition related transaction costs. 2020Software.com is a website business focused on providing detailed feature-comparison information and access to trial software for businesses seeking trial versions of customer relationship management, accounting, and other business software. The acquisition provides the Company with an opportunity for considerable growth within segments and in other markets in which it currently does not have a significant presence, primarily vertical software applications and enterprise markets. In connection with this acquisition, the Company purchased $397 of accounts receivable, recorded $9.4 million of goodwill and recorded $5.2 million of intangible assets related to customer relationships, customer order backlog and a non-compete agreement, with estimated useful lives ranging from one to five years.
The estimated fair value of $5.2 million of acquired intangible assets is assigned as follows:
|
Useful Life
|
Estimated Fair Value
|
|||
---|---|---|---|---|---|
Customer relationship intangible asset | 60 months | $ | 4,170 | ||
Non-compete agreement intangible asset | 36 months | 550 | |||
Customer order backlog intangible asset | 12 months | 460 | |||
|
|||||
Total intangible assets | $ | 5,180 | |||
|
The Company engaged a third party valuation specialist to assist management in determining the fair value of the acquired assets of 2020Software. To value the customer relationship and backlog intangible assets, an income approach was used, specifically a variation of the discounted cash-flow method. The projected net cash flows for 2020Software were tax affected using an effective rate of 40% and then discounted using a discount rate of 20.1% to calculate the value of the customer relationship and backlog intangible assets. Additionally, the present value of the sum of projected tax benefits was added to arrive at
F-18
the total fair value of the customer relationship and backlog intangible assets. To value the non-compete agreement a comparative business valuation method was used. Based on a non-compete term of 36 months, management projected net cash flows for the Company with and without the non-compete agreement in place. The present value of the sum of the difference between the net cash flows with and without the non-compete agreement in place was calculated, based on a discount rate of 20.1%.
The following pro forma results of operations for the years ended December 31, 2005 and the nine months ended September 30, 2006 have been prepared as though the acquisition of 2020Software.com had occurred as of January 1, 2005. This pro forma financial information is not indicative of the results of operations that may occur in the future.
|
Year Ended December 31,
2005 |
Nine Months Ended September 30, 2006
|
|||||
---|---|---|---|---|---|---|---|
|
(unaudited)
|
||||||
Revenues | $ | 70,027 | $ | 57,274 | |||
|
|
||||||
Net income | $ | 9,583 | $ | 4,576 | |||
|
|
||||||
Basic and diluted net loss per common share | $ | (0.04 | ) | $ | (0.11 | ) | |
|
|
Bitpipe, Inc.
In December 2004, the Company acquired Bitpipe, Inc. (Bitpipe), which was a privately held company based in Boston, Massachusetts, for $40.5 million in cash. Bitpipe is a leading online source of in-depth, vendor-supplied content including IT white papers, product literature and case studies. In connection with the acquisition, the Company recorded $38.5 million of goodwill and other intangible assets. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.
|
As of December 3,
2004 |
|||
---|---|---|---|---|
Cash and cash equivalents | $ | 4,852 | ||
Current assets | 2,927 | |||
Property and equipment, net | 461 | |||
Goodwill | 29,362 | |||
Intangible assets | 9,176 | |||
|
||||
Total assets acquired | 46,778 | |||
Total liabilities assumed | (6,301 | ) | ||
|
||||
Net assets acquired | $ | 40,477 | ||
|
F-19
The estimated fair value of $9.2 million of acquired intangible assets is assigned as follows:
|
Useful Life
|
Estimated Fair Value
|
|||
---|---|---|---|---|---|
Customer relationship intangible asset | 36 months | $ | 4,150 | ||
User information database intangible asset | 24 months | 3,140 | |||
Trade name intangible asset | 60 months | 690 | |||
Customer order backlog intangible asset | 13 months | 620 | |||
Proprietary technology intangible asset | 36 months | 576 | |||
|
|||||
Total intangible assets | $ | 9,176 | |||
|
The Company engaged a third party valuation specialist to assist management in determining the fair value of the acquired assets of Bitpipe. The fair value of the customer relationship and customer order backlog intangible assets was determined by discounting to present value the estimated income associated with those customers for their remaining life, using a discounted cash-flow methodology and assumptions for customer revenue growth and attrition. The projected net cash flows for Bitpipe were tax affected using an effective rate of 41.2% and then discounted by a discount rate of 22.3%. The useful life of the customer relationship intangible asset was determined to be three years based on a review of customer turnover data. The useful life of the customer order backlog intangible asset was determined to be 13 months based on the projected revenue recognition pattern on the purchased order backlog. To determine the fair value of the user information database intangible asset, a replacement cost methodology approach was used. Replacement cost of the user information database was determined by applying the actual costs incurred to register a new user to the total number of registered users in the acquired database. The database was assumed to have a useful life of two years based on estimates of obsolescence in the database resulting from changes in internet service providers and the employment status of users. To determine the fair value of the trade name intangible asset, a variation of the income approach was used to estimate the pre-tax royalty savings to the Company related to the Bitpipe trade name. A 41.2% combined income tax rate was used to tax effect the pre-tax royalty savings, and a 22.3% risk adjusted discount rate was applied to derive fair value for the trade name. The useful life of the trade name intangible asset was estimated to be five years based on the Company's plans to eventually withdraw advertising for the Bitpipe name over that period. To determine the fair value of the proprietary technology intangible asset, a replacement cost methodology approach was used. Replacement cost to develop the proprietary technology was estimated by management based on the cost of similar internal IT development projects, and a useful life of three years was determined given the rapid pace of technological change in the industry sector.
F-20
The following pro forma results of operations for the years ended December 31, 2003 and 2004 have been prepared as though the acquisition of Bitpipe had occurred as of January 1, 2003. This pro forma financial information is not indicative of the results of operations that may occur in the future.
|
Years Ended,
December 31 |
||||||
---|---|---|---|---|---|---|---|
|
2003
|
2004
|
|||||
Revenues | $ | 40,275 | $ | 57,429 | |||
|
|
||||||
Net income (loss) | $ | 4 | $ | (6,150 | ) | ||
|
|
||||||
Basic and diluted net loss per common share | $ | (0.11 | ) | $ | (0.43 | ) | |
|
|
The Middleware Company
In November 2004, the Company acquired The Middleware Company from Veritas Operating Corporation (Veritas) for $1.1 million in cash, to expand the Company's IT media and events portfolio in the enterprise application developer market.
The following table summarizes the estimated fair value of the assets acquired by the Company at the date of acquisition:
|
Useful Life
|
Estimated Fair Value
|
|||
---|---|---|---|---|---|
Proprietary database intangible asset | 24 months | $ | 687 | ||
Advertiser list intangible asset | 36 months | 332 | |||
Trade name intangible asset | 60 months | 69 | |||
Property and equipment | 24 months | 12 | |||
|
|||||
Net assets acquired | $ | 1,100 | |||
|
The Company capitalized an additional $140 of intangible assets related to a preacquisition contingency that was settled in 2005.
F-21
4. Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2004 and 2005, and the nine months ended September 30, 2006, are as follows:
|
As of
December 31, |
|
|||||||
---|---|---|---|---|---|---|---|---|---|
|
As of
September 30, 2006 |
||||||||
|
2004
|
2005
|
|||||||
|
|
|
(unaudited)
|
||||||
Balance as of beginning of period | $ | | $ | 29,362 | $ | 26,535 | |||
Goodwill acquired during the period | 29,362 | | 9,440 | ||||||
Adjustment | | (2,594 | ) | | |||||
Sales of assets (Note 6) | | (233 | ) | | |||||
|
|
|
|||||||
Balance as of end of period | $ | 29,362 | $ | 26,535 | $ | 35,975 | |||
|
|
|
During 2005, and within one year of the Bitpipe, Inc. acquisition, the Company completed its purchase price allocation and revised certain estimates made on the acquisition date for certain acquired assets and liabilities, which resulted in an adjustment to goodwill of $2,594 made up of the following:
Adjustment to fair value of acquired deferred revenue | $ | (1,260 | ) | |
Sublease agreements signed on acquired lease obligations, and other adjustments | (802 | ) | ||
Utilization of acquired net operating losses | (532 | ) | ||
|
||||
Total reductions in carrying value of goodwill | $ | (2,594 | ) | |
|
F-22
5. Intangible Assets
The following table summarizes the Company's intangible assets, net:
|
As of December 31, 2004
|
||||||||
---|---|---|---|---|---|---|---|---|---|
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net
|
||||||
Customer, affiliate, and advertiser related relationships | $ | 6,352 | $ | (773 | ) | $ | 5,579 | ||
Developed technology and patents | 576 | (16 | ) | 560 | |||||
Trademark, trade name, and domain name | 759 | (14 | ) | 745 | |||||
Proprietary user information database and internet traffic | 4,911 | (929 | ) | 3,982 | |||||
|
|
|
|||||||
Total intangible assets, net | $ | 12,598 | $ | (1,732 | ) | $ | 10,866 | ||
|
|
|
|
As of December 31, 2005
|
||||||||
---|---|---|---|---|---|---|---|---|---|
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net
|
||||||
Customer, affiliate, and advertiser related relationships | $ | 6,395 | $ | (3,294 | ) | $ | 3,101 | ||
Developed technology and patents | 576 | (208 | ) | 368 | |||||
Trademark, trade name, and domain name | 768 | (167 | ) | 601 | |||||
Proprietary user information database and Internet traffic | 5,079 | (3,234 | ) | 1,845 | |||||
|
|
|
|||||||
Total intangible assets, net | $ | 12,818 | $ | (6,903 | ) | $ | 5,915 | ||
|
|
|
|
As of September 30, 2006 (unaudited)
|
||||||||
---|---|---|---|---|---|---|---|---|---|
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net
|
||||||
Customer, affiliate, and advertiser related relationships | $ | 11,575 | $ | (5,393 | ) | $ | 6,182 | ||
Developed technology and patents | 576 | (352 | ) | 224 | |||||
Trademark, trade name, and domain name | 768 | (282 | ) | 486 | |||||
Proprietary user information database and Internet traffic | 5,079 | (4,762 | ) | 317 | |||||
|
|
|
|||||||
Total intangible assets, net | $ | 17,998 | $ | (10,789 | ) | $ | 7,209 | ||
|
|
|
F-23
Amortization expense of intangible assets is expected to be as follows:
Years Ending December 31:
|
As of December 31, 2005
|
As of September 30, 2006
|
||||
---|---|---|---|---|---|---|
|
|
(unaudited)
|
||||
2006 (1) | $ | 3,914 | $ | 1,143 | ||
2007 | 1,707 | 2,748 | ||||
2008 | 154 | 1,171 | ||||
2009 | 140 | 1,035 | ||||
2010 | | 834 | ||||
2011 | | 278 | ||||
|
|
|||||
$ | 5,915 | $ | 7,209 | |||
|
|
Amortization expense was $428, $1,304, $5,172, $3,925 and $3,886 for the years ended December 31, 2003, 2004 and 2005, and the nine months ended September 30, 2005 and 2006, respectively.
6. Sale of Assets
In July 2005, the Company sold essentially all of the assets of its Analyst Views business, including all intellectual property, domain names, and existing customer contracts and receivables related to the business, to a third party for cash consideration totaling $233. The Analyst Views business had been purchased in the Bitpipe acquisition in December 2004. In conjunction with the sale, goodwill was reduced for the sales' proceeds plus the amount to settle any remaining liability obligations related to the business. No gain or loss was recognized on the sale.
7. Bank Term Loan Payable
In December 2004, the Company entered into a loan and security agreement (the "Bank Term Loan") with a bank. The Bank Term Loan enabled the Company to borrow up to a total of $25.0 million, and would bear interest at the prime rate less 1.00% on the entire principal balance. Borrowings under the Bank Term Loan were collateralized by a security interest in substantially all assets of the Company. The outstanding balance due under the Bank Term Loan was $25.0 million and $22.0 million at December 31, 2004 and 2005, respectively.
On August 30, 2006, the Company entered into a credit agreement (the "Credit Agreement") with a commercial bank, which included a $10.0 million term loan (the "Term Loan") and a $20.0 million revolving credit facility (the "Revolving Credit Facility"). Initial borrowings under the Term Loan were used to repay the remaining principal and accrued interest balance of the Bank Term Loan. As of September 30, 2006, outstanding borrowings under the Credit Agreement were $10.0 million.
F-24
The Term Loan requires monthly principal payments of $250, plus interest, beginning on September 30, 2006 through December 30, 2009. The Revolving Credit Facility matures on August, 2011. As of September 30, 2006, unused availability under the Revolving Credit Facility totaled $20.0 million.
At the Company's option, the Credit Agreement bears interest at either a) the Prime Rate less 1.00% or, b) the LIBOR rate plus 1.50%. The Company has selected the use of the LIBOR rate plus 1.50%. The Company is required to pay an unused line fee on the daily unused amount of the Revolving Credit Facility at a per annum rate of 0.375%. Accrued interest related to the Credit Agreement was $42 at September 30, 2006.
Borrowings under the Credit Agreement are collateralized by a security interest in substantially all assets of the Company. Covenants governing the Credit Agreement require the maintenance of certain financial ratios. The Company was in compliance with all financial covenants as of September 30, 2006.
In September, 2006, the Company entered into an interest rate swap agreement with a commercial bank to mitigate the interest rate fluctuations on the Term Loan. With this interest rate swap agreement in place, the Company has fixed the annual interest rate at 6.98% for the Term Loan. The interest rate swap agreement terminates in December, 2009. Under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, the interest rate swap agreement is deemed to be a cash flow hedge and qualifies for special accounting using the shortcut method. Accordingly, changes in the fair value of the interest rate swap agreement are recorded in "accumulated other comprehensive loss" on the consolidated statements of redeemable convertible preferred stock and stockholders' deficit. As of September 30, 2006, the fair value of the cash flow hedge was $73 and is recorded in other liabilities.
The future maturities of the Term Loan agreement at September 30, 2006 are as follows:
Years Ending December 31:
|
As of September 30, 2006
|
|||
---|---|---|---|---|
|
(unaudited)
|
|||
2006 (1) | $ | 1,000 | ||
2007 | 3,000 | |||
2008 | 3,000 | |||
2009 | 3,000 | |||
|
||||
10,000 | ||||
Less current portion | (3,000 | ) | ||
|
||||
$ | 7,000 | |||
|
F-25
8. Commitments and Contingencies
Operating Leases
The Company conducts its operations in leased office facilities under various noncancelable operating lease agreements that expire through March, 2010. Certain of the Company's operating leases include escalating payment amounts. In accordance with SFAS No. 13, Accounting for Leases , the Company is recognizing the related rent expense on a straight-line basis over the term of the lease. Total rent expense under these leases was approximately $1,042, $936, $1,348, $976 and $1,080 for the years ended December 31, 2003, 2004 and 2005, and the nine months ended September 30, 2005 and 2006, respectively.
Future minimum lease payments under noncancelable operating leases at December 31, 2005 and September 30, 2006, net of minimum sublease rental payments of $324 and $212, respectively, are as follows:
Years Ending December 31:
|
As of December 31, 2005
|
As of September 30, 2006
|
||||
---|---|---|---|---|---|---|
|
|
(unaudited)
|
||||
2006 (1) | $ | 1,623 | $ | 399 | ||
2007 | 1,722 | 1,967 | ||||
2008 | 1,506 | 1,900 | ||||
2009 | 1,442 | 1,851 | ||||
2010 | 106 | 106 | ||||
2011 | | | ||||
|
|
|||||
$ | 6,399 | $ | 6,224 | |||
|
|
Litigation
From time to time and in the ordinary course of business, the Company may be subject to various claims, charges, and litigation. At December 31, 2004 and 2005 and September 30, 2006, the Company did not have any pending claims, charges, or litigation that it expects would have a material adverse effect on its consolidated financial position, results of operations, or cash flows.
F-26
9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
|
As of
December 31, |
|
|||||||
---|---|---|---|---|---|---|---|---|---|
|
As of
September 30, 2006 |
||||||||
|
2004
|
2005
|
|||||||
|
|
|
(unaudited)
|
||||||
Acquisition accruals | $ | 990 | $ | 346 | $ | 276 | |||
Income taxes payable | | 315 | | ||||||
Accrued other | 911 | 1,159 | 1,566 | ||||||
|
|
|
|||||||
$ | 1,901 | $ | 1,820 | $ | 1,842 | ||||
|
|
|
10. Redeemable Convertible Preferred Stock
In February 2001, the Company issued and sold an aggregate of 45,154,005 shares of series A redeemable convertible preferred stock at a price of $0.5411 per share and 12,734,036 shares of series A redeemable convertible preferred stock at a price of $0.4163 per share plus the cancellation of debt, for gross proceeds of $29,734. For the shares issued at a price of $0.4163 per share, the Company recorded a beneficial conversion feature of $1.6 million related to these shares. In June 2003, the Company issued an additional 1,848,093 shares of series A redeemable convertible preferred stock for gross proceeds of $1,000. Aggregate costs associated with the issuance of the series A redeemable convertible preferred stock totaled $1,813.
In June 2004, the Company repurchased 23,856,163 shares of series A preferred stock at a price of $1.36 per share as part of the Tender Offer (Note 11). These shares were subsequently retired and no longer authorized for issuance. In conjunction with this repurchase, the Company wrote off $639 of series A preferred stock issuance costs and $4,687 of dividends that had been accreted on the retired shares.
In May and June 2004, the Company issued 51,470,588 shares of series B redeemable convertible preferred stock at $1.36 per share for gross proceeds of $70,000. Costs associated with the issuance of the series B redeemable convertible preferred stock totaled $76.
In December 2004, the Company issued 10,141,302 shares of series C redeemable convertible preferred stock at $1.4791 per share for gross proceeds of $15,000. Costs associated with the issuance of the series C redeemable convertible preferred stock totaled $36.
The rights, preferences, and privileges of the series A, B, and C redeemable convertible preferred stock are as follows:
Dividends
The holders of the series A, series B, and series C redeemable convertible preferred stock shall be entitled to receive dividends at the same rate as dividends are paid with respect to the common stock. The series A, series B and series C redeemable convertible preferred stock accrete a 10% dividend annually.
F-27
Cumulatively through September 30, 2006, the Company has accreted dividends and issuance costs of $11,492 for the series A preferred stock, $16,567 for the series B preferred stock, and $2,694 for the series C preferred stock.
Accretion of dividends, including accretion of applicable issuance costs, was as follows:
|
As of December 31,
|
As of September 30,
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
2005
|
2005
|
2006
|
||||||||||
|
|
|
|
(unaudited)
|
|||||||||||
Series A preferred stock | $ | 3,486 | $ | 2,690 | $ | 2,102 | $ | 1,573 | $ | 1,505 | |||||
Series B preferred stock | | 4,112 | 7,013 | 5,245 | 5,442 | ||||||||||
Series C preferred stock | | 45 | 1,506 | 1,126 | 1,143 | ||||||||||
|
|
|
|
|
|||||||||||
Total accretion | $ | 3,486 | $ | 6,847 | $ | 10,621 | $ | 7,944 | $ | 8,090 | |||||
|
|
|
|
|
Liquidation Preferences
In certain events, including liquidation, dissolution, or winding-up of the Company, the holders of the redeemable convertible preferred stock have a preference in liquidation over the common stockholders of $0.5411 per share in the case of the series A preferred stock, $1.36 per share in the case of the series B preferred stock, and $1.4791 per share in the case of the series C preferred stock (the preferential amount), subject to adjustment in the event of any stock dividend, stock split, combination, or other similar recapitalization, plus any dividends declared but unpaid thereon.
Voting Rights
Each holder of outstanding shares of the redeemable convertible preferred stock shall be entitled to the number of votes equal to the number of whole shares of common stock into which the shares of the redeemable convertible preferred stock held by such holder are then convertible.
Conversion
Each share of the redeemable convertible preferred stock is convertible at any time into common stock at the option of the holder into the number of shares obtained by dividing $0.5411 in the case of the series A preferred stock, $1.36 in the case of the series B preferred stock, and $1.4791 in the case of the series C preferred stock, by the conversion price in effect at the time of conversion. The conversion prices of $0.5411 for the series A preferred stock, $1.36 for the series B preferred stock, and $1.4791 for the series C preferred stock are subject to adjustment in the case of certain dilutive events. The redeemable convertible preferred stockholders are required to convert all of their shares into common stock at the then-effective conversion rate upon the closing of a public offering of the Company's common stock in which the price per share is at least $4.44. In February 2007, pursuant to an agreement with certain stockholders, the mandatory conversion price per share was reduced to $2.96 through June 30, 2007 at which time the agreement expires.
F-28
Redemption
At any time after May 21, 2009, upon the written request of holders of at least two-thirds of the then-outstanding shares of the redeemable convertible preferred stock, the Company shall redeem one-third of all outstanding shares of the redeemable convertible preferred stock per year in three equal installments. The redemption price for each share shall be equal to $0.5411 per share of series A preferred stock, $1.36 per share of series B preferred stock, and $1.4791 per share of series C preferred stock plus all dividends declared or accrued but unpaid, plus an additional amount equal to 10% annually calculated from the original date of issuance to the date of redemption.
Warrants
In connection with the series A redeemable convertible preferred stock financing, the Company issued to the placement agent a fully exercisable warrant to purchase up to 1,339,875 shares of common stock at $0.46 per share. The Company determined the fair value of the warrant, $471, using the Black-Scholes option-pricing model, utilizing a volatility factor of 70%, risk-free interest rate of 4.74%, and an expected life of five years. This warrant amount has been included as a separate component of stockholders' deficit and as a stock issuance cost classified as a reduction in the carrying value of the series A redeemable convertible preferred stock. In April 2004, the placement agent partially exercised its warrant and purchased 602,943 shares of common stock for gross proceeds of $277. In May, 2004, the Company paid $820 to purchase the 602,943 shares of common stock from the placement agent through the Tender Offer (Note 11). In February, 2006, the placement agent exercised its remaining warrants and purchased 736,931 shares of common stock for gross proceeds of $338.
In connection with the original Bank Term Loan agreement on July 13, 2001, the Company issued to the bank a warrant to purchase up to 74,074 shares of series A redeemable convertible preferred stock at $0.5411 per share. The warrant is exercisable immediately and expires on July 13, 2008. The Company determined the fair value of the warrant, $29, using the Black-Scholes option-pricing model, utilizing a volatility factor of 70%, risk-free interest rate of 5.00%, and an expected life of seven years. In connection with the amendment to the Bank Term Loan agreement on April 26, 2002, the Company issued a warrant to purchase 55,443 shares of series A redeemable convertible preferred stock at a price of $0.5411 per share. The warrant is exercisable immediately and expires on April 26, 2009. The Company determined the fair value of the warrant, $21, using the Black-Scholes option-pricing model, utilizing a volatility factor of 70%, risk-free interest rate of 5.00%, and an expected life of seven years. The fair value of the warrants has been included as a separate component of stockholders' deficit and was capitalized in other assets in the accompanying consolidated balance sheets as a debt issuance cost.
F-29
11. Stockholders' Equity (Deficit)
Reserved Common Stock
As of September 30, 2006, the Company has reserved common stock for the following:
|
Number of Shares
|
|
---|---|---|
|
(unaudited)
|
|
Options outstanding and available for grant under stock option plan | 39,992,743 | |
Conversion of preferred stock | 97,491,861 | |
Warrants | 292,017 | |
|
||
137,776,621 | ||
|
Tender Offer
In May 2004, the Company offered to repurchase for cash (i) up to 100% of the issued and outstanding shares of the Company's series A convertible preferred stock; and (ii) up to 45% of the aggregate issued and outstanding shares of common stock and/or options to purchase the same (provided the option holder had either completed four years of service to the Company as of May 1, 2004, or had held the option for at least four years as of May 1, 2004). The Company paid $1.36 per share (in the case of options, less the exercise price per share of the applicable option). A total of 32,916,832 shares were tendered and the Company paid a total of $43,662 on June 1, 2004. An aggregate of 29,423,859 shares were repurchased from four named executive officers and three five percent stockholders affiliated with our Board for a total of $38,981. Of the total shares tendered, the Company purchased 3,344,041 shares of common stock for a total of $4,548. These shares were retired in September 2006. The Company recorded stock-based compensation expense of $6,012 in 2004 related to the purchase of 5,716,628 options.
Stock Option Plan
The Company has a stock option plan (the Plan) that provides for the issuance of up to 49,538,584 shares of common stock incentives. The Plan provides for the granting of incentive stock options (ISOs), nonqualified stock options, and stock grants. These incentives may be offered to the Company's employees, officers, directors, consultants, and advisors, as defined.
Nonqualified options and stock grants may be issued at no less than par value per share of common stock. ISOs may be granted at no less than fair market value (FMV) on the date of grant, as determined by the Company's Board of Directors (the Board) (no less than 110% of FMV on the date of grant for 10% or greater stockholders). Each option shall be exercisable at such times and subject to such terms as determined by the Board, generally four years, and shall expire within ten years of issuance.
F-30
The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award. The fair values of options granted were calculated using the following estimated weighted-average assumptions:
|
Years Ended December 31,
|
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Nine Months Ended
September 30, 2006 |
||||||||||||
|
2003
|
2004
|
2005
|
||||||||||
|
|
|
|
(unaudited)
|
|||||||||
Options granted | 1,924,500 | 4,297,900 | 170,000 | 16,774,000 | |||||||||
Weighted-average exercise prices stock options | $ | 0.54 | $ | 1.10 | $ | 1.61 | $ | 1.84 | |||||
Weighted-average grant date fair-value stock options | $ | 0.13 | $ | 0.29 | $ | 0.38 | $ | 1.12 | |||||
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average expected volatility | % | % | % | 58%-63% | |||||||||
Weighted-average expected term (in years) | 7.00 years | 7.00 years | 6.20 years | 6.25 years | |||||||||
Risk-free interest rate | 2.89%-3.86% | 3.92%-4.59% | 4.00%-4.47% | 4.68%-5.05% | |||||||||
Expected dividend yield | % | % | % | % |
As there has been no public market for the Company's common stock prior to this offering, the volatility for options granted in 2006 has been determined based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using an average of the historical volatility measures of this peer group of companies for a period equal to the expected life of the option. The expected volatility for options granted during the nine months ended September 30, 2006 ranged from 58% to 63%. The expected life of options has been determined utilizing the "simplified" method as prescribed by the SEC's Staff Accounting Bulletin No. 107, Share-Based Payment. The expected life of options granted during the nine months ended September 30, 2006 was 6.25 years. For the nine months ended September 30, 2006, the weighted-average risk free interest rate used ranged from 4.68% to 5.05%. The risk-free interest rate is based on a zero coupon United States treasury instrument whose term is consistent with the expected life of the stock options. The Company has not paid and does not anticipate paying cash dividends on its shares of common stock; therefore, the expected dividend yield is assumed to be zero. In addition, SFAS No. 123(R) requires companies to utilize an estimated forfeiture rate when calculating the expense for the period, whereas SFAS No. 123 permitted companies to record forfeitures based on actual forfeitures, which was the Company's historical policy under SFAS No. 123. As a result, the Company applied an estimated forfeiture rate, based on its historical forfeiture experience during the previous six years, of 8.40% in the nine months ended September 30, 2006 in determining the expense recorded in its consolidated statement of operations.
The Company has historically granted stock options at exercise prices no less than the fair market value as determined by the Board, with input from management. The Board exercised judgment in
F-31
determining the estimated fair value of the Company's common stock on the date of grant based on a number of objective and subjective factors, including operating and financial performance, external market conditions affecting the Company's industry sector, an analysis of publicly-traded peer companies, the prices at which shares of convertible preferred stock were sold, the superior rights and preferences of securities senior to common stock at the time of each grant and the likelihood of achieving a liquidity event such as an initial public offering or sale of the Company. On April 18, 2006, July 25, 2006 and September 27, 2006 the Board granted stock options to purchase an aggregate of 668,000, 36,000 and 16.1 million shares of common stock, respectively, with an exercise price of $1.84 per share. On October 30, 2006, the Board granted an additional option to purchase 200,000 shares of common stock at $1.95 per share. At the time of these grants, the exercise price was determined by the Board with input by management based on the various objective and subjective factors mentioned above. In addition, for certain stock option grants in 2006, the Company engaged an unrelated third party valuation specialist to assist management in preparing contemporaneous valuation reports to document the fair value of its common stock for income tax considerations.
In connection with the preparation of its consolidated financial statements for the nine months ended September 30, 2006 and in preparing for the initial public offering of its common stock, management reexamined the valuations of its common stock during 2006. In connection with this reexamination, the Company engaged a valuation specialist to assist management in preparing retrospective valuation reports of the fair value of its common stock for accounting purposes as of July 31, 2006, September 30, 2006 and October 27, 2006. Management believes that the valuation methodologies used in the retrospective valuations are consistent with the Practice Aid of the American Institute of Certified Public Accountants entitled Valuation of Privately Held Company Equity Securities Issued as Compensation. In its retrospective valuations, the Company determined that the fair value of its common stock on July 31, 2006, September 30, 2006 and October 27, 2006 was $1.73, $1.86 and $1.95 per share, respectively. A retrospective valuation for the April 18, 2006 grants was not prepared.
In each retrospective valuation, a probability-weighted combination of the guideline public company method and the discounted future cash flow method was used to estimate the aggregate enterprise value of the Company at the applicable valuation date. The guideline public company method estimates the fair market value of a company by applying to that company market multiples, in this case revenue and EBITDA multiples, of publicly traded firms in similar lines of business. The companies used for comparison under the guideline public company method were selected based on a number of factors, including but not limited to, the similarity of their industry, business model, financial risk and other factors to those of the Company's. Equal weighting has been applied to the valuations derived from the using the revenue and EBITDA multiples in determining the guideline public company fair market value estimate. The discounted future cash flow method involves applying appropriate risk-adjusted discount rates of approximately 17% to estimated debt-free cash flows, based on forecasted revenues and costs. The projections used in connection with this valuation were based on the Company's expected operating performance over the forecast period. There is inherent uncertainty in these estimates; if different discount rates or assumptions had been used, the valuation would have been different.
F-32
In order to allocate the enterprise value determined under the guideline public company method and the discounted future cash flow method to its common stock, the Company used the probability-weighted expected return method. Under the probability-weighted expected return method, the fair market value of the common stock is estimated based upon an analysis of future values for the Company assuming various future outcomes, the timing of which is based on the plans of its board and management. Share value is based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available as well as the rights of each share class. The fair market value of the Company's common stock was estimated using a probability-weighted analysis of the present value of the returns afforded to its shareholders under each of three possible future scenarios. Two of the scenarios assume a shareholder exit, either through an initial public offering, or IPO, or a sale of the Company. The third scenario assumes operations continue as a private company and no exit transaction occurs. For the IPO scenario, the estimated future and present values for the Company's common stock was calculated using assumptions including; the expected pre-money valuation (pre-IPO) based on the guideline public company method discussed above; the expected dates of the future expected IPO; and an appropriate risk-adjusted discount rate. For the sale scenario, the estimated future and present values for the Company's common stock was calculated using assumptions including: an equal weighting of the guideline public company method and the discounted cash flow method discussed above; the expected dates of the future expected sale and an appropriate risk-adjusted discount rate. For the private company with no exit scenario, an equal weighting of the guideline public company method and the discounted cash flow method based on present day assumptions was used. Finally, the present value calculated for the Company's common stock under each scenario was probability weighted based on management's estimate of the relative occurrence of each scenario. The probability associated with the occurrence of an IPO was increased from 40% in July 2006 to 45% in September 2006 to 50% in October 2006. The probability associated with the occurrence of a sale was decreased from 40% in July 2006 to 35% in September 2006 to 30% in October 2006. The probability of continuing operations as a private company remained constant at 20% in each valuation. The estimated fair market value of the Company's common stock at each valuation date is equal to the sum of the probability weighted present values for each scenario.
The Company has incorporated the fair values determined in the retrospective valuations into the Black-Scholes option pricing model when calculating the compensation expense to be recognized for the stock options granted in July, September and October of 2006. In determining the fair value of the April 2006 grants using the Black-Scholes option pricing model, it was assumed that the fair market value of the common stock was equal to the exercise price of the stock options.
F-33
The following table details the effect on net income (loss) and net income (loss) per share had stock-based compensation expense been recorded in 2003, 2004 and 2005 based on the fair-value method under SFAS No. 123, Accounting for Stock-Based Compensation.
|
Years Ended December 31,
|
Nine Months,
Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
2005
|
2005
|
|||||||||
|
|
|
|
(unaudited)
|
|||||||||
Net income (loss), as reported | $ | (533 | ) | $ | (3,292 | ) | $ | 8,886 | $ | 4,656 | |||
Add: Stock-based compensation expense included in reported net loss | | 6,012 | | | |||||||||
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards | (377 | ) | (6,377 | ) | (678 | ) | (531 | ) | |||||
|
|
|
|
||||||||||
Pro forma net income (loss) | $ | (910 | ) | $ | (3,657 | ) | $ | 8,208 | $ | 4,125 | |||
|
|
|
|
||||||||||
Pro forma net loss per share: | |||||||||||||
Basic and dilutedas reported | $ | (0.13 | ) | $ | (0.33 | ) | $ | (0.06 | ) | $ | (0.11 | ) | |
|
|
|
|
||||||||||
Basic and dilutedpro forma | $ | (0.14 | ) | $ | (0.35 | ) | $ | (0.08 | ) | $ | (0.13 | ) | |
|
|
|
|
The ranges of exercise prices for options outstanding and options exercisable at December 31, 2005 were as follows:
|
Options Outstanding
|
|
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Options Exercisable
|
|||||||||||
|
|
|
Weighted-Average
Remaining Contractual Life (Years) |
|||||||||
Range of
Exercise Prices |
Number of Shares
|
Weighted-Average
Exercise Price |
Number of Shares
|
Weighted-Average
Exercise Price |
||||||||
$0.05 | 4,319,750 | $ | 0.05 | 3.42 | 1,105,500 | $ | 0.05 | |||||
0.210.59 | 8,122,478 | 0.52 | 5.51 | 7,579,885 | 0.52 | |||||||
0.681.45 | 3,997,300 | 1.10 | 7.98 | 1,369,375 | 1.02 | |||||||
1.841.84 | 79,000 | 1.84 | 9.65 | 0 | 0.00 | |||||||
|
|
|
|
|
||||||||
Total | 16,518,528 | $ | 0.54 | 5.71 | 10,054,760 | $ | 0.54 | |||||
|
|
|
|
|
F-34
A summary of the activity under the Company's stock option plan for the nine months ended September 30, 2006 is presented below:
|
Options
Outstanding |
Weighted-Average
Exercise Price Per Share |
Weighted-Average
Remaining Contractual Term in Years |
Aggregate
Intrinsic Value |
||||||
---|---|---|---|---|---|---|---|---|---|---|
Outstanding at December 31, 2005 | 16,518,528 | $ | 0.54 | |||||||
Options granted | 16,774,000 | 1.84 | ||||||||
Options exercised | (1,285,439 | ) | 0.34 | |||||||
Options forfeited | (97,296 | ) | 1.27 | |||||||
Options canceled | (78,341 | ) | 0.70 | |||||||
|
||||||||||
Outstanding at September 30, 2006 (unaudited) | 31,831,452 | $ | 1.23 | 7.7 | $ | 19,962 | ||||
|
||||||||||
Options exercisable at September 30, 2006 (unaudited) | 12,996,842 | $ | 0.47 | 4.9 | $ | 18,101 | ||||
|
||||||||||
Options vested or expected to vest at September 30, 2006 (unaudited) (1) | 30,249,345 | $ | 1.21 | 7.7 | $ | 19,805 | ||||
|
The total intrinsic value of options exercised (i.e. the difference between the market price at exercise and the price paid by the employee to exercise the options) during the nine months ended September 30, 2006 was $1,917 and the total amount of cash received by the Company from exercise of these options was $441. None of the options granted after the adoption of SFAS No. 123(R) on January 1, 2006 vested during the nine months ended September 30, 2006.
For the nine months ended September 30, 2006, approximately $156 of expense was recorded in connection with stock-based awards. Unrecognized stock-based compensation expense of non-vested stock options of $15.4 million is expected to be recognized using the straight line method over a weighted-average period of 3.97 years. The adoption of SFAS No. 123(R) will have no effect on cash flow for any period.
F-35
Information with respect to activity under the stock option plan is set forth below:
|
Number of Shares
|
Weighted-Average
Exercise Price Per Share |
||||
---|---|---|---|---|---|---|
Balance at December 31, 2003 | 19,083,044 | $ | 0.31 | |||
Options granted | 4,297,900 | 1.10 | ||||
Options canceled | (261,468 | ) | 0.59 | |||
Options purchased through tender offer | (5,716,628 | ) | 0.19 | |||
Options exercised | (110,505 | ) | 0.46 | |||
|
|
|||||
Balance at December 31, 2004 | 17,292,343 | 0.54 | ||||
Options granted | 170,000 | 1.61 | ||||
Options canceled | (376,915 | ) | 1.08 | |||
Options exercised | (566,900 | ) | 0.42 | |||
|
|
|||||
Balance at December 31, 2005 | 16,518,528 | 0.54 | ||||
Options granted | 16,774,000 | 1.84 | ||||
Options canceled | (175,637 | ) | 1.01 | |||
Options exercised | (1,285,439 | ) | 0.34 | |||
|
|
|||||
Balance at September 30, 2006 (unaudited) | 31,831,452 | $ | 1.23 | |||
|
|
As of September 30, 2006, a total of 8,161,291 common shares were available for future grants under the Company's stock option plan.
F-36
12. Income Taxes
As of December 31, 2005, the Company had U.S. federal and state net operating loss (NOL) carryforwards of approximately $8,295 and $6,093, respectively, which may be used to offset future taxable income. The NOL carryforwards expire through 2024, and are subject to review and possible adjustment by the Internal Revenue Service. The Internal Revenue Code contains provisions that limit the NOL and tax credit carryforwards available to be used in any given year in the event of certain changes in the ownership interests of significant stockholders. The federal NOL carry forwards of $8,295 available at December 31, 2005 were acquired from Bitpipe and are subject to limitations on their use in future years.
The income tax provision (benefit) for the years ended December 31, 2004 and 2005 consisted of the following:
|
Years Ended
December 31, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2004
|
2005
|
||||||
Current: | ||||||||
Federal | $ | | $ | 248 | ||||
State | 32 | 67 | ||||||
|
|
|||||||
Total current | 32 | 315 | ||||||
Deferred: | ||||||||
Federal | | (2,553 | ) | |||||
State | | (443 | ) | |||||
|
|
|||||||
Total deferred | | (2,996 | ) | |||||
|
|
|||||||
$ | 32 | $ | (2,681 | ) | ||||
|
|
The income tax provision (benefit) for the years ended December 31, 2004 and 2005 differ from the amounts computed by applying the statutory federal income tax rate to the consolidated income (loss) before income taxes as follows:
|
Years Ended
December 31, |
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2004
|
2005
|
|||||||
Expense (benefit) computed at statutory rate | $ | (1,119 | ) | $ | 2,120 | ||||
Increase (reduction) resulting from: | |||||||||
Valuation allowance | 788 | (4,497 | ) | ||||||
Nondeductible expenses | 331 | 72 | |||||||
State income tax expense (benefit) | 32 | (376 | ) | ||||||
|
|
||||||||
Provision for (benefit from) income taxes | $ | 32 | $ | (2,681 | ) | ||||
|
|
F-37
Significant components of the Company's net deferred tax assets and liabilities are as follows:
|
As of
December 31, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2004
|
2005
|
||||||
Deferred tax assets: | ||||||||
Net operating loss carryforwards | $ | 7,962 | $ | 3,434 | ||||
Accruals and allowances | 940 | 428 | ||||||
Depreciation | 294 | 201 | ||||||
Stock-based compensation | 175 | 206 | ||||||
Deferred rent expense | 162 | 221 | ||||||
|
|
|||||||
Gross deferred tax assets | 9,533 | 4,490 | ||||||
Less valuation allowance | (6,751 | ) | | |||||
|
|
|||||||
Total deferred tax assets | 2,782 | 4,490 | ||||||
Deferred tax liabilities: | ||||||||
Intangible asset amortization | (2,782 | ) | (963 | ) | ||||
|
|
|||||||
Total deferred tax liabilities | (2,782 | ) | (963 | ) | ||||
|
|
|||||||
Net deferred tax assets | $ | | $ | 3,527 | ||||
|
|
|||||||
As reported: |
|
|
|
|
|
|
|
|
Current deferred tax assets | $ | | $ | 1,965 | ||||
Non-current deferred tax assets | | 1,562 | ||||||
|
|
|||||||
Total deferred tax assets | $ | | $ | 3,527 | ||||
|
|
In evaluating the ability to realize the net deferred tax asset, the Company considers all available evidence, both positive and negative, including past operating results, the existence of cumulative losses in the most recent fiscal years, tax planning strategies that are prudent, and feasible and forecasts of future taxable income. In considering sources of future taxable income, the Company makes certain assumptions and judgments that are based on the plans and estimates that are used to manage the underlying business of the Company. Changes in the Company's assumptions and estimates may materially impact income tax expense for the period. In determining the Company's fiscal 2004 tax provision under SFAS No. 109, management considered a number of factors including the positive and negative evidence regarding the realization of deferred tax assets, and determined that a valuation allowance should be recognized. In the fourth quarter of 2005, the Company reversed the $6,751 valuation allowance because management determined that sufficient positive evidence existed to conclude that it was more likely than not that the Company would be able to realize its deferred tax assets. This conclusion was based on the Company's operating performance over the previous few years and its operating plans for the foreseeable future.
F-38
13. Segment Information
SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information , establishes standards for reporting information about operating segments in annual financial statements and requires selected information of these segments be presented in interim financial reports to stockholders. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in making decisions on how to allocate resources and assess performance. The Company's chief operating decision making group, as defined under SFAS No. 131, consists of the Company's chief executive officer, president and executive vice president. The Company views its operations and manages its business as one operating segment.
Geographic Data
Net sales to unaffiliated customers by geographic area were as follows:
|
Years Ended December 31,
|
Nine Months Ended September 30,
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
2005
|
2005
|
2006
|
||||||||||
|
|
|
|
(unaudited)
|
|||||||||||
United States and Canada | $ | 32,276 | $ | 46,329 | $ | 65,893 | $ | 47,874 | $ | 55,344 | |||||
International | 190 | 398 | 853 | 594 | 551 | ||||||||||
|
|
|
|
|
|||||||||||
Total | $ | 32,466 | $ | 46,727 | $ | 66,746 | $ | 48,468 | $ | 55,895 | |||||
|
|
|
|
|
14. 401(k) Plan
The Company maintains a 401(k) retirement savings plan (the Plan) whereby employees may elect to defer a portion of their salary and contribute the deferred portion to the Plan. The Company contributes an amount equal to 100% of the first $1,500 of an employee's contribution to the Plan. The Company contributed $288, $360, $482, $445 and $451 to the Plan for the years ended December 31, 2003, 2004 and 2005, and the nine months ended September 30, 2005 and 2006, respectively. Employee contributions and the Company's matching contributions are invested in one or more collective investment funds at the participant's direction. The Company's matching contributions vest 25% annually and are 100% vested after four consecutive years of service.
F-39
15. Quarterly Financial Data (unaudited)
|
Three Months Ended
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 31,
2005 |
June 30,
2005 |
September 30,
2005 |
December 31,
2005 |
|||||||||
Total revenues | $ | 13,160 | $ | 19,003 | $ | 16,305 | $ | 18,278 | |||||
Total cost of revenues | 4,100 | 5,603 | 6,075 | 6,222 | |||||||||
Total gross profit | 9,060 | 13,400 | 10,230 | 12,056 | |||||||||
Total operating expenses | 9,399 | 9,955 | 8,589 | 10,568 | |||||||||
Operating income (loss) | (339 | ) | 3,445 | 1,641 | 1,488 | ||||||||
Net income (loss) | (399 | ) | 3,402 | 1,653 | 4,230 | ||||||||
Net income (loss) per common share: | |||||||||||||
Basic and diluted | $ | (0.10 | ) | $ | 0.01 | $ | (0.03 | ) | $ | 0.01 | |||
|
|
|
|
|
Three Months Ended
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 31,
2006 |
June 30,
2006 |
September 30,
2006 |
|
||||||||
Total revenues | $ | 14,911 | $ | 20,717 | $ | 20,267 | ||||||
Total cost of revenues | 5,302 | 6,150 | 6,661 | |||||||||
Total gross profit | 9,609 | 14,567 | 13,606 | |||||||||
Total operating expenses | 9,089 | 10,496 | 10,294 | |||||||||
Operating income | 520 | 4,071 | 3,312 | |||||||||
Net income | 440 | 2,374 | 1,587 | |||||||||
Net loss per common share: | ||||||||||||
Basic and diluted | $ | (0.07 | ) | $ | (0.01 | ) | $ | (0.04 | ) | |||
|
|
|
F-40
Report of Independent Auditors
To
the Board of Directors and Stockholders of
Bitpipe, Inc.
In our opinion, the accompanying balance sheets and the related statements of operations, of redeemable convertible preferred stock and stockholders' deficit and cash flows present fairly, in all material respects, the financial position of Bitpipe, Inc. at December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. 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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 our opinion.
/s/ PricewaterhouseCoopers LLP
Boston,
Massachusetts
October 1, 2004
F-41
Bitpipe, Inc.
Balance Sheets
December 31, 2003 and 2002
|
2003
|
2002
|
|||||||
---|---|---|---|---|---|---|---|---|---|
Assets | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | 1,152,680 | $ | 518,182 | |||||
Accounts receivable, net of allowance for doubtful accounts of $62,455 and 60,230 at December 31, 2003 and 2002, respectively | 1,750,230 | 998,744 | |||||||
Prepaid expenses and other current assets | 3,561 | 1,760 | |||||||
|
|
||||||||
Total current assets | 2,906,471 | 1,518,686 | |||||||
Property and equipment, net |
|
|
235,034 |
|
|
126,994 |
|
||
Intangible assets, net | 18,888 | | |||||||
Other assets | 48,982 | 42,484 | |||||||
|
|
||||||||
Total assets | $ | 3,209,375 | $ | 1,688,164 | |||||
|
|
||||||||
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Deficit | |||||||||
Current liabilities | |||||||||
Accounts payable | $ | 160,326 | $ | 130,338 | |||||
Accrued compensation | 590,448 | 286,166 | |||||||
Other accrued expenses | 211,500 | 164,059 | |||||||
Deferred revenue | 1,816,363 | 1,224,048 | |||||||
Current portion of capital lease obligation | | 6,939 | |||||||
|
|
||||||||
Total current liabilities | 2,778,637 | 1,811,550 | |||||||
|
|
||||||||
Commitments (Note 9) | |||||||||
Series B redeemable convertible preferred stock; $0.01 par value, 15,000,000 shares authorized; 12,792,465 shares issued and outstanding at December 31, 2003 and 2002 (liquidation preference of $3,031,741 at December 31, 2003) |
|
|
2,987,440 |
|
|
2,776,262 |
|
||
Stockholders' deficit | |||||||||
Series A convertible preferred stock; $0.01 par value; 5,750,000 shares authorized; 5,622,502 shares issued and outstanding at December 31, 2003 and 2002 | 3,179,998 | 3,179,998 | |||||||
Common stock, $.001 par value; 34,000,000 shares authorized, 5,825,426 and 5,654,297 shares issued and outstanding at December 31, 2003 and 2002, respectively | 58,254 | 56,543 | |||||||
Additional paid-in capital | | 175,452 | |||||||
Accumulated deficit | (5,794,954 | ) | (6,311,641 | ) | |||||
|
|
||||||||
Total stockholders' deficit | (2,556,702 | ) | (2,899,648 | ) | |||||
|
|
||||||||
Total liabilities, redeemable convertible preferred stock and stockholders' deficit | $ | 3,209,375 | $ | 1,688,164 | |||||
|
|
The accompanying notes are an integral part of these financial statements.
F-42
Bitpipe, Inc.
Statements of Operations
Years Ended December 31, 2003 and 2002
|
2003
|
2002
|
||||||
---|---|---|---|---|---|---|---|---|
Revenues | ||||||||
Services | $ | 7,807,973 | $ | 4,359,397 | ||||
Other | | 133,335 | ||||||
|
|
|||||||
Total revenues | 7,807,973 | 4,492,732 | ||||||
|
|
|||||||
Operating expenses | ||||||||
Cost of revenues | 1,689,496 | 1,130,251 | ||||||
Sales and marketing | 2,704,297 | 1,815,231 | ||||||
Research and development | 483,033 | 352,239 | ||||||
General and administrative | 2,396,864 | 1,450,388 | ||||||
|
|
|||||||
Total operating expenses | 7,273,690 | 4,748,109 | ||||||
|
|
|||||||
Income (loss) from operations | 534,283 | (255,377 | ) | |||||
Interest income, net | 2,728 | 5,977 | ||||||
|
|
|||||||
Net income (loss) | $ | 537,011 | $ | (249,400 | ) | |||
|
|
The accompanying financial statements are an integral part of these financial statements.
F-43
Bitpipe, Inc.
Statements of Cash Flows
Years Ended December 31, 2003 and 2002
|
2003
|
2002
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities | ||||||||||
Net income (loss) | $ | 537,011 | $ | (249,400 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | ||||||||||
Depreciation and amortization | 107,092 | 105,479 | ||||||||
Provision for doubtful accounts | 9,206 | 26,230 | ||||||||
Changes in assets and liabilities | ||||||||||
Accounts receivable | (760,692 | ) | (473,684 | ) | ||||||
Prepaid expenses | (1,801 | ) | 67,164 | |||||||
Other assets | (6,498 | ) | | |||||||
Accounts payable | 29,988 | 26,122 | ||||||||
Accrued expenses | 351,723 | 246,463 | ||||||||
Deferred revenue | 592,315 | (43,431 | ) | |||||||
|
|
|||||||||
Net cash provided by (used in) operating activities | 858,344 | (295,057 | ) | |||||||
|
|
|||||||||
Cash flows from investing activities | ||||||||||
Purchases of property and equipment | (214,020 | ) | (78,423 | ) | ||||||
Purchase of intangible assets | (20,000 | ) | | |||||||
|
|
|||||||||
Net cash used in investing activities | (234,020 | ) | (78,423 | ) | ||||||
|
|
|||||||||
Cash flows from financing activities | ||||||||||
Principal payments of capital lease obligation | (6,939 | ) | (13,124 | ) | ||||||
Proceeds from exercise of common stock options | 17,113 | | ||||||||
|
|
|||||||||
Net cash provided by (used in) financing activities | 10,174 | (13,124 | ) | |||||||
|
|
|||||||||
Net change in cash and cash equivalents | 634,498 | (386,604 | ) | |||||||
Cash and cash equivalents, beginning of year | 518,182 | 904,786 | ||||||||
|
|
|||||||||
Cash and cash equivalents, end of year | 1,152,680 | 518,182 | ||||||||
|
|
|||||||||
Supplemental disclosure of cash flow information | ||||||||||
Cash paid for interest | $ | 818 | $ | 2,392 | ||||||
|
|
The accompanying notes are an integral part of these financial statements.
F-44
Bitpipe, Inc.
Statements of Redeemable Convertible Preferred Stock and Stockholders' Deficit
Years Ended December 31, 2003 and 2002
|
Series B
Redeemable Convertible Preferred Stock |
Series A
Convertible Preferred Stock |
|
|
|
|
|
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Common Stock
|
|
|
|
|||||||||||||||||||||
|
Additional
Paid-in Capital |
Accumulated
Deficit |
Stockholders'
Deficit |
||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||
Balance at December 31, 2001 | 12,792,465 | $ | 2,572,419 | 5,622,502 | $ | 3,179,998 | 5,654,297 | $ | 56,543 | $ | 379,295 | $ | (6,062,241 | ) | $ | (2,446,405 | ) | ||||||||
Accretion of $203,843 on Series B convertible preferred stock | 203,843 | (203,843 | ) | (203,843 | ) | ||||||||||||||||||||
Net loss | (249,400 | ) | (249,400 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at December 31, 2002 | 12,792,465 | 2,776,262 | 5,622,502 | 3,179,998 | 5,654,297 | 56,543 | 175,452 | (6,311,641 | ) | (2,899,648 | ) | ||||||||||||||
Exercise of employee stock options | 171,129 | 1,711 | 15,402 | 17,113 | |||||||||||||||||||||
Accretion of $211,178 on Series B convertible preferred stock | 211,178 | (190,854 | ) | (20,324 | ) | (211,178 | ) | ||||||||||||||||||
Net income | 537,011 | 537,011 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at December 31, 2003 | 12,792,465 | $ | 2,987,440 | 5,622,502 | $ | 3,179,998 | 5,825,426 | $ | 58,254 | $ | | $ | (5,794,954 | ) | $ | (2,556,702 | ) | ||||||||
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-45
Bitpipe, Inc.
Notes to Financial Statements
December 31, 2003 and 2002
1. Business
Bitpipe, Inc., a Delaware corporation, was incorporated in 2000 and is a syndicator of information technology ("IT") literature over the Internet. The Company collects IT literature, in the form of white papers, webcasts, product collateral, and case studies from IT vendors and analysts, catalogs and distributes them to other websites through its proprietary data base.
The Company is subject to a number of risks similar to other companies in the industry including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, and compliance with government regulations.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. At December 31, 2003 and 2002, cash equivalents consist of money market instruments of $434,567 and $431,091, respectively. These investments are classified as available for sale and recorded at amortized cost, which approximates fair value.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable, and capital lease obligations approximate their fair values at December 31, 2003 and 2002.
Accounts Receivable, Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to concentrations of credit risk are primarily comprised of cash and cash equivalents and accounts receivable. The Company places its temporary cash in highly rated financial institutions. Management believes its credit policies reflect normal industry terms and business risk. The Company does not anticipate nonperformance by the counterparties and, accordingly, does not require collateral. Credit losses have not been significant to date.
At December 31, 2003, one customer accounted for 12% of the Company's accounts receivable.
Property and Equipment
Fixed assets are recorded at cost and depreciated using the straight-line method over the estimated useful life of the asset. Upon retirement or sale, the cost of the asset disposed of and the related accumulated depreciation is removed from the accounts and any resulting gain or loss is credited or charged to income. Repair and maintenance costs are expensed as incurred. Equipment acquired under capital lease is stated at the lower of the fair value of the equipment or the present value of the minimum lease payments at the inception of the lease and amortized on a straight-line basis over the useful life of the asset.
Intangible Assets
Intangible assets consist of intellectual property and subscriber lists. The assets were recorded at the purchase date at fair value and are amortized on a straight-line basis over the useful life of three years.
F-46
Revenue Recognition
The Company's revenues are primarily generated from fees charged to customers for cataloging and listing whitepapers and other IT literature in its proprietary data base. Revenues are recognized when evidence of arrangement exists, services have been performed, fees are fixed and determinable and collectibility is probable. Revenue associated with listing whitepapers is deferred and recognized monthly on a pro rata basis over the listing period, which generally do not exceed one year.
In 1999, the Company entered into a contract valued at $422,500 to license its internet publishing system and IT literature catalog system and to provide related installation, training and maintenance services. Revenues from software licenses are recorded when all delivery obligations are met, provided there is vendor-specific objective evidence of fair value of the remaining obligations, generally training and maintenance services. Since vendor-specific evidence of fair value of these remaining obligations cannot be established, revenue from the entire contract is being recognized ratably over the three-year contract period. For the year ended December 31, 2003 and 2002, $0 and $133,335 has been recognized, respectively, as other revenue in the statement of operations.
Deferred revenue consists of amounts received or billed in advance of services performed.
Income Taxes
Deferred income taxes are recorded for all temporary differences between the financial statement and tax basis of assets and liabilities and loss carryforwards, and that deferred tax balances be based on enacted tax laws at tax rates that are expected to be in effect when the temporary differences reverse. A valuation allowance is provided for net deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Stock-Based Compensation
Employee stock awards under the Company's compensation plan are accounted for in accordance with the Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related interpretations. The Company provides the disclosure requirements of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123") and Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based CompensationTransition and Disclosure, an Amendment of Statement No. 123 ("SFAS 148"), and related interpretations. Stock-based awards to nonemployees are accounted for under the provisions of SFAS No. 123, as amended, and Emerging Issues Task Force Issue No. 96-18 ("EITF 96-18").
F-47
Had compensation cost been determined based on the fair value of the options granted to employees at the grant date consistent with the provisions of SFAS No. 123, the Company's net income (loss) on a pro forma basis would be as follows:
|
Year Ended December 31,
|
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2003
|
2002
|
|||||||
Net income (loss) | |||||||||
As reported | $ | 537,011 | $ | (249,400 | ) | ||||
Less: Stock-based employee compensation expense determined under fair value based method for all awards net of related tax effects | (15,799 | ) | (17,016 | ) | |||||
|
|
||||||||
Pro forma net income (loss) | $ | 521,212 | $ | (266,416 | ) | ||||
|
|
For purposes of pro forma disclosure, for the years ended December 31, 2003 and 2002, the fair value of each option was estimated on the date of grant using the minimum value method with the following assumptions: no dividend yield, no volatility, weighted average risk-free interest rate of 3.52% and 3.85%, respectively, and weighted average expected option term of five years.
Because options vest over several years and additional option grants are expected to be made in future years, the above results are not representative of the pro forma results in future years.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs incurred by the Company were $110,320 and $110,952 for the years ended December 31, 2003 and 2002, respectively.
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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Risks and Uncertainties
The Company's future results of operations involve a number of risks and uncertainties that could affect the Company's future operating results and cause actual results to vary materially from expectations. These factors include, but are not limited to, dependence on strategic partners, limited operating history, ability to fund and manage growth, and technological change.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year's presentation.
F-48
3. Property and Equipment
Property and equipment (and their estimated useful lives in years) consists of the following at December 31:
|
Years
|
2003
|
2002
|
||||||
---|---|---|---|---|---|---|---|---|---|
Furniture and fixtures | 5 | $ | 42,768 | $ | 4,932 | ||||
Computer equipment | 3 | 504,786 | 361,323 | ||||||
Leasehold improvements | Life of lease | 32,721 | 12,500 | ||||||
|
|
||||||||
580,275 | 378,755 | ||||||||
Less accumulated depreciation | (345,241 | ) | (251,761 | ) | |||||
|
|
||||||||
$ | 235,034 | $ | 126,994 | ||||||
|
|
At December 31, 2003 and 2002, the cost of equipment held under capital leases was $26,625 and the related accumulated depreciation was $26,625 and $19,686, respectively.
Depreciation and amortization expense was $105,980 and $105,479 for the years ended December 31, 2003 and 2002, respectively.
4. Redeemable Convertible Preferred Stock
In February and March 2000, the Company authorized and issued a total of 5,622,502 shares of Series A convertible preferred stock ("Series A preferred") to several investors for $0.566 per share resulting in gross proceeds to the Company of $3,204,483.
In July 2001, the Company authorized and issued a total of 12,792,465 shares of Series B redeemable convertible preferred stock ("Series B preferred") to several investors for $0.20 per share resulting in gross proceeds to the Company of $1,925,993.
In July 2001, as part of the issuance of Series B redeemable convertible preferred stock, the Convertible Note and accumulated interest totaling $632,500 was converted into 3,162,500 shares of Series B redeemable convertible preferred stock at $0.20 per share.
In conjunction with the issuance of Series B preferred, certain rights of Series A preferred were amended or eliminated, including liquidation preferences, redemption rights, and cumulative dividend rights. Each holder of Series A preferred stock was issued, in exchange for agreement to the modification of these certain terms and conditions, a warrant to purchase shares of the Company's common stock (Note 5).
The Series A and B preferred have the following characteristics:
Conversion Rights
Each share of the Series A and B preferred is convertible, at the option of the holder, into one share of common stock, subject to adjustment for certain dilutive events. Concurrent with the closing of any underwritten public offering for the sale of the Company's common stock in which the gross proceeds exceed $10 million and the valuation of the Company as a whole of at least $50 million ("Qualified Public Offering"), all outstanding shares of the Series A and B preferred automatically convert into shares of
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common stock at the then conversion rate (currently one share of common stock for each share of Series A and B preferred). In addition, in the case of a Qualified Public Offering, the Company shall pay to each holder of Series B preferred stock an amount equal to the aggregate purchase price paid plus declared and unpaid dividends less the par value of the common stock received on conversion.
All remaining outstanding shares of Series A and B preferred shall automatically be converted into the Company's common stock upon the conversion of 51% or more of the Series B preferred into the Company's common stock.
Voting Rights
Each holder of outstanding shares of the Series A and B preferred shall be entitled to the number of votes equal to the number of whole shares of common stock into which they are convertible.
Liquidation Preference
In the event of any liquidation, dissolution, winding-up of the Company, consolidation or merger, the holders of Series B preferred shall be entitled to receive an amount equal to $0.20 per share plus any accrued but unpaid dividends. If the assets of the Company are insufficient to permit the payment in full to the Series B preferred stockholders, the entire assets of the Company will be distributed ratably among the Series B preferred holders. Any assets remaining following any liquidation distribution to the holders of Series B preferred will be distributed among the holders of the Company's Series A and B preferred and common stock.
Redemption
Commencing any time after January 30, 2006, at the option of the holders of at least a 51% of the shares of Series B preferred then outstanding, the Company shall redeem all outstanding shares of Series B preferred. The redemption shall take place in three annual installments. The redemption price for Series B preferred is $0.20 per share plus all accrued and unpaid dividends. All per share prices will be adjusted for certain dilutive events. There is no redemption feature on the Series A preferred stock.
Dividends
The holders of Series B preferred are entitled to receive cumulative annual dividends (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares), when and as declared by the Board of Directors of the Company. The right to receive dividends shall be cumulative and accrue at a rate of 7% per annum of the original purchase price of the Series B preferred, $0.20. Such dividends shall be deemed to accrue on the Series B preferred and be cumulative, whether or not earned or declared and whether or not there are profits, surplus or other funds legally available for the payment of dividends. The Company shall not declare or pay any dividends on shares of Series A preferred or common stock until the preferred stockholders have received a distribution. Upon a liquidation, dissolution or winding-up of the Company or the conversion of Series B preferred, all accumulated and unpaid dividends on Series B Preferred shall be paid (Note 10).
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5. Common Stock
Amendment of the Articles of Incorporation
In June 2002, the Company amended its Articles of Incorporation to increase the number of authorized shares of common stock from 30,750,000 to 34,000,000. The Company also amended the 2000 Plan (Note 6) to increase the number of shares of common stock that may be issued pursuant to options granted under the 2000 Plan from 3,493,925 to 4,493,925.
During 2001, the Company amended its Articles of Incorporation to increase the number of authorized shares of common stock to 30,750,000 shares of $0.01 par value. The Company has reserved 29,190,857 shares of its common stock for conversion of Series A and B preferred stock, and the exercise of warrants and stock options.
Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding.
Restricted Stock
In February 2000, the Company entered into a Stock Restriction and Repurchase Agreement with all founders of the Company. The stock restrictions relate to the sale and transferability of the stock and lapse ratably according to the vesting schedule, and is contingent upon continued employment of the founders to the Company. Fifty percent of the restricted common stock vested immediately while the remaining fifty percent vests ratably over three years. In the event employment is terminated, the Company has the right to repurchase unvested shares at $.01 per share. At December 31, 2003, all shares of common stock were vested and not subject to repurchase by the Company.
Common Stock Warrants
In July 2001, the holders of Series A preferred were issued a warrant to purchase 4,216,858 shares of the Company's common stock at an exercise price of $1.20 per share in consideration for eliminated or amended rights, privileges and preferences of the Series A preferred. The warrant expires on June 30, 2009. The estimated fair value of the warrants (as of the date of issue) using the Black-Scholes option pricing was $256,956 using the following assumptions: no dividend yield, 100% volatility, risk-free rate of 4.3% and a life of eight years. The value of the warrant was recorded against the Company's accumulated deficit in 2001.
6. Stock Option Plan
In 1999, the Company adopted the 1999 Incentive and Non-Qualified Stock Option Plan (the "1999 Plan"). The 1999 Plan was superseded when in February of 2000, the Company adopted the 2000 Incentive and Non-Qualified Stock Option Plan (the "2000 Plan") which is administered by the Board of Directors. The 2000 Plan, as amended, provides for the issuance of a maximum of 4,493,925 shares of the Company's common stock to directors, officers, consultants and employees of the Company.
Awards granted under the Plan may include incentive stock options and nonqualified stock options. For incentive stock options, the exercise price shall not be less than the fair market value of a share of common stock on the date of grant. Options expire no later than ten years after the date of grant. If the
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options are held by a 10% shareholder of the Company, the exercise price of the option shall not be less than 110% of the fair market value of the share on the date of grant. These options expire no later than five years from the grant date. For nonqualified stock options, the exercise price and expiration date of options shall be determined by the Board of Directors of the Company.
A summary of stock option activity under the Plan for the two years ended December 31, 2003 is as follows:
|
Number of
Shares |
Weighted-Average
Exercise Price |
|||
---|---|---|---|---|---|
Outstanding at December 31, 2001 | 2,249,302 | $ | 0.15 | ||
Granted | 693,402 | 0.10 | |||
Exercised | | | |||
Canceled | (62,000 | ) | 0.10 | ||
|
|
||||
Outstanding at December 31, 2002 | 2,880,704 | 0.14 | |||
Granted | 857,504 | 0.10 | |||
Exercised | (171,129 | ) | 0.10 | ||
Canceled | (448,262 | ) | 0.10 | ||
|
|
||||
Outstanding at December 31, 2003 | 3,118,817 | $ | 0.13 | ||
|
|
The following summarizes information about the Company's stock options outstanding at December 31, 2003:
|
|
|
|
Exercisable
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Weighted
Average Remaining Contractual Life |
|
|||||||||
Range of
Exercise Prices |
Number
of Options Outstanding |
Weighted
Average Exercise Price |
Number of
Options Exercisable |
Weighted
Average Exercise Price |
||||||||
$0.10 | 2,734,484 | 5.1 | $ | 0.10 | 1,589,524 | $ | 0.10 | |||||
$0.30$0.33 | 349,333 | 2.7 | 0.31 | 349,333 | 0.31 | |||||||
$0.75 | 35,000 | 3.6 | 0.75 | 35,000 | 0.75 | |||||||
|
|
|||||||||||
3,118,817 | 4.8 | $ | 0.13 | 1,973,857 | $ | 0.15 | ||||||
|
|
The weighted average fair value of the options granted during 2003 and 2002 was $0.02 on the date of grant.
The Company follows SFAS No. 123 in accounting for stock options granted to individuals other than employees and directors. During 2000, the Company granted an option to purchase 35,000 shares of the Company's common stock at an exercise price $0.75 a share to a nonemployee consultant. These options are exercisable immediately after the grant and expire in August 2007. The value of these options was not material to the financial statements.
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7. Employee Benefit Plan
Effective June 2000, the Company established a defined contribution plan, the Bitpipe 401(k) Retirement Plan, for certain eligible employees of the Company. All eligible employees are permitted to contribute to the 401(k) plan through payroll deductions within statutory and plan limits. The Company may contribute an amount, if any, deemed employer match by action of the Board of Directors. The Company did not make any matching contributions for the years ended December 31, 2003 and 2002.
8. Income Taxes
There was no income tax expense recorded in 2003 due to the use of research and development tax credits and net operating loss carryforwards.
The approximate income tax effect of each type of temporary difference and carryforward that gives rise to the Company's deferred tax asset as of December 31, 2003 and 2002 is as follows:
|
2003
|
2002
|
|||||||
---|---|---|---|---|---|---|---|---|---|
Deferred tax asset (liability) | |||||||||
Net operating loss carryforwards | $ | 1,988,728 | $ | 2,266,788 | |||||
Accrued expenses | 172,793 | 46,135 | |||||||
Research and development credits | 134,594 | 95,315 | |||||||
Allowance for doubtful accounts | 25,070 | 52,463 | |||||||
Other | (18,451 | ) | 21,927 | ||||||
|
|
||||||||
2,302,734 | 2,482,628 | ||||||||
Less: valuation allowance | (2,302,734 | ) | (2,482,628 | ) | |||||
|
|
||||||||
Net deferred tax assets | $ | | $ | | |||||
|
|
As of December 31, 2003, the Company had federal and state net operating loss ("NOL") carryforwards of approximately $4,943,000 and $4,915,000, respectively, which may be available to offset future federal income tax liabilities and begin to expire in 2020 and 2006, respectively. The Company has federal and state credit carryforwards of approximately $90,000 and $68,000, respectively, which begin to expire in 2020 and 2016, respectively.
As required by Statement of Accounting Standards No. 109, management of the Company has evaluated positive and negative evidence bearing upon the realizability of its deferred tax assets which are comprised principally of net operating loss carryforwards. Management has determined that it is more likely than not the Company will not recognize the benefits of federal and state deferred tax assets and as a result, a full valuation allowance has been established at December 31, 2003 and 2002.
Under the Internal Revenue Code, certain substantial changes in the Company's ownership could result in an annual limitation on the amount of net operating loss carryforwards and research and development credit carryforwards which could be utilized in future years to offset future taxable income or liability.
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9. Commitments
The Company entered into several noncancelable operating lease agreements for the use of its office facilities through July 2008. Rent expense was $179,977 and $185,205 for the years ended December 31, 2003 and 2002, respectively. Future minimum lease payments as of December 31, 2003 under noncancelable operating leases are as follows (Note 10):
Year Ending
December 31, |
|
||
---|---|---|---|
2004 | $ | 175,521 | |
2005 | 176,491 | ||
2006 | 164,290 | ||
2007 | 155,393 | ||
2008 | 92,904 | ||
|
|||
$ | 764,599 | ||
|
Guarantor Arrangements
In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34 ("FIN 45"). The Interpretation requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. The Interpretation also requires additional disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees it has issued. The accounting requirements for the initial recognition of guarantees are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements ending after December 15, 2002. The following is a summary of agreements that the Company has within the scope of FIN No. 45.
The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company will indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally business partners or customers, in connection with any U.S. patent, or any copyright or other intellectual property infringement claim by any third party with respect to the Company's products. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is generally unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated cost of these agreements is minimal.
10. Subsequent Events
Facility Lease
In February 2004, the Company amended one of its noncancelable operating leases for its office facilities to add additional space (Note 9). The lease amendment expires in July 2008.
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Additional minimum lease payments under the amendment are as follows:
Year Ending
December 31, |
|
||
---|---|---|---|
2004 | $ | 45,135 | |
2005 | 60,180 | ||
2006 | 62,688 | ||
2007 | 65,697 | ||
2008 | 39,869 | ||
|
|||
$ | 273,569 | ||
|
Issuance of Series C Preferred and Amendments of Articles of Incorporation and Stock Option Plan
In April 2004, the Company sold a total of 6,437,924 shares of Series C preferred stock ("Series C preferred") to several investors for $0.46599 per share, resulting in gross proceeds to the Company of approximately $3,000,000.
In conjunction with the issuance of the Series C preferred, the Company amended its Articles of Incorporation, which among other things, included an increase in the authorized shares to 24,852,891 and 47,000,000 shares of preferred stock and common stock, respectively, and removed all dividends on Series B preferred.
In addition, the Company also amended the 2000 Plan to increase the number of shares of common stock that may be issued pursuant to options granted under the 2000 Plan to 11,774,202.
Acquisition of Assets
In June 2004, the Company entered into an agreement to purchase certain net assets of a firm specializing in IT user data analysis for $250,000, payable in four installments through April 2005.
F-55
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than the underwriting discount, payable by us in connection with the sale of common stock being registered. All amounts are estimated except the SEC registration fee and the NASD filing fees.
SEC registration fee | $ | 8,025 | ||
NASD filing fee | 8,000 | |||
NASDAQ Global Market listing fee | ||||
Printing and engraving expenses | ||||
Legal fees and expenses | ||||
Accounting fees and expenses | ||||
Transfer agent and registrar fees and expenses | ||||
Miscellaneous | ||||
|
||||
Total | $ | |||
|
II-1
Item 14. Indemnification of Directors and Officers.
Section 145(a) of the Delaware General Corporation Law provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), because he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Section 145(b) of the Delaware General Corporation Law provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor because the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made with respect to any claim, issue or matter as to which he or she shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, he or she is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or other adjudicating court shall deem proper.
Section 145(g) of the Delaware General Corporation Law provides, in general, that a corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify the person against such liability under Section 145 of the Delaware General Corporation Law.
Article VII of our amended and restated certificate of incorporation (the "Charter"), provides that no director of our company shall be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (1) for any breach of the director's duty of loyalty to us or our stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) in respect of unlawful dividend payments or stock redemptions or repurchases, or (4) for any transaction from which the director derived an improper personal benefit. In addition, our Charter provides that if the Delaware General Corporation Law is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of our company shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
Article VII of the Charter further provides that any repeal or modification of such article by our stockholders or an amendment to the Delaware General Corporation Law will not adversely affect any right or protection existing at the time of such repeal or modification with respect to any acts or omissions occurring before such repeal or modification of a director serving at the time of such repeal or modification.
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Article V of our amended and restated bylaws (the "Bylaws"), provides that we will indemnify each of our directors and officers and, in the discretion of our board of directors, certain employees, to the fullest extent permitted by the Delaware General Corporation Law as the same may be amended (except that in the case of an amendment, only to the extent that the amendment permits us to provide broader indemnification rights than the Delaware General Corporation Law permitted us to provide prior to such the amendment) against any and all expenses, judgments, penalties, fines and amounts reasonably paid in settlement that are incurred by the director, officer or such employee or on the director's, officer's or employee's behalf in connection with any threatened, pending or completed proceeding or any claim, issue or matter therein, to which he or she is or is threatened to be made a party because he or she is or was serving as a director, officer or employee of our company, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of our company and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. Article V of the Bylaws further provides for the advancement of expenses to each of our directors and, in the discretion of the board of directors, to certain officers and employees.
In addition, Article V of the Bylaws provides that the right of each of our directors and officers to indemnification and advancement of expenses shall be a contract right and shall not be exclusive of any other right now possessed or hereafter acquired under any statute, provision of the Charter or Bylaws, agreement, vote of stockholders or otherwise. Furthermore, Article V of the Bylaws authorizes us to provide insurance for our directors, officers and employees, against any liability, whether or not we would have the power to indemnify such person against such liability under the Delaware General Corporation Law or the provisions of Article V of the Bylaws.
In connection with the sale of common stock being registered hereby, we intend to enter into indemnification agreements with each of our directors and our executive officers. These agreements will provide that we will indemnify each of our directors and such officers to the fullest extent permitted by law and the Charter and Bylaws.
We also maintain a general liability insurance policy which covers certain liabilities of directors and officers of our company arising out of claims based on acts or omissions in their capacities as directors or officers.
In any underwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the Securities Act of 1933, as amended, against certain liabilities.
Item 15. Recent Sales of Unregistered Securities.
In the three years preceding the filing of this registration statement, we have issued the following securities that were not registered under the Securities Act:
(a) Issuances of Capital Stock.
In May 2004 and June 2004, we issued and sold an aggregate of 51,470,588 shares of series B preferred stock at a price of $1.36 per share. In December 2004, we issued and sold an aggregate of 10,141,302 shares of series C preferred stock at a price of $1.4791 per share.
No underwriters were used in the foregoing transactions. All sales of securities described above were made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act (and/or Regulation D promulgated thereunder) for transactions by an issuer not involving a public offering. All of the foregoing securities are deemed restricted securities for the purposes of the Securities Act.
As of November 2006, there were outstanding options to purchase 70,025 shares of our common stock at an exercise price of $0.59 per share, the issuance of which may not have been exempt from registration
II-3
or certain qualification requirements under federal or state securities laws. To address this issue, we made a rescission offer that was completed in December 2006 to all holders of these options pursuant to which we offered to repurchase these options for cash or shares of our common stock. In connection with the completion of the rescission offer, we issued 43,167 shares and paid out $6,484 in cash, which included statutory interest. The sales of securities pursuant to the rescission offer were made in reliance upon the exemption from registration provided by Section 3(b) of the Securities Act for transactions by an issuer not involving a public offering. All of the foregoing securities are deemed restricted securities for purposes of the Securities Act.
(b) Grants and Exercises of Stock Options.
To date in 2007, pursuant to our 1999 Stock Option Plan, we issued and sold 1,013,000 shares of our common stock upon the exercise of stock options for aggregate consideration of $50,650.
During 2006, pursuant to our 1999 Stock Option Plan, we granted stock options to purchase 16,974,000 shares of common stock with a weighted average exercise price of $1.84 per share to our employees. During 2006, 1,486,537 options were exercised for aggregate consideration of $553,659. During 2005, pursuant to our 1999 Stock Option Plan, we granted stock options to purchase 170,000 shares of common stock with a weighted average exercise price of $1.61 per share to our employees. During 2005, 566,900 options were exercised for aggregate consideration of $237,227. During 2004, pursuant to our 1999 Stock Option Plan, we granted stock options to purchase 4,297,900 shares of common stock with a weighted average exercise price of $1.10 per share to our employees. During 2004, 110,505 options were exercised for aggregate consideration of $50,402. The issuance of common stock upon exercise of the options was exempt either pursuant to Rule 701, as a transaction pursuant to a contemporary benefit plan, or pursuant to Section 4(2), as a transaction by an issuer not involving a public offering. The common stock issued upon exercise of options are deemed restricted securities for the purposes of the Securities Act.
(c) Exercise of Warrant.
In April 2004, we issued and sold 602,943 shares of our common stock upon the exercise of a warrant for aggregate consideration of $277,354.
In February 2006, we issued and sold 736,931 shares of our common stock upon the exercise of a warrant for aggregate consideration of $338,988.
The issuances of common stock upon the exercise of the warrants were made in reliance upon the exemption from registration proved by Section 4(2) of the Securities Act for transactions by an issuer not involving a public offering. All of the foregoing securities are deemed restricted securities for purposes of the Securities Act.
Item 16. Exhibits.
(a) See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.
(b) Financial Statement Schedules
None.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or
II-4
otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) For the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a line of contract or sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(4) In a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
II-5
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Needham, Commonwealth of Massachusetts, on February 7, 2007.
TECHTARGET, INC. | |||
|
|
By: |
/s/ GREG STRAKOSCH |
Greg Strakosch Chief Executive Officer and Director |
SIGNATURES AND POWER OF ATTORNEY
We, the undersigned directors and officers of TechTarget, Inc. (the "Company"), hereby severally constitute and appoint Greg Strakosch, Eric Sockol and Rick Olin, and each of them singly, our true and lawful attorneys, with full power to them, and to each of them singly, to sign for us and in our names in the capacities indicated below, the registration statement on Form S-1 filed herewith, and any and all pre-effective and post-effective amendments to said registration statement, and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of equity securities of the Company, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitute or substitutes, shall do or cause to be done by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on February 7, 2007:
Signature
|
Title(s)
|
|
---|---|---|
/s/ GREG STRAKOSCH Greg Strakosch |
|
Chief Executive Officer (Principal Executive Officer) |
/s/
ERIC SOCKOL
Eric Sockol |
Chief Financial Officer
(Principal Financial and Principal Accounting Officer) |
|
/s/
LEONARD FORMAN
Leonard Forman |
Director | |
/s/
JAY C. HOAG
Jay C. Hoag |
Director | |
/s/
BRUCE LEVENSON
Bruce Levenson |
Director | |
/s/
ROGER M. MARINO
Roger M. Marino |
Director | |
/s/
ALAN G. SPOON
Alan G. Spoon |
Director |
II-6
Number
|
Description
|
|
---|---|---|
1.1* |
|
Form of Underwriting Agreement |
3.1* |
|
Third Amended and Restated Certificate of Incorporation of the Registrant |
3.2* |
|
Form of Fourth Amended and Restated Certificate of Incorporation of the Registrant (to be effective upon the completion of the offering) |
3.3* |
|
Amended and Restated Bylaws of the Registrant |
4.1* |
|
Specimen Stock Certificate for shares of the Registrant's Common Stock |
5.1* |
|
Opinion of Goodwin Procter LLP |
10.1 |
|
Second Amended and Restated Investors' Rights Agreement by and among the Registrant, the Investors named therein and SG Cowen Securities Corporation, dated as of December 17, 2004 |
10.2* |
|
Form of Indemnification Agreement between the Registrant and its Directors and Officers |
10.3* |
|
2007 Stock Option and Incentive Plan |
10.4* |
|
Form of Incentive Stock Option Agreement under the 2007 Stock Option and Incentive Plan |
10.5* |
|
Form of Non-Qualified Stock Option Agreement under the 2007 Stock Option and Incentive Plan |
10.6* |
|
Form of Restricted Stock Agreement under the 2007 Stock Option and Incentive Plan |
10.7* |
|
2007 Bonus Plan |
10.8 |
|
1999 Stock Option Plan |
10.9 |
|
Form of Incentive Stock Option Grant Agreement under the 1999 Stock Option Plan (for grants prior to September 27, 2006) |
10.10 |
|
Form of Incentive Stock Option Grant Agreement under the 1999 Stock Option Plan (for grants on or after September 27, 2006) |
10.11 |
|
Form of Nonqualified Stock Option Grant Agreement under the 1999 Stock Option Plan |
10.12 |
|
Lease Agreement between the Registrant and Wellsford/Whitehall Holdings, L.L.C. for the premises located at 117 Kendrick Street, Needham, MA, dated as of November 25, 2003 |
10.13 |
|
First Amendment to Lease Agreement between the Registrant and Wellsford/Whitehall Holdings, L.L.C. for the premises located at 117 Kendrick Street, Needham, MA, dated as of July 27, 2004 |
10.14 |
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Second Amendment to Lease Agreement between the Registrant and Wellsford/Whitehall Holdings, L.L.C. for the premises located at 117 Kendrick Street, Needham, MA, dated as of December, 2004 |
10.15 |
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Third Amendment to Lease Agreement between the Registrant and Intercontinental Fund III for the premises located at 117 Kendrick Street, Needham, MA, dated as of September 21, 2006 |
10.16 |
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Credit Facility Agreement between the Registrant and Citizens Bank of Massachusetts, dated as of August 30, 2006 |
10.17* |
|
Employment Agreement between the Registrant and Greg Strakosch |
10.18* |
|
Employment Agreement between the Registrant and Don Hawk |
10.19* |
|
Employment Agreement between the Registrant and Eric Sockol |
10.20* |
|
Employment Agreement between the Registrant and Kevin Beam |
10.21* |
|
Employment Agreement between the Registrant and Rick Olin |
21.1 |
|
List of Subsidiaries |
23.1 |
|
Consent of Ernst & Young LLP |
23.2 |
|
Consent of PricewaterhouseCoopers LLP |
23.3* |
|
Consent of Goodwin Procter LLP (included in Exhibit 5.1) |
24.1 |
|
Power of Attorney (included in page II-5) |
Exhibit 10.1
Execution Copy
TECHTARGET, INC.
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This Second Amended and Restated Investors' Rights Agreement is entered into as of the 17th day of December, 2004, by and among TechTarget, Inc., a Delaware corporation (the " Company "), the persons and entities listed on Exhibit A hereto under the heading "Investors" (individually, an " Investor ", and, collectively, the " Investors ") and, for the purposes of Articles II and V only, SG Cowen Securities Corporation, a New York corporation (" SG Cowen ").
Recitals
WHEREAS, the Company and certain of the Investors are parties to an Amended and Restated Investors' Rights Agreement dated as of May 21, 2004 (the " Existing Agreement ");
WHEREAS, certain Investors have on this date acquired shares of the Company's Series C Convertible Preferred Stock, $.001 par value per share (the " Series C Preferred Stock "), pursuant to a Series C Convertible Preferred Stock Purchase Agreement (the " Purchase Agreement ");
WHEREAS, the execution of this Agreement is a condition to the Investors' acquisition of the shares of Series C Preferred Stock; and
WHEREAS, the Company desires to grant to the Investors registration rights and certain other rights on the terms and conditions hereinafter set forth by amending and restating in its entirety the Existing Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, and for other valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree that the Existing Agreement be amended and restated in its entirety as follows:
ARTICLE I. DEFINITIONS
As used in this Agreement, the following terms shall have the following respective meanings:
" Commission " means the United States Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act.
" Common Stock " means the common stock, $0.001 par value per share, of the Company.
" Exchange Act " means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect.
" Initial Public Offering " means the sale of shares of Common Stock in a firm commitment underwritten public offering pursuant to a Registration Statement at a price to the public per share of at least $4.44 (subject to appropriate adjustment for stock splits, stock dividends, reclassifications, recapitalizations and other similar events affecting such shares).
" Registration Statement " means a registration statement filed by the Company with the Commission for a public offering and sale of Common Stock by the Company (other than a registration statement on Form S-8 or Form S-4, or their successors, or any other form for a similar limited purpose, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another corporation).
" Registration Expenses " means the expenses described in Section 2.4 below.
" Registrable Shares " means (i) the shares of Common Stock issued or issuable upon conversion of the Shares, (ii) any shares of Common Stock, and any shares of Common Stock issued or issuable upon the conversion or exercise of any other securities, acquired by the Investors, (iii) any other shares of Common Stock issued in respect of such shares (because of stock splits, stock dividends, reclassifications, recapitalizations, or similar events) and (iv) shares of Common Stock issued or issuable upon exercise of SG Cowen Warrants; provided, however, that shares of Common Stock which are Registrable Shares shall cease to be Registrable Shares (a) upon any sale of such shares pursuant to a Registration Statement or Rule 144 under the Securities Act, (b) upon any sale of such shares in any manner to a person or entity which, by virtue of Section 5.2 of this Agreement, is not entitled to the rights provided by this Agreement, or (c) at such time as they become eligible for resale pursuant to Rule 144(k) under the Securities Act. Wherever reference is made in this Agreement to a request or consent of holders of a certain percentage of Registrable Shares, the determination of such percentage shall include the shares of Common Stock issuable upon conversion of the Shares even if such conversion has not yet been effected.
" Securities Act " means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect.
" SG Cowen Warrants " means one or more warrants granted to SG Cowen pursuant to the letter agreement between the Company and SG Cowen dated April 6, 2000, as amended by the letter agreement dated February 2, 2001.
" Shares " means the Company's outstanding Series A Convertible Preferred Stock, $.001 par value per share, the Series B Convertible Preferred Stock, $.001 par value per share, and the Series C Preferred Stock.
" Stockholders " means the Investors and any persons or entities to whom the rights granted to the Investors under this Agreement are transferred by the Investors, their successors or permitted assigns pursuant to Section 5.2 below.
ARTICLE II. REGISTRATION RIGHTS
2.1. Required Registrations.
(a) At any time after the earlier of (i) six (6) months after the closing of the Company's first underwritten public offering of shares of Common Stock pursuant to a Registration Statement or (ii) the second anniversary of the date hereof, a Stockholder or Stockholders or SG Cowen (each a " Holder " and, collectively, the " Holders ") may request, in writing, that the Company effect the registration on Form S-1 or Form S-2 (or any successor form) of Registrable Shares owned by such Holders having an aggregate offering price of at least $7,500,000 (based on the market price or fair value at the time of such request). Upon receipt of any such request, the Company shall promptly give written notice of such proposed registration to all Holders. Such Holders shall have the right, by giving written notice to the Company within ten (10) business days after the Company provides its notice, to elect to have included in such registration such of their Registrable Shares as such Holders may request in such notice of election. If the Holders initiating the registration intend to distribute the Registrable Shares by means of an underwriting, they shall so advise the Company in their request. Thereupon, the Company shall, as expeditiously as possible, use its reasonable best efforts to effect the registration on Form S-1 or Form S-2 (or any successor form) of all Registrable Shares which the Company has been requested to so register.
(b) At any time after the Company becomes eligible to file a Registration Statement on Form S-3 (or any successor form relating to secondary offerings), a Holder or Holders may request the Company, in writing, to effect the registration on Form S-3 (or such successor form), of Registrable Shares having
2
an aggregate offering price of at least $1,000,000 (based on the public market price at the time of such request). Upon receipt of any such request, the Company shall promptly give written notice of such proposed registration to all Holders. Such Holders shall have the right, by giving written notice to the Company within ten (10) business days after the Company provides its notice, to elect to have included in such registration such of their Registrable Shares as such Holders may request in such notice of election; provided, however, that if the underwriter (if any) managing the offering determines that, because of marketing factors, not all of the Registrable Shares requested to be registered by all of the Holders may be included in the offering, then, all securities held by other parties shall first be excluded, and thereafter all Holders who have requested registration shall participate in the registration pro rata based upon the number of Registrable Shares which they have requested to be so registered (the " Requested Investor Shares "). Thereupon, subject to this Section 2.1(b), the Company shall, as expeditiously as possible, use its best efforts to effect the registration on Form S-3 (or such successor form) of all Registrable Shares which the Company has been requested to so register. The Company shall have the right to approve (such approval to not be unreasonably withheld) the managing underwriter of any underwritten offering effected pursuant to Section 2.1(a) or this Section 2.1(b).
(c) The Company shall not be required to effect more than two registrations pursuant to paragraph (a) above; provided, however, that such obligations shall be deemed satisfied only when a registration statement covering the applicable Registrable Shares shall have (i) become effective or (ii) been withdrawn at the request of the Holders requesting such registration (other than as a result of information concerning the business or financial condition of the Company which is made known to the Holders after the date on which such registration was requested).
(d) If at the time of any request to register Registrable Shares pursuant to this Section 2.1, the Company is engaged or has plans to engage within 60 days of the time of the request in a registered public offering of securities for its own account or is engaged in any other activity which, in the good faith determination of the Company's Board of Directors, would be adversely affected by the requested registration to the material detriment of the Company, then the Company may at its option direct that such request be delayed for a period not in excess of three months from the effective date of such offering or the date of commencement of such other material activity, as the case may be, such right to delay a request to be exercised by the Company not more than once in any 12-month period.
2.2. Incidental Registration.
Except for the Company's first underwritten public offering of shares of Common Stock pursuant to a Registration Statement, whenever the Company proposes to file a Registration Statement at any time and from time to time, it will, prior to such filing, give written notice to all Holders of its intention to do so and, upon the written request of a Holder or Holders, given within ten (10) business days after the Company provides such notice (which request shall state the intended method of disposition of such Registrable Shares), the Company shall use its best efforts to cause all Registrable Shares which the Company has been requested by such Holder or Holders to register, to be registered under the Securities Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution specified in the request of such Holder or Holders; provided, however, that the Company shall have the right to postpone or withdraw any registration effected pursuant to this Section 2.2 without obligation to any Holder.
(b) In connection with any registration under this Section 2.2 involving an underwriting, the Company shall not be required to include any Registrable Shares in such registration unless the holders thereof accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it. If in the opinion of the managing underwriter it is desirable because of marketing factors to limit the number of Registrable Shares to be included in the offering, then the Company shall be required to include in the registration only that number of Registrable Shares, if any, which the managing underwriter believes should be included therein; provided, however, that no
3
persons or entities other than the Company, the Holders and other persons or entities holding registration rights shall be permitted to include securities in the offering. If the number of Registrable Shares to be included in the offering in accordance with the foregoing is less than the total number of shares which the holders of Registrable Shares have requested to be included, then, all securities held by other parties shall first be excluded, and thereafter the holders of Registrable Shares who have requested registration shall participate in the registration pro rata based upon their total ownership of shares of Common Stock (giving effect to the conversion into Common Stock of all convertible securities). If any holder would thus be entitled to include more securities than such holder requested to be registered, the excess shall be allocated among other requesting holders pro rata in the manner described in the preceding sentence.
2.3. Registration Procedures. If and whenever the Company is required by the provisions of this Agreement to use its best efforts to effect the registration of any of the Registrable Shares under the Securities Act, the Company shall:
(a) file with the Commission a Registration Statement with respect to such Registrable Shares and use its best efforts to cause that Registration Statement to become effective;
(b) as expeditiously as possible prepare and file with the Commission any amendments and supplements to the Registration Statement and the prospectus included in the Registration Statement as may be necessary to keep the Registration Statement effective, in the case of a firm commitment underwritten public offering, until each underwriter has completed the distribution of all securities purchased by it and, in the case of any other offering, until the earlier of the sale of all Registrable Shares covered thereby or 120 days after the effective date thereof;
(c) as expeditiously as possible furnish to each selling Holder such reasonable number of copies of the prospectus, including any preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as the selling Holder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Shares owned by the selling Holder; and
(d) as expeditiously as possible use its best efforts to register or qualify the Registrable Shares covered by the Registration Statement under the securities or Blue Sky laws of such states as the selling Holders shall reasonably request, and do any and all other acts and things that may be necessary or desirable to enable the selling Holders to consummate the public sale or other disposition in such states of the Registrable Shares owned by the selling Holders; provided, however, that the Company shall not be required in connection with this paragraph (d) to qualify as a foreign corporation or execute a general consent to service of process in any jurisdiction; and
If the Company has delivered preliminary or final prospectuses to the selling Holders and after having done so the prospectus is amended to comply with the requirements of the Securities Act, the Company shall promptly notify the selling Holders and, if requested, the selling Holders shall immediately cease making offers of Registrable Shares and return all prospectuses to the Company. The Company shall promptly provide each selling Holder with revised prospectuses and, following receipt of the revised prospectuses, the selling Holder shall be free to resume making offers of the Registrable Shares.
Notwithstanding the foregoing, each selling Holder shall cease making offers or sales pursuant to a "shelf" Registration Statement during any Postponement Period (not to exceed 90 days in the aggregate in any 12-month period). A " Postponement Period " shall be any period in which there exists at the time material non-public information relating to the Company disclosure of which the Company, in its good faith judgment by the Board of Directors, reasonably believes:
(i) that the filing thereof at the time requested, or the offering of Registrable Shares pursuant thereto, would materially and adversely affect (A) a pending or scheduled public offering or private placement of the Company's securities, (B) an acquisition, merger, consolidation or any
4
other similar transaction by or of the Company, or (C) pre-existing and continuing negotiations, discussions or pending proposals with respect to any of the foregoing transactions; and
(ii) that the failure to disclose any material information with respect to the foregoing would cause a violation of the Securities Act or the Exchange Act.
If, after a registration statement becomes effective, the Company becomes engaged in any activity which, in the good faith determination of the Company's Board of Directors, involves information that would have to be disclosed in the Registration Statement but which the Company desires to keep confidential for valid business reasons, including any event giving rise to a Postponement Period, then the Company may at its option, by notice to such Holders, require that the Holders who have included Shares in such Registration Statement cease sales of such Shares under such Registration Statement for a period not in excess of 90 days in the aggregate in any 12-month period. If, in connection therewith, the Company considers it appropriate for such Registration Statement to be amended, the Company shall so amend such Registration Statement as promptly as practicable and such Holders shall suspend any further sales of their Shares until the Company advises them that such Registration Statement has been amended. The time periods referred to in this Section 2.3 during which such Registration Statement must be kept effective shall be extended for an additional number of days equal to the number of days during which the right to sell shares was suspended pursuant to this paragraph.
2.4. Allocation of Expenses. The Company will pay all Registration Expenses of all registrations under this Agreement; provided, however, that if a registration under Section 2.1 is withdrawn at the request of the initiating Holders (other than as a result of information concerning the business or financial condition of the Company which is made known to the Holders after the date on which such registration was requested) and if the initiating Holders elect not to have such registration counted as a registration requested under Section 2.1, the requesting Holders shall pay the Registration Expenses of such registration pro rata in accordance with the number of their Registrable Shares included in such registration or in such other manner as they may among themselves agree. For purposes of this Section 2.4, the term " Registration Expenses " shall mean all expenses incurred by the Company in complying with Article II, including, without limitation, all registration and filing fees, exchange listing fees, printing expenses, fees and expenses of counsel for the Company and the reasonable fees and expenses of one counsel selected by the selling Holder(s) to represent the selling Holder(s), state Blue Sky fees and expenses, the expense of any special audits incident to or required by any such registration, but excluding underwriting discounts, selling commissions and the fees and expenses of any Selling Holders' counsel other than one counsel referred to above.
2.5. Indemnification and Contribution.
(a) In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless the seller of such Registrable Shares, the partners, members, officers, directors and stockholders of such seller of Registrable Shares, each underwriter of such Registrable Shares, and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling or aforementioned person may become subject under the Securities Act, the Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arise out of or are based upon the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading or arise out of or are based upon any violation or alleged violation by the Company of the Securities Act, the
5
Exchange Act, state securities or Blue Sky laws; and the Company will reimburse such seller, underwriter and each such controlling or aforementioned person for any legal or any other expenses reasonably incurred by such seller, underwriter or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or omission made in such Registration Statement, preliminary prospectus or final prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to the Company, in writing, by or on behalf of such seller, underwriter or controlling person specifically for use in the preparation thereof.
(b) In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, each seller of Registrable Shares, severally and not jointly, will indemnify and hold harmless the Company, each of its directors and officers, each other seller of Registrable Shares and each underwriter (if any) and each person, if any, who controls the Company or any such other seller or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities, joint or several, to which the Company, such directors and officers, other seller, underwriter or controlling person may become subject under the Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, if the statement or omission was made in reliance upon and in conformity with information relating to such seller furnished in writing to the Company by or on behalf of such seller specifically for use in connection with the preparation of such Registration Statement, prospectus, amendment or supplement; provided, however, that the obligations of such Holders hereunder shall be limited to an amount equal to the net proceeds to each Holder of Registrable Shares sold in connection with such registration.
(c) Each party entitled to indemnification under this Section 2.5 (the " Indemnified Party ") shall give notice to the party required to provide indemnification (the " Indemnifying Party ") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided, however, that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld); and, provided that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.5, unless and except to the extent that the Indemnifying Party is prejudiced by the failure of the Indemnified Party to provide timely notice. The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall pay such expense if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnified Party and any other party represented by such counsel in such proceeding. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, 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 of such claim or litigation, and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party.
6
(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 Registrable Shares exercising rights under this Agreement, or any controlling or aforementioned person of any such holder, makes a claim for indemnification pursuant to this Section 2.5 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 2.5 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 or aforementioned person in circumstances for which indemnification is provided under this Section 2.5; 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 as is appropriate to reflect the relative fault of the Company on the one hand and the selling Holders on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company and the selling Holders shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of material fact related to information supplied by the Company or the selling Holders and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the selling Holders agree that it would not be just and equitable if contribution pursuant to this Section 2.5 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above; provided, however, that, in any such case, (A) no such holder will be required to contribute any amount (together with amounts otherwise paid pursuant to this Section 2.5) in excess of the net proceeds to it of all Registrable Shares 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.
2.6. Indemnification with Respect to Underwritten Offering. In the event that Registrable Shares are sold pursuant to a Registration Statement in an underwritten offering pursuant to Section 2.1 hereof, the Company agrees to (a) enter into an underwriting agreement containing customary representations and warranties with respect to the business and operations of an issuer of the securities being registered and customary covenants and agreements to be performed by such issuer, including, without limitation, customary provisions with respect to indemnification by the Company of the underwriters of such offering, (b) use its reasonable best efforts to cause its legal counsel to render customary opinions to the underwriters with respect to the Registration Statement; and (c) use its reasonable best efforts to cause its independent public accounting firm to issue customary "cold comfort letters" to the underwriters with respect to the Registration Statement.
2.7. Information by Holder. Each Holder including Registrable Shares in any registration shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement.
2.8. "Stand-Off" Agreement. Each Holder, if requested by the Company and the managing underwriter of an offering by the Company of Common Stock or other securities of the Company pursuant to a Registration Statement, shall agree not to sell publicly or otherwise transfer or dispose of any Registrable Shares or other securities of the Company held by such Holder for a specified period
7
of time (not to exceed 180 days) following the effective date of such Registration Statement; provided that:
(a) all officers and directors of the Company, all holders of 1% or more of the Company's equity securities and all selling stockholders in such offering (other than with respect to shares actually being sold in such offering) enter into similar agreements;
(b) such agreement shall only apply to the first Registration Statement covering Common Stock to be sold by or on behalf of the Company to the public in an underwritten offering; and
(c) such agreement shall not apply to securities acquired in an initial public offering or an open market transaction after such Registration Statement is declared effective.
Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply to all Holders subject to such agreements pro rata based on the numbers of shares subject to such agreements.
2.9. Limitations on Subsequent Registration Rights. The Company shall not, without the prior written consent of Stockholders holding at least two-thirds of the Registrable Shares held by the Stockholders, enter into any agreement (other than this Agreement) with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder to include securities of the Company in any Registration Statement upon terms which are more favorable to such holder or prospective holder than the terms on which holders of Registrable Shares may include shares in such registration or which are pari passu with the rights of holders of Registrable Shares.
2.10. Rule 144 Requirements. After the earliest of (a) the closing of the sale of securities of the Company pursuant to a Registration Statement, (b) the registration by the Company of a class of securities under Section 12 of the Exchange Act, or (c) the issuance by the Company of an offering circular pursuant to Regulation A under the Securities Act, the Company agrees to:
(i) comply with the requirements of Rule 144(c) under the Securities Act with respect to current public information about the Company;
(ii) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and
(iii) furnish to any holder of Registrable Shares upon request (A) a written statement by the Company as to its compliance with the requirements of said Rule 144(c), and the reporting requirements of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), (B) a copy of the most recent annual or quarterly report of the Company, and (C) such other reports and documents of the Company as such holder may reasonably request to avail itself of any similar rule or regulation of the Commission allowing it to sell any such securities without registration.
ARTICLE III. RIGHT OF FIRST REFUSAL
3.1. Right of First Refusal
(a) So long as at least fifteen percent (15%) of the Shares issued as of the date hereof (subject to appropriate adjustment for stock splits, stock dividends, reclassifications, recapitalizations and other similar events affecting such shares) remain outstanding, the Company shall not issue, sell or exchange, agree to issue, sell or exchange, or reserve or set aside for issuance, sale or exchange, (i) any shares of its Common Stock, (ii) any other equity securities of the Company, including, without limitation, shares of preferred stock, (iii) any option, warrant or other right to subscribe for, purchase or otherwise
8
acquire any equity securities of the Company (" Options "), or (iv) any debt securities convertible into capital stock of the Company (collectively, the " Offered Securities "), unless in each such case the Company shall have first complied with Article III of this Agreement.
(b) The Company shall deliver to each Investor a written notice of any proposed or intended issuance, sale or exchange of Offered Securities (the " Offer "), which Offer shall (i) identify and describe the Offered Securities, (ii) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (iii) identify the persons or entities, if known, to which or with which the Offered Securities are to be offered, issued, sold or exchanged, and (iv) offer to issue and sell to or exchange with such Investor (A) a pro rata portion of the Offered Securities determined by dividing the aggregate number of shares of Common Stock then held by such Investor (giving effect to the conversion or exercise, as the case may be, of all shares of convertible preferred stock and Options then held by such Investor) by the total number of shares of Common Stock then outstanding (giving effect to the conversion or exercise, as the case may be, of all of the Company's outstanding shares of convertible preferred stock and Options) (the " Basic Amount ") and (B) such additional portion of the Offered Securities as such Investor shall indicate it will purchase or acquire should the other Investors subscribe for less than their Basic Amounts (the " Undersubscription Amount "). Each Investor shall have the right, for a period of 10 days following delivery of the Offer, to accept the Offer in the manner provided in paragraph (c) below. The Offer by its terms shall remain open and irrevocable until the earlier of the expiration of such 10-day period or the receipt by the Company of notice from all of the Investors.
(c) To accept an Offer, in whole or in part, an Investor must deliver a written notice to the Company prior to the end of the 10-day period, setting forth the portion of the Investor's Basic Amount that such Investor elects to purchase and, if such Investor shall elect to purchase all of its Basic Amount, the Undersubscription Amount (if any) that such Investor elects to purchase (the " Notice Acceptance "). If the Basic Amounts subscribed for by all Investors are less than the total Basic Amounts, then each Investor who has set forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed for; provided, however, that should the Undersubscription Amounts subscribed for exceed the difference between the total Basic Amounts and the Basic Amounts subscribed for (the " Available Undersubscription Amount "), each Investor who has subscribed for any Undersubscription Amount shall be entitled to purchase only that portion of the Available Undersubscription Amount as the Undersubscription Amount subscribed for by such Investor bears to the total Undersubscription Amounts subscribed for by all Investors, subject to rounding by the Board of Directors to the extent it reasonably deems necessary.
(d) In the event that Notices of Acceptance are not given by such Investors in respect of all the Offered Securities, the Company shall have 90 days from the expiration of the 10-day period set forth in Section 3.1(b) hereof, to issue, sell or exchange all or any part of such Offered Securities as to which a Notice of Acceptance has not been given by the Investors (the " Refused Securities "), but only to the offerees or purchasers described in the Offer and only upon terms and conditions (including, without limitation, unit prices and interest rates) which are not more favorable, in the aggregate, to the acquiring person or persons or less favorable to the Company than those set forth in the Offer.
(e) In the event the Company shall propose to sell fewer than all the Refused Securities, then each Investor may, at its sole option and in its sole discretion, reduce the number of the Offered Securities specified in its Notice of Acceptance to a number that shall be not less than the number of the Offered Securities that the Investor elected to purchase pursuant to Section 3.1(c) hereof, multiplied by a fraction (i) the numerator of which shall be the number of Offered Securities the Company actually proposes to issue, sell or exchange (including Offered Securities to be issued or sold to Investors pursuant to Section 3.1(c) hereof prior to such reduction) and (ii) the denominator of which shall be the number of all Offered Securities. In the event that the Investor so elects to reduce
9
the number of Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced number of Offered Securities unless and until such securities have again been offered to the Investors in accordance with Section 3.1(b) hereof.
(f) Upon the closing of the issuance, sale or exchange of all or less than all the Refused Securities, the Investors shall acquire from the Company, and the Company shall issue to the Investors, the number of Offered Securities specified in the Notices of Acceptance, as reduced pursuant to Section 3.1(e) hereof if the Investors have so elected, upon the terms and conditions specified in the Offer. The purchase by the Investors of any Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and the Investors of a purchase agreement relating to such Offered Securities reasonably satisfactory in form and substance to the Investors and the Company.
(g) Any Offered Securities not acquired by the Investor or other persons in accordance with Section 3.1(d) hereof may not be issued, sold or exchanged until they are again offered to the Investors under the procedures specified in this Article.
3.2. Excluded Issuances. The rights of the Investors under this Article III shall not apply to:
(a) Common Stock issued as a stock dividend to holders of Common Stock or upon any subdivision or combination of shares of Common Stock;
(b) the issuance of any shares of Common Stock upon conversion of outstanding shares of convertible preferred stock;
(c) up to 25,443,584 shares of Common Stock (the " Reserved Option Shares "), or options exercisable therefor (subject to appropriate adjustment for stock splits, stock dividends, reclassifications, recapitalizations and other similar events affecting such shares), issued or issuable to officers, directors, consultants and employees of the Company or any subsidiary pursuant to any plan, agreement or arrangement approved by a majority of the Board of Directors, including in such majority all directors designated by the holders of the Series A Preferred Stock or the Series B Preferred Stock pursuant to any agreement then in effect concerning the election of directors of the Company (a " Majority Directors Vote ");
(d) Common Stock issued solely in connection with (i) the acquisition (whether by merger or otherwise) by the Company of all or substantially all of the stock or assets of any other entity or (ii) any strategic arrangement, alliance, joint venture or similar arrangement, provided, in either case, such is approved by a Majority Directors Vote;
(e) Common Stock issued upon exercise of any warrants issued to financial institutions or lessors in connection with commercial credit arrangements, equipment financings or similar transactions that in each case are approved by a Majority Directors Vote;
(f) up to an aggregate of 899,432 shares (subject to appropriate adjustment for stock splits, stock dividends, reclassifications, recapitalizations and other similar events affecting such shares) of Common Stock issued upon exercise of warrants and up to an aggregate of 129,517 shares (subject to appropriate adjustment for stock splits, stock dividends, reclassifications, recapitalizations and other similar events affecting such shares) of Series A Preferred Stock issued upon exercise of warrants; or
(g) up to an aggregate of 10,141,391 shares of Series C Preferred Stock (subject to appropriate adjustment for stock splits, dividends, reclassifications, recapitalizations and other similar events affecting such shares) issued pursuant to the Purchase Agreement and shares of Common Stock issued upon conversion of such Series C Preferred Stock.
3.3 Termination of the Right of First Refusal. The rights of the Investors under this Article III shall terminate pursuant to Section 5.1 hereof.
10
ARTICLE IV. AFFIRMATIVE COVENANTS
4.1 Inspection. So long as at least twenty percent (20%) of the Shares issued as of the date hereof (subject to appropriate adjustment for stock splits, stock dividends, reclassifications, recapitalizations and other similar events affecting such shares), including in such number the shares of Common Stock issued upon conversion of the Shares, remain outstanding, the Company shall permit each Investor who continues to hold at least 20% of the Shares originally issued to such Investor (subject to appropriate adjustment for stock splits, stock dividends, reclassifications, recapitalizations and other similar events affecting such shares), or any authorized representative thereof, to visit and inspect the properties of the Company, including its corporate and financial records, and to discuss its business and finances with officers of the Company, during normal business hours following reasonable notice and as often as may be reasonably requested.
4.2 Financial Statements and Other Information.
(a) So long as at least twenty percent (20%) of the Shares issued of the date hereof (subject to appropriate adjustment for stock splits, stock dividends, reclassifications, recapitalizations and other similar events affecting such shares), including in such number the shares of Common Stock issued upon conversion of the Shares, remain outstanding, the Company shall deliver to each Investor who continues to hold at least 1,000,000 Shares (subject to appropriate adjustment for stock splits, stock dividends, reclassifications, recapitalizations and other similar events affecting such shares):
(i) within 120 days after the end of each fiscal year of the Company, an audited balance sheet of the Company as at the end of such year and audited statements of income and of cash flows of the Company for such year, certified by certified public accountants of established national reputation selected by the Company, and prepared in accordance with generally accepted accounting principles (" GAAP ");
(ii) within 45 days after the end of each calendar quarter, an unaudited balance sheet of the Company as at the end of such quarter, and unaudited statements of income and of cash flows of the Company for such quarter and for the current fiscal year;
(iii) within 30 days after the end of each calendar month, an unaudited balance sheet of the Company as at the end of such month, and unaudited statements of income and of cash flows of the Company for such month and for the current fiscal year and the fiscal quarter to the end of such month;
(iv) as soon as available, but in any event at least ten days prior to the commencement of each new fiscal year, an operating plan and budget for such fiscal year;
(v) such other notices, information and data with respect to the Company and its subsidiaries as the Company delivers to the holders of its capital stock at the same time it delivers such items to such holders; and
(vi) with reasonable promptness, such other information and data as such Investor may from time to time reasonably request.
4.3 Material Changes and Litigation. The Company shall promptly notify the Investors of any material adverse change in the business, prospects, assets or condition, financial or otherwise, of the Company and of any litigation or governmental proceeding or investigation brought or, to the Company's knowledge, threatened against the Company, or against any Founder, or an officer, director, key employee or principal stockholder of the Company which, if adversely determined, would have a material adverse effect on the Company.
4.4 Confidentiality of Records. Each Investor agrees, severally and not jointly, to use confidential information provided by the Company only for monitoring its investment in Company and not to
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disclose any such confidential information to any third party (other than any former, current or prospective partner, limited partner, general partner, member or management company of such Investor (or any employee or representative of any of the foregoing (each, a "Permitted Disclosee")) or legal counsel, accountants or representatives of such Investor or Permitted Disclosee), except with the consent of the Company. The foregoing requirements of confidentiality shall not apply to information: (i) that is now or in the future becomes freely available to the public through no fault of or action by the using or disclosing party; (ii) that is in the possession of the using or disclosing party prior to the time such information was obtained from the Company or that is independently acquired by the using or disclosing party without the aid, application or use of such other information; (iii) that is obtained by the using or disclosing party in good faith without knowledge of any breach of a secrecy arrangement from a third party; (iv) that is required to be disclosed by applicable law or order of government agency or self-regulatory body; provided that, before making such disclosure, such Investor gives the Company an adequate opportunity to interpose an objection and/or take action to assure confidential handling of such information; or (v) that is disclosed in connection with any bona-fide offer to purchase any shares in the Company, provided that the proposed transferor obtains an undertaking from the proposed transferee to keep such information confidential in accordance with the provision of this Section 4.4 prior to such disclosure. Furthermore, nothing contained herein shall prevent any Investor from entering into any business, entering into any agreement with a third party, or investing in or engaging in investment discussions with any other company (whether or not competitive with the Company), provided that such Investor does not, except as permitted in accordance with this Section 4.4, disclose any proprietary or confidential information of the Company in connection with such activities.
4.5 Agreements with Employees. The Company shall require each present or future employee or consultant of the Company to enter into a non-disclosure, confidential and proprietary information, patent and invention assignment and non-solicitation agreement in the form of Exhibit D attached to the Purchase Agreement and shall require each present or future each employee of the Company at or above the level of vice-president to enter into a non-competition agreement in the form of Exhibit E attached to the Purchase Agreement, or such other forms as may be approved by the Investors.
4.6 Reservation of Shares. The Company shall reserve and maintain a sufficient number of shares of Common Stock for issuance upon conversion of the Shares.
4.7 Employee Stock Options and Restricted Stock. Unless otherwise approved by a Majority Directors Vote or by vote of a majority of the Compensation Committee created in accordance with Section 1.6 of the Stockholders' Agreement of even date herewith among the Company and certain stockholders named therein (the " Stockholders' Agreement "), any stock options granted or restricted stock issued by the Company after the date hereof to its employees or consultants shall vest 25% on the first anniversary of the grant or issue date with ratable quarterly vesting over the next three years.
4.8 Key Man Insurance. The Company shall maintain in force "key-man" life insurance policies, each in the amount of at least $1,000,000, naming the Company as a sole beneficiary, on the lives of Gregory Strakosch and Donald Hawk.
4.9 Directors and Officers Liability Insurance. Except as otherwise approved by each Investor entitled to designate a member of the Company's Board of Directors pursuant to the Stockholders' Agreement, the Company shall hereafter continuously maintain in force a "directors and officers liability" insurance policy with a reputable insurer at the same or greater level of coverage than in existence on the date hereof (such policy in existence on the date hereof being described in Schedule 3.17 to the Purchase Agreement). This Section shall not be amended without the approval of each Investor entitled to designate a member of the Company's Board of Directors pursuant to the Stockholders' Agreement.
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4.10 Termination of Covenants. The covenants of the Company contained in Sections 4.3 through 4.9 shall terminate, and be of no further force or effect upon the earlier to occur of (i) the Initial Public Offering and (ii) the date as of which no Shares remain outstanding.
ARTICLE V. GENERAL
5.1. Termination. Article III of this Agreement shall terminate upon the earlier to occur of: (a) immediately following the closing of an Initial Public Offering or (b) the date upon which fewer than 15% of the Shares issued as of the date hereof remain outstanding.
5.2. Transfers of Rights. This Agreement, and the rights and obligations of the Investor hereunder, may be assigned by the Investor (i) to any person or entity to which at least 1,000,000 Shares (as adjusted for stock splits, stock dividends, recapitalizations and other similar events) are transferred by the Investor or (ii) to any current or former partner, member, shareholder or other affiliate of, or entity under common investment management with, the Investor, provided, however, that, in either case, the transferee is not a competitor of the Company. Such transferee shall be deemed an "Investor" for purposes of this Agreement, provided that the transferee provides written notice of such assignment to the Company and agrees in writing to be bound by the terms and conditions set forth herein as if he or it were an original Investor. The rights under Article II of this Agreement of SG Cowen may be assigned by SG Cowen to any person or entity to which at least 500,000 Shares (as adjusted for stock splits, stock dividends, recapitalizations and other similar events) are transferred by SG Cowen, provided, however, that the transferee is not a competitor of the Company. Such transferee shall be deemed "SG Cowen" for purposes of this Agreement, provided that the transferee provides written notice of such assignment to the Company and agrees in writing to be bound by the terms and conditions set forth herein as if he or it were SG Cowen. Any determination as to whether the transferee under this Section 5.2 is a competitor of the Company shall be made in good faith by a Majority Directors Vote.
5.3. Severability. The provisions of this Agreement are severable, so that the invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other term or provision of this Agreement, which shall remain in full force and effect.
5.4. Specific Performance. In addition to any and all other remedies that may be available at law in the event of any breach of this Agreement, the Investor shall be entitled to specific performance of the agreements and obligations of the other parties hereunder and to such other injunctive or other equitable relief as may be granted by a court of competent jurisdiction.
5.5. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of The Commonwealth of Massachusetts (without reference to the conflicts of law provisions thereof).
5.6. Notices. All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be delivered by hand, sent via a reputable nationwide overnight courier service or mailed by first class certified or registered mail, return receipt requested, postage prepaid:
(a) If to the Company, at 117 Kendrick Street, Suite 800, Needham, MA 02492, Attention: President, or at such other address or addresses as may have been furnished in writing by the Company to the Investors, with a copy to Morse, Barnes-Brown & Pendleton, P.C., Reservoir Place, 1601 Trapelo Road, Waltham, MA 02451, Attention: Joseph C. Marrow, Esq.
(b) If to an Investor, at its address set forth on Exhibit A hereto, or at such other address or addresses as may have been furnished in writing by such Investor to the Company, with a copy to Richard R. Hesp, Esq., Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, 610 Lincoln Street, Waltham, MA 02451.
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(c) If to SG Cowen, at 1221 Avenue of the Americas, 12th Floor, New York, N.Y. 10020, Attention: Richard E. Gormley, Managing Director.
Notices provided in accordance with this Section 5.6 shall be deemed delivered upon personal delivery, one business day after being sent via a reputable nationwide overnight courier service, or two business days after deposit in the mail.
5.7. Complete Agreement; Amendments.
(a) This Agreement constitutes the full and complete agreement of the parties hereto with respect to the subject matter hereof. Without limiting the generality of the foregoing, this Agreement amends, restates and supersedes the Existing Agreement. The Investors hereby consent under Section 2.9 of such Existing Agreement, to the granting of registration rights by the Company pursuant to this Agreement and hereby waive any rights under Article III of such Existing Agreement with respect to the issuance and sale by the Company of the Series C Preferred Stock pursuant to the Purchase Agreement.
(b) Except as otherwise explicitly set forth herein, this Agreement may be amended or terminated and the observance of any term of this Agreement may be waived with respect to all parties to this Agreement (either generally or in a particular instance and either retroactively or prospectively) at any time by a written instrument signed by the Company and Holders holding two-thirds of the shares of Common Stock issued or issuable upon conversion of the Shares. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision. Any such amendment or waiver effected in accordance with this Section 5.7(b) shall be binding on all parties hereto, even if they did not consent to such amendment or waiver.
5.8. Pronouns. Whenever the content may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa.
5.9. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one Agreement binding on all the parties hereto.
5.10. Captions. Captions of sections have been added only for convenience and shall not be deemed to be a part of this Agreement.
5.11. Aggregation of Stock. All shares of Registrable Shares held or acquired by affiliated entities (including affiliated venture capital funds) or persons or entities under common investment management with a Holder shall be aggregated for the purpose of determining the availability of any rights under this Agreement.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, this Second Amended and Restated Investors' Rights Agreement has been executed under seal as of the date first written above.
TECHTARGET, INC. | ||||
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By: |
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/s/ ERIC SOCKOL Eric Sockol, Chief Financial Officer |
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INVESTORS: |
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POLARIS VENTURE PARTNERS IV, L.P. |
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By: |
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Polaris Venture Management Co. IV, L.L.C., Its General Partner |
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By: |
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/s/ WILLIAM E. BILODEAU |
Name: | William E. Bilodeau | |||
Title: | Attorney-in-fact | |||
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POLARIS VENTURE PARTNERS ENTREPRENEURS' FUND IV, L.P. |
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By: |
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Polaris Venture Management Co. IV, L.L.C. Its General Partner |
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By: |
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/s/ WILLIAM E. BILODEAU |
Name: | William E. Bilodeau | |||
Title: | Attorney-in-fact | |||
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POLARIS VENTURE PARTNERS III, L.P. |
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By: |
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Polaris Venture Management Co. III, L.L.C., Its General Partner |
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By: |
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/s/ WILLIAM E. BILODEAU |
Name: | William E. Bilodeau | |||
Title: | Attorney-in-fact | |||
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POLARIS VENTURE PARTNERS ENTREPRENEURS' FUND III, L.P. |
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By: |
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Polaris Venture Management Co. III, L.L.C. Its General Partner |
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By: |
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/s/ WILLIAM E. BILODEAU |
Name: | William E. Bilodeau | |||
Title: | Attorney-in-fact | |||
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POLARIS VENTURE PARTNERS FOUNDERS' FUND III, L.P. |
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By: |
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Polaris Venture Management Co. III, L.L.C. Its General Partner |
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By: |
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/s/ WILLIAM E. BILODEAU |
Name: | William E. Bilodeau | |||
Title: | Attorney-in-fact | |||
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TCV V, L.P. a Delaware Limited Partnership |
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By: | Technology Crossover Management V, L.L.C., | |||
Its: | General Partner | |||
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By: |
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/s/ ROBERT C. BENSKY |
Name: | Robert C. Bensky | |||
Title: | Attorney in Fact | |||
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TCV V Member Fund, L.P. a Delaware Limited Partnership |
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By: | Technology Crossover Management V, L.L.C., | |||
Its: | General Partner | |||
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By: |
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/s/ ROBERT C. BENSKY |
Name: | Robert C. Bensky | |||
Title: | Attorney in Fact | |||
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SG COWEN SECURITIES CORPORATION (for the purposes of Articles II and V only): |
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By: |
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/s/ RICHARD E. GORMLEY |
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RLLM LIMITED PARTNERSHIP |
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By: |
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/s/ ROGER MARINO Roger Marino, Its General Partner |
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GRAM LIMITED PARTNERSHIP |
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By: |
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/s/ ROGER MARINO Roger Marino, Its General Partner |
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/s/ ROGER MARNIO |
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Roger Marino | ||||
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/s/ BRUCE LEVENSON |
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Bruce Levenson | ||||
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/s/ EDWIN PESKOWITZ |
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Edwin Peskowitz |
16
Exhibit A
Investors
Polaris
Venture Partners III, L.P.
1000 Winter Street
Waltham, MA 02457
Attn: William Bilodeau
Polaris
Venture Partners Founders' Fund III, L.P.
1000 Winter Street
Waltham, MA 02457
Attn: William Bilodeau
Polaris
Venture Partners Entrepreneurs' Fund III, L.P.
1000 Winter Street
Waltham, MA 02457
Attn: William Bilodeau
Polaris
Venture Partners IV, L.P.
1000 Winter Street
Waltham, MA 02457
Attn: William Bilodeau
Polaris
Venture Partners Entrepreneurs' Fund IV, L.P.
1000 Winter Street
Waltham, MA 02457
Attn: William Bilodeau
TCV
V, L.P.
528 Ramona Street
Palo Alto, CA 94301
Attn: Jay Hoag
with a copy to:
528 Ramona Street
Palo Alto, CA 94301
Attn: Carla S. Newell
TCV
V Member Fund, L.P.
528 Ramona Street
Palo Alto, CA 94301
Attn: Jay Hoag
with a copy to:
528 Ramona Street
Palo Alto, CA 94301
Attn: Carla S. Newell
RLLM
Limited Partnership
c/o Roger Marino
254 Westfield Street
Dedham, MA 02026
GRAM
Limited Partnership
c/o Roger Marino
254 Westfield Street
Dedham, MA 02026
17
Roger
Marino
254 Westfield Street
Dedham, MA 02026
Bruce
Levenson
11529 Twining Lane
Potomoc, MD 20814
Edwin
Peskowitz
4817 Essex Avenue
Chevy Chase, MD 20815
Other:
SG
Cowen Securities Corporation (for the purposes
of Articles II and V only)
1221 Avenue of the Americas
12
th
Floor, New York, NY 10020
Attn: Richard E. Gormley, Managing Director
18
Exhibit 10.8
TECHTARGET.COM, INC.
1999 Stock Option Plan
This Plan (this "Plan") of TechTarget.com, Inc. (the "Company") provides that options for up to 12,850,000 shares (the "Shares") of the Company's Common Stock, $.001 par value per share (the "Stock"), may be granted to employees of the Company and its subsidiaries, as defined below, and to others who are in a position to make significant contributions to the success of the Company and its subsidiaries. Options granted pursuant to this Plan may be either incentive stock options ("Incentive Options") as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options that are not Incentive Options ("Nonqualified Options"), or both.
1. PURPOSE. The purpose of this Plan is to attract and retain employees and others who are in a position to contribute significantly to the success of the Company and its subsidiaries, to reward such contributions, and to encourage optionholders to advance the long term interests of the Company and its subsidiaries through ownership of the Company's Stock.
2. ADMINISTRATION.
(a) Board of Directors. The Plan shall be administered by the Board of Directors of the Company (the "Board"). The Board, subject to the express provisions of this Plan, shall determine those persons to be granted options, the times when options shall be granted, the number of Shares subject to each option, and the terms and conditions of each option, including whether each option is an Incentive Option or a Nonqualified Option. The Board shall establish the form of instruments granting options and any other instruments under this Plan, and the rules and regulations for the administration of this Plan, and may amend and rescind such instruments, rules and regulations. The Board shall interpret this Plan and decide any questions and settle all controversies and disputes that may arise in connection with this Plan, and such determinations of the Board shall be conclusive and shall bind all parties. Subject to Section 16, the Board may, both generally and in particular instances, waive compliance by an optionholder with any obligation to be performed under an option and waive any condition or provision of an option, except that in the case of an Incentive Option the Board may not (other than in accordance with Section 5) grant any such waiver if such waiver would cause the Incentive Option to no longer qualify as an Incentive Option under Section 422 of the Code.
(b) Committee. The Board may, in its discretion, delegate its powers with respect to this Plan to a committee of the Board (the "Committee"), in which event all references to the Board hereunder shall be deemed to refer to the Committee. The Committee shall be appointed by the Board and shall be composed solely of two or more directors. A majority of the members of the Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under this Plan may be made without notice or meeting of the Committee by a writing signed by all of the members of the Committee.
(c) Public Company Committee. From and after the date of the first registration of an equity security of the Company under Section 12 of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), if the Board shall elect to delegate its powers with respect to this Plan to a Committee pursuant to the provisions of Subsection (b) above, the Committee shall be composed solely of two or more directors, each of whom shall be a "Non-Employee Director", as such term is defined from time to time in Rule 16b-3 promulgated under the Exchange Act, and each of whom shall be an "outside director" within the meaning of Section 162(m) of the Code.
3. EFFECTIVE DATE AND TERM. This Plan shall become effective upon adoption by the Board or approval by the stockholders by at least a majority vote at a duly held meeting (or by written consent as provided by applicable law), whichever is earlier, but shall not become effective unless stockholder approval is obtained within twelve (12) months before or after the adoption of this Plan by
the Board. The Board may grant options under this Plan prior to such approval, but any such option shall become effective as of the date of grant only upon such approval and, accordingly, no such option may be exercisable prior to such approval. This Plan shall terminate ten years after its effective date.
4. SHARES SUBJECT TO THE PLAN. The Shares shall be reserved for issuance upon the exercise of options granted under this Plan. Shares subject to an option which expires or is terminated may again be subjected to an option under this Plan. Shares delivered under this Plan may be authorized but unissued Stock or treasury Stock. No fractional Shares shall be issued under this Plan.
5. CHANGES IN CAPITAL STOCK. In the event of a stock dividend, stock split or combination of shares, recapitalization or other change in the Company's capital stock, the number and kind of shares of stock or securities of the Company subject to options then outstanding or subsequently granted under this Plan, the maximum number of shares or securities that may be delivered under this Plan, the exercise price, and other relevant provisions shall be adjusted appropriately in a manner determined by the Board to be equitable, whose determination shall be binding. The Board may also adjust the number of Shares subject to outstanding options, the exercise price of outstanding options and the terms of outstanding options to take into consideration material changes in accounting practices or principles, consolidations or mergers, acquisitions or dispositions of stock or property or any other event if it is determined by the Board that such adjustment is appropriate to avoid distortion in the operation of this Plan, provided that no such adjustment shall be made in the case of an Incentive Option if it would constitute a modification, extension or renewal of the option within the meaning of Section 424(h) of the Code, unless the optionholder consents.
6. ELIGIBILITY. All employees of the Company and its subsidiaries, as well as those other persons or entities who, in the opinion of the Board, are in a position to contribute significantly to the success of the Company or its subsidiaries, including, without limitation, nonemployee Directors, consultants, advisers, independent contractors, and other service providers, shall be eligible to receive options under this Plan. A "subsidiary" for purposes of this Plan shall be a subsidiary corporation as defined in Section 424(f) of the Code. Incentive Options shall be granted only to "employees" as defined in the applicable provisions of the Code and regulations thereunder. Receipt of options under this Plan or of awards under any other employee benefit plan of the Company or any of its subsidiaries shall not preclude an employee from receiving options or additional options under this Plan. In granting options the Board may include or exclude previous participants in this Plan as the Board may determine.
7. TERMS AND CONDITIONS OF OPTIONS.
(a) Number of Options. The aggregate fair market value (determined as of the time of grant) of the Shares with respect to which Incentive Options are exercisable for the first time by an employee during any calendar year (under this Plan and all other stock option plans of the Company or its subsidiaries or any parent corporation) shall not exceed $100,000.
(b) Exercise Price. The exercise price of each option shall be determined by the Board but, in the case of an Incentive Option, shall not be less than 100% (110% in the case of an Incentive Option granted to a ten-percent stockholder) of the fair market value of the stock subject to the option on the date of grant; nor shall the exercise price of any option be less, in the case of an original issue of authorized stock, than par value. For this purpose, (i) "fair market value" shall be determined by the Board in good faith on a basis consistent with the provisions of Section 422 of the Code and the regulations promulgated thereunder, and (ii) "ten percent stockholder" shall mean any employee who at the time of grant owns directly, or is deemed to own by reason of the attribution rules set forth in Section 424(d) of the Code, more than 10% of the total combined voting power of all classes of stock of the Company or of any of its parent or subsidiary corporations.
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(c) Duration, Vesting and Conditions of Exercise. Each option shall be exercisable during such period or periods as the Board may determine, but in no case after the expiration of ten years (five years in the case of an Incentive Option granted to a "ten percent stockholder" as defined in (b) above) from the date of grant. In the discretion of the Board, options may be exercisable (i) in full upon grant or (ii) over or after a period of time conditioned on satisfaction of certain Company, division, group, office, individual or other performance criteria, including the continued performance of services to the Company or its subsidiaries. In the case of an option not immediately exercisable in full, the Board may at any time accelerate the time at which all or any part of the option may be exercised.
8. EXERCISE OF OPTIONS. Any exercise of an option shall be in writing pursuant to a written instrument in the form prescribed by the Board, signed by the proper person and delivered to the Company, accompanied by (a) such documents as may be required by this Plan, by such written instrument , or by the Board, and (b) payment as required by such written instrument for the number of Shares for which the option is exercised. In addition, each exercise of an option shall be subject to such additional conditions as may be required by the Board, including without limitation those described in Section 9 of this Plan. No exercise of an option shall be effective, and the Company shall not be obligated to deliver any Shares, until all requirements and conditions for exercise have been met to the satisfaction of the Board.
9. CONDITIONS TO EXERCISE OF OPTIONS. Except as waived by the Board in a particular case, all the following conditions shall be complied with as a condition to the exercise of each option granted under this Plan:
(a) Legal Matters. In the opinion of the Company's counsel all applicable federal and state laws and regulations, including securities laws and regulations, shall have been complied with, and legal matters in connection with the issuance and delivery of such Shares shall have been approved by the Company's counsel.
(b) Listing and Registration of Shares. If at any time the Board shall determine that the listing, registration or qualification of the Shares covered by any option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of or in connection with the granting of such option or the issuance or purchase of Shares thereunder, such option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board.
(c) Tax Undertakings. In the case of an option that is not an Incentive Option, the Board may require the optionholder to remit to the Company an amount sufficient to satisfy any federal, state or local withholding tax requirements (or make other arrangements satisfactory to the Company with regard to such taxes, including withholding from regular cash compensation, providing other security to the Company, or remitting or foregoing the receipt of property, including Stock, having a fair market value (as determined by the Board in good faith in its discretion) on the date of exercise sufficient to meet such potential liability) prior to the delivery of any Shares pursuant to the exercise of the option. In the case of an Incentive Option, if at the time the option is exercised the Board determines that under applicable law and regulations the Company could be liable for the withholding of any federal or state tax with respect to a disposition of the Shares received upon exercise, the Board may require the optionholder to agree (i) to inform the Company promptly of any disposition (within the meaning of Section 424(c) of the Code and the regulations thereunder) of Shares received upon exercise, and (ii) to give such security as the Board deems adequate to meet the potential liability of the Company for the withholding of tax, and to augment such security from time to time in any amount reasonably deemed necessary by the Board to preserve the adequacy of such security.
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(d) Evidence of Authority. If an option is exercised by the legal representative of a deceased optionholder or by a person to whom the option has been transferred by the optionholder's will or by applicable laws of descent and distribution, the Company shall not be obligated to deliver Shares until satisfied as to the authority of the person exercising the option.
(e) Restrictions on Transfer of Stock. If the sale of Shares has not been registered under the Securities Act of 1933, as amended, or under applicable state securities laws, the Company may require, as a condition to exercise of an option, such representations or agreements from the optionholder as counsel for the Company may consider appropriate to avoid violation of such Act or such state securities laws and may require that the certificates evidencing such Shares bear an appropriate legend restricting transfer. In addition, the Board may require as conditions to the grant or exercise of any option that the optionholder agree in writing to (i) restrictions on the transfer of Shares, (ii) a right of first refusal of the Company to repurchase Shares in the event the holder desires to sell such Shares, and (iii) a right of the Company to repurchase Shares in the event of termination of employment or death or disability. Such restrictions and rights on the part of the Company shall be identified in the instrument granting the option.
10. PAYMENT FOR SHARES.
(a) Exercise Price. The exercise price for Shares purchased under an option shall be paid as follows: (i) in cash or by certified check, bank draft or money order payable to the order of the Company; (ii) if permitted by the terms of the instrument granting the option, by the delivery of shares of Stock having a fair market value (as determined by the Board in good faith in its reasonable discretion) on the date of exercise equal to the exercise price; or (iii) by a combination of cash and Stock; provided , however , that payment of the exercise price by delivery of shares of Common Stock of the Company owned by such optionholder may be made only if such payment does not result in a charge to earnings for financial accounting purposes as determined by the Board, unless the Board otherwise permits such payment by delivery of shares of Common Stock.
(b) Promissory Note. To the extent permitted by any applicable margin regulations of the Board of Governors of the Federal Reserve System and other provisions of applicable law, the instrument granting an option may permit the exercise price for Shares to be paid by payment of at least the par value by a combination of cash and Stock as provided above, and delivery to the Company of the optionholder's promissory note for the balance of the exercise price. Unless otherwise specified by the Board in the instrument granting the option, such note (i) shall bear interest at least equal to the Applicable Federal Rate, as determined under Section 1274(d) of the Code and published by the Service on a monthly basis, in effect for the month of exercise, (ii) shall be a full recourse note, (iii) shall be secured by a pledge of the Shares acquired by exercising the option, and (iv) shall be payable in equal annual installments of principal and interest over a period of not more than five years after the exercise date (except that any such note shall be payable on demand in the event of termination of employment). Any such promissory note shall be in a form satisfactory to the Company.
11. NO RIGHTS AS STOCKHOLDER. Optionholders shall not have the rights of stockholders with regard to options granted under this Plan, except as to Shares actually purchased pursuant to such options.
12. NONTRANSFERABILITY OF OPTIONS. Each option granted under this Plan shall be transferable only by will or the laws of descent and distribution and shall be exercisable during the lifetime of the person to whom the option is granted only by such person. Except as permitted by the preceding sentence, no option granted under this Plan or any of the rights and privileges thereby conferred shall be transferred, assigned, pledged, hypothecated or otherwise disposed of in any way (by operation of law or otherwise), and no such option, right or privilege shall be subject to execution, attachment or similar process. Upon any attempt to so transfer, assign, pledge, hypothecate or
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otherwise dispose of any such option, right or privilege contrary to the provisions hereof, or upon the levy of any attachment or similar process upon such option, right or privilege, the option and such rights and privileges shall immediately become null and void. Notwithstanding the above provisions of this Section 12, any option granted under this Plan may be pledged or hypothecated to secure an obligation to the Company.
13. TERMINATION OF EMPLOYMENT; DEATH OR DISABILITY.
(a) Termination In General. Upon termination of the employment of an optionholder, any unexercised options shall terminate immediately, except as provided in Subsections (b), (c) and (d) below. For purposes of this Section 13, employment shall not be considered terminated (i) in the case of sick leave or other bona fide leave of absence approved for purposes of this Plan by the Board, so long as the employee's right to re-employment is guaranteed either by statute or by contract, or (ii) in the case of a transfer of employment among the Company and its subsidiaries, or to the employment of a corporation (or a parent or subsidiary corporation of such corporation) issuing or assuming an option, which in the case of an Incentive Option is a transaction to which Section 424(a) of the Code applies. For all purposes of this Section 13, the term "employment" shall include the continuing relationships of optionholders to the Company as Directors, consultants, advisers, independent contractors and other service providers; provided, however, that notwithstanding the foregoing, in the discretion of the Board, the instrument granting options to any of the foregoing persons may provide that the option may remain in force and effect notwithstanding the termination of the relationship between any such person and the Company.
(b) Termination Not For Cause. If such termination was not "for cause" (as hereinafter defined), the optionholder may exercise any option which was otherwise exercisable on the date of termination for a period ending on the earlier of (i) the expiration of three months after the date of such termination, (ii) the expiration date of such option as fixed pursuant to the first sentence of Section 7(c), and (iii) the termination of such option pursuant to the provisions of Section 14. For purposes hereof, the term "for cause" shall mean only (i) the willful or reckless failure by the optionholder to perform his duties under, or willful or reckless violation of, any written employment or consulting agreement (other than a failure resulting from the optionholder's death or disability), which failure or violation shall not have been cured within the cure period, if any, provided in such agreement; (ii) the commission by the optionholder of an act of fraud or theft against the Company or any of its subsidiaries; or (iii) the conviction of the optionholder of (or the plea by the optionholder of nolo contendere to) any felony.
(c) Death. If termination of employment results from the optionholder's death, any option which was otherwise exercisable by such optionholder as of the time immediately before his or her death shall be exercisable by the optionholder's estate or by any person who acquired the options by bequest or inheritance for a period ending on the earlier of (i) one year after the death of the optionholder, (ii) the expiration date of such option as fixed pursuant to the first sentence of Section 7(c), and (iii) the termination of such option pursuant to the provisions of Section 14. The Board may permit any option to be exercised for up to the total number of Shares subject to the option, or grant an option which by its terms is exercisable for up to the total number of Shares subject to the option, at any time within one year after the death of the optionholder, consistent with the above provisions.
(d) Disability. If the termination of employment results from the optionholder's disability, any option which was otherwise exercisable by such optionholder immediately prior to the termination of his employment shall be exercisable by him or her (or his or her legal representative) for a period ending on the earlier of (i) one year after such termination, (ii) the expiration date of such option as fixed pursuant to the first sentence of Section 7(c), and (iii) the termination of such option pursuant to the provisions of Section 14. The Board may permit any
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option to be exercised for up to the total number of Shares subject to the option, or grant an option which by its terms is exercisable for up to the total number of Shares subject to the option, at any time within one year after termination of employment, consistent with the above provisions. The term "disability" shall for this purpose be defined as such term is defined in Section 22(e)(3) of the Code.
14. REORGANIZATIONS; DISSOLUTION.
(a) Substitute Options. If by reason of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization, or liquidation the Board shall authorize the issuance or assumption of a stock option in a transaction to which Section 424(a) of the Code applies, then, notwithstanding any other provision of this Plan, the Board may grant an option upon such terms and conditions as it may deem appropriate for the purpose of assumption of the old option, or substitution of a new option for the old option, in conformity with the provisions of said Section 424(a) of the Code and the Regulations thereunder, and any such option shall not reduce the number of shares otherwise available for issuance under this Plan.
(b) Termination of Options. In the event of a Change in Control of the Company (as defined in subsection (c), below), and in anticipation thereof if required by the circumstances, the Board, in its sole discretion, may (i) accelerate the exercisability, prior to the effective date of such Change in Control, of all outstanding options granted under this Plan (and redesignate as Nonqualified Options any options or portions thereof that were originally designated as Incentive Options but that no longer so qualify under Section 422 of the Code), (ii) arrange, if there is a surviving or acquiring corporation, subject to the consummation of a Change of Control, to have that corporation or an affiliate of that corporation grant to employees and other optionholders replacement options with substantially similar or, if not adverse to the optionholders, different provisions with respect to exercisability (upon which grant the options granted under this Plan shall immediately terminate and be of no further force or effect) which, however, in the case of Incentive Options, satisfy, in the determination of the Board, the requirements of Section 424(a) of the Code, (iii) cancel all outstanding options in exchange for consideration in cash or in kind in an amount equal to the value of the Shares, as determined by the Board in good faith, the optionholder would have received had the option been exercised (to the extent then exercisable or to a greater extent, including in full, as the Board may determine) less the option price therefor (upon which cancellation such options shall immediately terminate and be of no further force or effect), (iv) permit the purchaser of the Company's stock or assets to deliver to the optionholders the same kind of consideration that is delivered to the stockholders of the Company in cancellation of such options in an amount equal to the value of the Shares, as determined by the Board in good faith, the optionholder would have received had the option been exercised (to the extent then exercisable or to a greater extent, including in full, as the Board may determine), less the option price therefor, or (v) take any combination (or none) of the foregoing actions.
(c) Definition of "Change of Control". For purposes of this Plan, a "Change in Control" shall mean and include any of the following:
(i) a merger or consolidation of the Company with or into any other corporation or other business entity in which the Company is the surviving corporation (except one in which the holders of capital stock of the Company immediately prior to such merger or consolidation continue to hold at least a majority of the outstanding securities having the right to vote in an election of the Board of Directors ("Voting Stock") of the Company); or any such merger or consolidation in which the Company is not the surviving corporation;
(ii) a sale, lease, exchange or other transfer (in one transaction or a related series of transactions) of all or substantially all of the Company's assets;
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(iii) the acquisition by any person or any group of persons (other than the Company, any of its direct or indirect subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its direct or indirect subsidiaries) acting together in any transaction or related series of transactions, of such number of shares of the Company's Voting Stock as causes such person, or group of persons, to own beneficially, directly or indirectly, as of the time immediately after such transaction or series of transactions, 50% or more of the combined voting power of the Voting Stock of the Company other than as a result of an acquisition of securities directly from the Company, or solely as a result of an acquisition of securities by the Company which by reducing the number of shares of the Voting Stock outstanding increases the proportionate voting power represented by the Voting Stock owned by any such person to 50% or more of the combined voting power of such Voting Stock; and
(iv) a change in the composition of the Company's Board of Directors following a tender offer or proxy contest, as a result of which persons who, immediately prior to a tender offer or proxy contest, constituted the Company's Board of Directors shall cease to constitute at least a majority of the members of the Board of Directors.
(d) Dissolution or Liquidation. Upon the dissolution or liquidation of the Company, all outstanding options granted under this Plan shall terminate, but each optionholder shall have the right, immediately prior to such dissolution or liquidation, to exercise his or her options to the extent then exercisable.
15. EMPLOYMENT RIGHTS AND OTHER BENEFITS. Neither the adoption of this Plan nor the grant of options shall confer upon any employee any right to continued employment with the Company or any parent or subsidiary or affect in any way the right of the Company or such parent or subsidiary to terminate the employment of an employee at any time. Except as specifically provided by the Board in any particular case, the loss of existing or potential profit in options granted under this Plan shall not constitute an element of damages in the event of termination of the employment of an employee even if the termination is in violation of an obligation of the Company to the employee by contract or otherwise. Nothing in this Plan shall restrict the authority of the Board to grant stock options or to award bonuses or other benefits to employees or others otherwise than pursuant to this Plan. For purposes of this Section 15, the term "employee" shall include those persons granted options pursuant to this Plan who are not employees of the Company, and the term "employment" shall include the arrangement or relationship between the Company and any such person.
16. DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION. The Board may at any time abandon this Plan or discontinue granting options under this Plan. With the consent of the optionholder, the Board may at any time cancel an existing option in whole or in part and grant another option for such number of shares as the Board specifies. The Board may at any time amend this Plan for the purpose of satisfying the requirements of Section 422 of the Code or of any changes in applicable laws or regulations or for any other purpose which may at the time be permitted by law, or may at any time terminate this Plan as to any further grants of options, provided that (except to the extent expressly required or permitted herein above) no such amendment shall, without the approval of the stockholders of the Company by at least a majority vote at a duly held meeting (or by written consent as provided by applicable law), (a) increase the maximum number of shares for which options may be granted under this Plan, (b) change the group of employees eligible to receive options under this Plan, (c) reduce the price at which Incentive Options may be granted, (d) extend the time within which options may be granted, (e) alter this Plan in such a way that Incentive Options already granted hereunder would not be considered Incentive Options under Section 422 of the Code, (f) amend the provisions of this Section 16, or (g) make any other change in this Plan which requires stockholder approval under applicable law or regulations, including any approval requirement which is a prerequisite for exemptive relief under Section 16 of the Exchange Act. The termination or any
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modification or amendment of this Plan shall not adversely affect the rights of any optionholder under any option previously granted without his or her consent.
17. COMPLIANCE WITH RULE 16b-3. It is intended that the provisions of this Plan and any option granted thereunder to a person subject to the reporting requirements of Section 16(a) of the Exchange Act shall comply in all respects with the terms and conditions of Rule 16b-3 promulgated under the Exchange Act or any successor provisions thereto. Any agreement granting options shall contain such provisions as are necessary or appropriate to assure such compliance. To the extent that any provision hereof is found not to be in compliance with such Rule, such provision shall be deemed to be modified so as to be in compliance with such Rule or, if such modification is not possible, shall be deemed to be null and void, as it relates to a recipient subject to Section 16(a) of the Exchange Act.
ADOPTED by the Board of Directors of TechTarget.Com, Inc. as of the 17 th day of September, 1999.
APPROVED by the Stockholders of TechTarget.Com, Inc. as of the 17 th day of September, 1999.
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1999 STOCK OPTION PLAN
CALIFORNIA SUPPLEMENT
Pursuant to Section 16 of the TechTarget.com, Inc. 1999 Stock Option Plan (the "Plan"), the Board has adopted this supplement for purposes of satisfying the requirements of Section 25102(o) of the California Corporations Code. Terms not otherwise defined herein shall having the meaning ascribed to such term in the Plan.
Any Incentive Options or Nonqualified Options (collectively, the "Options") granted under the Plan to an optionee who is a resident of the State of California on the date of grant (a "California Participant") shall be subject to the following additional limitations, terms and conditions:
1. Additional Limitations on Options.
(a) Limitation on Maximum Number of Shares Subject to Options. Pursuant to Section 260.140.45 of the California Code of Regulations, the total number of securities issuable upon exercise of all outstanding Options under the Plan or under any bonus or similar plan or agreement shall not exceed 30% of the then outstanding securities of the Corporation (calculated on an as if converted basis), unless a percentage higher than 30% is approved by at least two-thirds of the outstanding securities entitled to vote.
(b) Minimum Vesting Rate. Except in the case of Options granted to California Participants who are officers, directors, consultants or advisors of the Corporation or its affiliates (which Options may become exercisable at whatever rate is determined by the Board), Options granted to California Participants shall become exercisable at a rate of no less than 20% per year over five years from the date of grant; provided, however, that such Options may be subject to such reasonable forfeiture conditions as the Board may choose to impose and which are not inconsistent with Section 260.140.41 of the California Code of Regulations.
(c) Minimum Exercise Price. The exercise price of Options granted to California Participants may not be less than 85% of the Fair Market Value (as defined below) of the Stock on the date of grant in the case of a Nonqualified Options or less than 100% of the Fair Market Value of the Stock on the date of grant in the case of an Incentive Options; provided, however , that if the California Participant is a person who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation or its parent or subsidiary corporations, the exercise price shall be not less than 110% of the Fair Market Value of the Stock on the date of grant.
(d) Maximum Duration of Options. No Options granted to California Participants may be granted for a term in excess of 10 years.
(e) Minimum Exercise Period Following Termination. Unless a California Participant's employment is terminated for cause (as such term is defined in any contract of employment between the Corporation and such California Participant, or if not so defined, as defined in the Option agreement with respect to such California Participant's Option, or if not so defined, as defined in the Plan), in the event of termination of employment of such Participant, he or she shall have the right to exercise an Option, to the extent that he or she was otherwise entitled to exercise such Option on the date employment terminated, as follows: (i) at least six months from the date of termination, if termination was caused by such Participant's death or "permanent and total disability" (within the meaning of Section 22(e)(3) of the Code) and (ii) at least 30 days from the date of termination, if termination was caused other than by such Participant's death or "permanent and total disability" (within the meaning of Section 22(e)(3) of the Code).
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(f) Limitation on Repurchase Rights. If an Option granted to a California Participant gives the Corporation the right to repurchase Shares issued pursuant to the Plan upon termination of employment of such Participant, the terms of such repurchase right must comply with Section 260.140.41(k) of the California Code of Regulations.
2. Additional Limitations on Transferability of Options. Except as provided in the next sentence, Options granted to California Participants shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of such Participant, shall be exercisable only by such Participant. Notwithstanding the foregoing, the Board may, in the case of Nonqualified Options, allow them to be transferred to an inter vivos or testamentary trust in which the Options are to be passed to beneficiaries upon the death of the trustor (settlor) or by gift to "immediate family" as that term is defined in Rule 16a-1(e) under the Exchange Act.
3. Additional Requirement to Provide Information to California Participants. The Corporation shall provide to each California Participant and to each California Participant who acquires Stock pursuant to the Plan, not less frequently than annually, copies of annual financial statements (which need not be audited). The Corporation shall not be required to provide such statements to key employees whose duties in connection with the Corporation assure their access to equivalent information.
4. Additional Limitations on Timing of Options. No Option granted to a California Participant shall become exercisable, vested or realizable, as applicable to such Option, unless the Plan has been approved by the Corporation's stockholders within 12 months before or after the date the Plan was adopted by the Board.
5. Additional Limitations Relating to Definition of Fair Market Value. For purposes of Section 1(c) of this Supplement, "Fair Market Value" shall be determined in a manner not inconsistent with Section 260.140.50 of the California Code of Regulations.
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Amendment to 1999 Stock Option Plan
In accordance with the provisions of Section 16 of the TechTarget.com, Inc. 1999 Stock Option Plan (the "Plan"), the Plan is hereby amended as follows (all terms used herein and not defined shall have the meanings set forth in the Plan):
1. The Introductory Paragraph of the Plan is hereby amended by increasing the number of shares subject to the Plan from 12,850,000 Shares to 13,593,584 Shares of the common stock, par value $0.001 per share, of the Company.
2. This Amendment shall take effect as of the later of the date of its adoption by the Board of Directors of the Company and upon its approval by the stockholders of the Company in accordance with Section 16 of the Plan.
All other provisions of the Plan which are not inconsistent with this amendment shall remain in full force and effect.
Date of Board of Director Approval: | June 12, 2000 | |
Date of Stockholder Approval: | June 13, 2000 |
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TECHTARGET.COM, INC.
Amendment to 1999 Stock Option Plan
In accordance with the provisions of Section 16 of the TechTarget.com, Inc. 1999 Stock Option Plan (the "Plan"), the Plan is hereby amended as follows (all terms used herein and not defined shall have the meanings set forth in the Plan):
1. The Plan is hereby amended by deleting, in each of (i) the third line of the initial paragraph thereof, (ii) the second and fourth lines of Section 1 thereof, and (iii) the first line of the first sentence of Section 6 thereof, the phrase "the Company and its subsidiaries" and inserting in its place the phrase "of the Company, its predecessor and affiliate, United Communications Group Limited Partnership, and their respective subsidiaries;".
2. This Amendment shall take effect as of the later of the date of its adoption by the Board of Directors of the Company and upon its approval by the stockholders of the Company in accordance with Section 16 of the Plan.
All other provisions of the Plan which are not inconsistent with this amendment shall remain in full force and effect.
Date of Board of Director Approval: | June 30, 2000 | |
Date of Stockholder Approval: | June 30, 2000 |
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TECHTARGET.COM, INC.
Amendment to 1999 Stock Option Plan
In accordance with the provisions of Section 16 of the TechTarget.com, Inc. 1999 Stock Option Plan (the "Plan"), the Plan is hereby amended as follows (all terms used herein and not defined shall have the meanings set forth in the Plan):
1. The Introductory Paragraph of the Plan is hereby amended by increasing the number of shares subject to the Plan from 13,593,584 Shares to 14,843,584 Shares of the common stock, par value $0.001 per share, of the Company.
2. This Amendment shall take effect as of the later of the date of its adoption by the Board of Directors of the Company and upon its approval by the stockholders of the Company in accordance with Section 16 of the Plan.
All other provisions of the Plan which are not inconsistent with this amendment shall remain in full force and effect.
Date of Board of Director Approval: | December 11, 2000 | |
Date of Stockholder Approval: | December 14, 2000 |
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TECHTARGET.COM, INC.
Amendment to 1999 Stock Option Plan
In accordance with the provisions of Section 16 of the TechTarget.com, Inc. 1999 Stock Option Plan (the "Plan"), the Plan is hereby amended as follows (all terms used herein and not defined shall have the meanings set forth in the Plan):
1. The Introductory Paragraph of the Plan is hereby amended by increasing the number of shares subject to the Plan from 14,843,584 Shares to 18,843,584 Shares of the common stock, par value $0.001 per share, of the Company.
2. This Amendment shall take effect as of the later of the date of its adoption by the Board of Directors of the Company and upon its approval by the stockholders of the Company in accordance with Section 16 of the Plan.
All other provisions of the Plan which are not inconsistent with this amendment shall remain in full force and effect.
Date of Board of Director Approval: | October 25, 2001 | |
Date of Stockholder Approval: | October 25, 2001 |
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TECHTARGET.COM, INC.
Amendment to 1999 Stock Option Plan
In accordance with the provisions of Section 16 of the TechTarget.com, Inc. 1999 Stock Option Plan (the "Plan"), the Plan is hereby amended as follows (all terms used herein and not defined shall have the meanings set forth in the Plan):
1. The Introductory Paragraph of the Plan is hereby amended by increasing the number of shares subject to the Plan from 18,843,584 Shares to 19,643,584 Shares of the common stock, par value $0.001 per share, of the Company.
2. This Amendment shall take effect as of the later of the date of its adoption by the Board of Directors of the Company and upon its approval by the stockholders of the Company in accordance with Section 16 of the Plan.
All other provisions of the Plan which are not inconsistent with this amendment shall remain in full force and effect.
Date of Board of Director Approval: | December 20, 2001 | |
Date of Stockholder Approval: | December 21, 2001 |
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TECHTARGET.COM, INC.
Amendment to 1999 Stock Option Plan
In accordance with the provisions of Section 16 of the TechTarget.com, Inc. 1999 Stock Option Plan (the "Plan"), the Plan is hereby amended as follows (all terms used herein and not defined shall have the meanings set forth in the Plan):
1. The Introductory Paragraph of the Plan is hereby amended by increasing the number of shares subject to the Plan from 19,643,584 Shares to 21,443,584 Shares of the common stock, par value $0.001 per share, of the Company.
2. This Amendment shall take effect as of the later of the date of its adoption by the Board of Directors of the Company and upon its approval by the stockholders of the Company in accordance with Section 16 of the Plan.
All other provisions of the Plan which are not inconsistent with this amendment shall remain in full force and effect.
Date of Board of Director Approval: | July 30, 2003 | |
Date of Stockholder Approval: | July 30, 2003 |
8
TECHTARGET, INC.
Amendment to 1999 Stock Option Plan
In accordance with the provisions of Section 16 of the TechTarget, Inc. 1999 Stock Option Plan (the "Plan"), the Plan is hereby amended as follows (all terms used herein and not defined shall have the meanings set forth in the Plan):
1. The Introductory Paragraph of the Plan is hereby amended by increasing the number of shares subject to the Plan from 21,443,584 Shares to 22,443,584 Shares of the common stock, par value $0.001 per share, of the Company.
2. This Amendment shall take effect as of the later of the date of its adoption by the Board of Directors of the Company and its approval by the stockholders of the Company in accordance with Section 16 of the Plan.
All other provisions of the Plan which are not inconsistent with this amendment shall remain in full force and effect.
Date of Board of Director Approval: | December 31, 2003 | |
Date of Stockholder Approval: | December 31, 2003 |
9
TECHTARGET, INC.
Amendment to 1999 Stock Option Plan
In accordance with the provisions of Section 16 of the TechTarget, Inc. 1999 Stock Option Plan (the "Plan"), the Plan is hereby amended as follows (all terms used herein and not defined shall have the meanings set forth in the Plan):
1. The Introductory Paragraph of the Plan is hereby amended by increasing the number of shares subject to the Plan from 22,443,584 Shares to 25,443,584 Shares of the common stock, par value $0.001 per share, of the Company.
2. This Amendment shall take effect as of the later of the date of its adoption by the Board of Directors of the Company and its approval by the stockholders of the Company in accordance with Section 16 of the Plan.
All other provisions of the Plan which are not inconsistent with this amendment shall remain in full force and effect.
Date of Board of Director Approval: | December 17, 2004 | |
Date of Stockholder Approval: | December 17, 2004 |
10
TECHTARGET, INC.
Amendment to 1999 Stock Option Plan
In accordance with the provisions of Section 16 of the TechTarget, Inc. 1999 Stock Option Plan (the "Plan"), the Plan is hereby amended as follows (all terms used herein and not defined shall have the meanings set forth in the Plan):
1. The Introductory Paragraph of the Plan is hereby amended by increasing the number of shares subject to the Plan from 25,443,584 Shares to 49,538,584 Shares of the common stock, par value $0.001 per share, of the Company.
2. This Amendment shall take effect as of the later of the date of its adoption by the Board of Directors of the Company and its approval by the stockholders of the Company in accordance with Section 16 of the Plan.
All other provisions of the Plan which are not inconsistent with this amendment shall remain in full force and effect.
Date of Board of Director Approval: | September 27, 2006 | |
Date of Stockholder Approval: | September 27, 2006 |
11
Exhibit 10.9
TECHTARGET, INC.
Incentive Stock Option Grant Agreement under the
1999 Stock Option Plan
[Merit Option Grant for grants occurring prior to September 27, 2006 ]
(Number of shares listed on the Grant Summary Letter)
Number of Shares
(Date of Grant listed on the Grant Summary Letter)
Date of Grant
TechTarget, Inc., a Delaware Corporation (the "Corporation"), hereby grants to (the "Optionholder"), as of the date stated above, an option (the "Option") to purchase the number of shares stated above (the "Shares") of the Corporation's Common Stock $.001 par value per share (the "Common Stock"), pursuant to the Corporation's 1999 Stock Option Plan (the "Plan"), a copy of which is attached hereto and is incorporated herein in its entirety by this reference.
The Optionholder hereby accepts the Option, subject to the terms and conditions set forth in the Plan as fully as if they were set forth herein, and to the following additional terms and conditions:
1. Type of Option. It is intended that the Option be an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Exercise Price. The price at which Shares may be purchased pursuant to the Option is (strike price listed on the Grant Summary Letter) per share.
3. Option Period. The Option expires ten years from the date of grant, as set forth above. The Optionholder should take special note that the Option may be terminated early by certain events including termination of employment, disability or death, as provided in the Plan.
4. Vesting of Right to Exercise During the first year commencing on the date of grant, the Option shall not be exercisable to any extent. Commencing on the first day following the first anniversary of the date of grant and during the ensuing 91 day period, the Option may be exercised for not more than one-fourth (25%) of the Shares. Thereafter, commencing on the first day following the end of the prior 91 day period and during each of the ensuing twelve 91 day periods, the Option may be exercised (to the extent not already exercised) for not more than an additional one-sixteenth (6.25%) of the Shares. After the fourth anniversary of the date of grant, for the duration of the Option, the Option may be exercised in full.
5. Exercise. (a) The Option may be exercised from time to time with respect to all or any part of the Shares as to which it is exercisable at the time; provided, however, that it may not be exercised as to less than 100 Shares at any one time, except with respect to the remaining Shares then purchasable under the Option, if less than 100 Shares. No fractional Shares may be purchased except in combination with a fraction or fractions under another presently exercisable option or options granted under the Plan, and then only to the extent that such combination equals a full Share.
(b) To exercise the Option, the Optionholder (or other person exercising the Option) must deliver to the Corporation the following:
1. a completed and signed notice of exercise, in the form of Attachment A hereto, stating the number of Shares to be purchased. If the Option is being exercised by a person other than the Optionholder, the notice of exercise must be accompanied by proof of the right of such person to exercise the Option and such other pertinent information as the Corporation deems necessary;
2. two (2) signed Stock Restriction Agreements (the "Stock Restriction Agreement"), in the form attached hereto as Attachment B or, in the event the Optionholder owns five percent (5%) or more of the capital stock of the Corporation, calculated on a fully diluted basis, in substantially the form attached hereto as Attachment C . The shares purchased pursuant to exercise of the Option shall be subject to the restrictions and limitations set forth in such agreement or other agreement to which the optionee may be a party (e.g. a shareholders' agreement); and
3. payment in full of the exercise price for the Shares being purchased (i) in cash or by certified check, bank draft or money order made payable to the order of the Company, (ii) by delivery of shares of Common Stock having a fair market value (as determined by the Board in good faith in its reasonable discretion) on the date of exercise equal to the exercise price, (iii) by a combination of cash and Common Stock, or (iv) if previously approved by the Board, by a combination of cash, Common Stock and a promissory note in accordance with the terms of the Plan; provided , however , that payment of the exercise price by delivery of shares of Common Stock of the Company already owned by the Optionholder may be made only if such payment does not result in a charge to earnings for financial accounting purposes as determined by the Board (unless otherwise permitted by the Board).
In addition, the exercise of an Option shall be subject to satisfaction of all conditions the Board may impose on the exercise of such Option pursuant to this Agreement or the Plan, and any such exercise shall be effective only after all such conditions have been satisfied.
6. No Rights as Stockholder. The Optionholder (or any other person entitled to exercise the Option) shall not be entitled to any rights as a stockholder of the Corporation with respect to any Shares covered by the Option until such Shares shall have been registered on the stock transfer books of the Corporation in the name of the Optionholder (or such other person).
7. Notice of Premature Disposition. If, within two years from the date of grant or within one year after the transfer of Shares to the Optionholder upon exercise of the Option, the Optionholder makes a disposition (as defined in Section 424(c) of the Code) of any Shares, the Optionholder shall notify the Clerk of the Corporation within 10 days after such disposition.
8. Compliance with Laws, Regulations and Rules. The Plan, this Agreement, the Option and the obligation of the Corporation to sell and deliver the Shares upon exercise of the Option are and shall be subject to (a) all applicable laws, government regulations and rules and (b) all applicable regulations and rules adopted by the Board in accordance with the Plan. If at any time the Board determines in its discretion that the listing, registration or qualification, on any securities exchange or under any federal or state law, of the Shares deliverable upon exercise of the Option, or the consent or approval of any regulatory body, or compliance with any law, rule or regulation, is necessary or desirable as a condition of, or in connection with, the delivery or purchase of Shares, then exercise of the Option shall not be effective unless such listing, registration, qualification, consent, approval or compliance shall have been effected or obtained free of any conditions not acceptable to the Board.
9. Legend on Certificates. Each certificate representing the Shares shall bear restrictive legends referring to the restrictions on transfer and repurchase rights of the Company contained in the Stock Restriction Agreement and the restrictions on transfer imposed by the Securities Act of 1933, as amended, and any applicable exemption therefrom pursuant to which the Shares may be issued.
10. No Employment Rights. Nothing in the Plan, the Option or this Option Agreement confers upon the Optionholder any right to continued employment or interferes with the right of the Corporation to terminate the Optionholder's employment.
11. Taxes. As a condition of issuance of Shares under this Option, the Optionholder agrees that, if at the time the Option is exercised the Board determines that under applicable law and regulations the Corporation could be liable for the withholding of any federal or state tax with respect to a
2
disposition of the Shares received upon exercise, the Board may require the Optionholder to give, or to agree to give, such security as the Board deems adequate to meet the potential liability of the Corporation for the withholding of tax, and to augment such security from time to time in any amount reasonably deemed necessary by the Board to preserve the adequacy of such security.
12. Definition. As used in this Agreement, the term "Corporation" shall include any subsidiary or parent of the Corporation as defined in Sections 424(e) and (f) of the Code.
13. Amendments. The Board may at any time or times amend the Plan or the Option for the purpose of satisfying the requirements of any changes in applicable laws or regulations or for any other purpose which at the time may be permitted by law. No termination or amendment of the Plan or amendment of the Option shall, without the Optionholder's consent, adversely affect the Optionholder's rights under the Option.
14. Consistency with Plan. If there is any inconsistency between the provisions of this Agreement and the provisions of the Plan, the latter shall control.
TECHTARGET, INC. | ||||
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Title: Chief Financial Officer | ||||
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Optionholder |
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Exhibit 10.10
TECHTARGET, INC.
Incentive Stock Option Grant Agreement under the
1999 Stock Option Plan
[Merit Option Grant for grants occurring after September 27, 2006 ]
(Number of shares listed on the Grant Summary Letter)
Number of Shares
(Date of Grant listed on the Grant Summary Letter)
Date of Grant
TechTarget, Inc., a Delaware Corporation (the "Corporation"), hereby grants to (the "Optionholder"), as of the date stated above, an option (the "Option") to purchase the number of shares stated above (the "Shares") of the Corporation's Common Stock $.001 par value per share (the "Common Stock"), pursuant to the Corporation's 1999 Stock Option Plan (the "Plan"), a copy of which is attached hereto and is incorporated herein in its entirety by this reference.
The Optionholder hereby accepts the Option, subject to the terms and conditions set forth in the Plan as fully as if they were set forth herein, and to the following additional terms and conditions:
1. Type of Option. It is intended that the Option be an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Exercise Price. The price at which Shares may be purchased pursuant to the Option is (strike price listed on the Grant Summary Letter) per share.
3. Option Period. The Option expires ten years from the date of grant, as set forth above. The Optionholder should take special note that the Option may be terminated early by certain events including termination of employment, disability or death, as provided in the Plan.
4. Vesting of Right to Exercise During the first year commencing on the date of grant, the Option shall not be exercisable to any extent. Commencing on the first day following the first anniversary of the date of grant and during the ensuing 91 day period, the Option may be exercised for not more than one-fourth (25%) of the Shares. Thereafter, commencing on the first day following the end of the prior 91 day period and during each of the ensuing twelve 91 day periods, the Option may be exercised (to the extent not already exercised) for not more than an additional one-sixteenth (6.25%) of the Shares. After the fourth anniversary of the date of grant, for the duration of the Option, the Option may be exercised in full.
5. Exercise. (a) The Option may be exercised from time to time with respect to all or any part of the Shares as to which it is exercisable at the time; provided, however, that it may not be exercised as to less than 100 Shares at any one time, except with respect to the remaining Shares then purchasable under the Option, if less than 100 Shares. No fractional Shares may be purchased except in combination with a fraction or fractions under another presently exercisable option or options granted under the Plan, and then only to the extent that such combination equals a full Share.
(b) To exercise the Option, the Optionholder (or other person exercising the Option) must deliver to the Corporation the following:
1. a completed and signed notice of exercise, in the form of Attachment A hereto, stating the number of Shares to be purchased. If the Option is being exercised by a person other than the Optionholder, the notice of exercise must be accompanied by proof of the right of such person to exercise the Option and such other pertinent information as the Corporation deems necessary;
2. two (2) signed Stock Restriction Agreements (the "Stock Restriction Agreement"), in the form attached hereto as Attachment B or, in the event the Optionholder owns five percent (5%) or more of the capital stock of the Corporation, calculated on a fully diluted basis, in substantially the form attached hereto as Attachment C . The shares purchased pursuant to exercise of the Option shall be subject to the restrictions and limitations set forth in such agreement or other agreement to which the optionee may be a party (e.g. a shareholders' agreement); and
3. payment in full of the exercise price for the Shares being purchased (i) in cash or by certified check, bank draft or money order made payable to the order of the Company, (ii) by delivery of shares of Common Stock having a fair market value (as determined by the Board in good faith in its reasonable discretion) on the date of exercise equal to the exercise price, (iii) by a combination of cash and Common Stock, or (iv) if previously approved by the Board, by a combination of cash, Common Stock and a promissory note in accordance with the terms of the Plan; provided , however , that payment of the exercise price by delivery of shares of Common Stock of the Company already owned by the Optionholder may be made only if such payment does not result in a charge to earnings for financial accounting purposes as determined by the Board (unless otherwise permitted by the Board).
In addition, the exercise of an Option shall be subject to satisfaction of all conditions the Board may impose on the exercise of such Option pursuant to this Agreement or the Plan, and any such exercise shall be effective only after all such conditions have been satisfied.
6. No Rights as Stockholder. The Optionholder (or any other person entitled to exercise the Option) shall not be entitled to any rights as a stockholder of the Corporation with respect to any Shares covered by the Option until such Shares shall have been registered on the stock transfer books of the Corporation in the name of the Optionholder (or such other person).
7. Notice of Premature Disposition. If, within two years from the date of grant or within one year after the transfer of Shares to the Optionholder upon exercise of the Option, the Optionholder makes a disposition (as defined in Section 424(c) of the Code) of any Shares, the Optionholder shall notify the Clerk of the Corporation within 10 days after such disposition.
8. Compliance with Laws, Regulations and Rules. The Plan, this Agreement, the Option and the obligation of the Corporation to sell and deliver the Shares upon exercise of the Option are and shall be subject to (a) all applicable laws, government regulations and rules and (b) all applicable regulations and rules adopted by the Board in accordance with the Plan. If at any time the Board determines in its discretion that the listing, registration or qualification, on any securities exchange or under any federal or state law, of the Shares deliverable upon exercise of the Option, or the consent or approval of any regulatory body, or compliance with any law, rule or regulation, is necessary or desirable as a condition of, or in connection with, the delivery or purchase of Shares, then exercise of the Option shall not be effective unless such listing, registration, qualification, consent, approval or compliance shall have been effected or obtained free of any conditions not acceptable to the Board.
9. Legend on Certificates. Each certificate representing the Shares shall bear restrictive legends referring to the restrictions on transfer and repurchase rights of the Company contained in the Stock Restriction Agreement and the restrictions on transfer imposed by the Securities Act of 1933, as amended (the "Act"), and any applicable exemption therefrom pursuant to which the Shares may be issued.
10. Lock-up Provision. The Optionholder and each permitted transferee hereunder agrees that if the Company proposes to offer for sale to the public any shares pursuant to a public offering under the Act and if requested by the Company and any underwriter engaged by the Company, then such Optionholder and each permitted transferee hereunder agrees not to, directly or indirectly, offer, sell, pledge, contract to sell (including any short sale), grant any option to purchase or otherwise dispose of
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any securities of the Company held by him, her or them (except for any securities sold pursuant to such registration statement) or enter into any "Hedging Transaction" (as defined below) relating to any securities of the Company (including, without limitation, pursuant to Rule 144 under the Act or any successor similar exemptive rule hereinafter in effect) held by him, her or them for such period following the effective date of the registration statement of the Company filed under the Act with respect to such offering, as the Company or such underwriter shall specify reasonably and in good faith, not to exceed one hundred eighty (180) days in the case of the Company's Initial Public Offering or ninety (90) days in the case of any other follow-on offering. For purposes of this Section 4, " Hedging Transaction " means any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Shares.
11. No Employment Rights. Nothing in the Plan, the Option or this Option Agreement confers upon the Optionholder any right to continued employment or interferes with the right of the Corporation to terminate the Optionholder's employment.
12. Taxes. As a condition of issuance of Shares under this Option, the Optionholder agrees that, if at the time the Option is exercised the Board determines that under applicable law and regulations the Corporation could be liable for the withholding of any federal or state tax with respect to a disposition of the Shares received upon exercise, the Board may require the Optionholder to give, or to agree to give, such security as the Board deems adequate to meet the potential liability of the Corporation for the withholding of tax, and to augment such security from time to time in any amount reasonably deemed necessary by the Board to preserve the adequacy of such security.
13. Definition. As used in this Agreement, the term "Corporation" shall include any subsidiary or parent of the Corporation as defined in Sections 424(e) and (f) of the Code.
14. Amendments. The Board may at any time or times amend the Plan or the Option for the purpose of satisfying the requirements of any changes in applicable laws or regulations or for any other purpose which at the time may be permitted by law. No termination or amendment of the Plan or amendment of the Option shall, without the Optionholder's consent, adversely affect the Optionholder's rights under the Option.
15. Consistency with Plan. If there is any inconsistency between the provisions of this Agreement and the provisions of the Plan, the latter shall control.
TECHTARGET, INC. | ||||
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By |
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Name: Eric Sockol | ||||
Title: Chief Financial Officer | ||||
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Optionholder |
3
Exhibit 10.11
TECHTARGET, INC.
Nonqualified Stock Option Grant Agreement under the 1999 Stock Option Plan
AMOUNT
Number of Shares
DATE
Date of Grant
TechTarget, Inc., a Delaware corporation (the "Corporation"), hereby grants to NAME (the "Optionholder"), as of the date stated above, an option (the "Option") to purchase the number of shares stated above (the "Shares") of the Corporation's Common Stock, $.001 par value per share (the "Common Stock"), pursuant to the Corporation's 1999 Stock Option Plan (the "Plan"), a copy of which is attached hereto and is incorporated herein in its entirety by this reference.
The Optionholder hereby accepts the Option, subject to the terms and conditions set forth in the Plan as fully as if they were set forth herein, and to the following additional terms and conditions:
1. Type of Option. It is not intended that the Option be an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Exercise Price. The price at which Shares may be purchased pursuant to the Option is $PRICE per share.
3. Option Period. The Option expires ten years from the date of grant, as set forth above. The Optionholder should take special note that the Option may be terminated early by certain events including termination of employment, disability or death, as provided in the Plan.
4. Vesting of Right to Exercise During the first year commencing on the date of grant, the Option shall not be exercisable to any extent. Commencing on the first day following the first anniversary of the date of grant and during the ensuing 91 day period, the Option may be exercised for not more than one-fourth (25%) of the Shares. Thereafter, commencing on the first day following the end of the prior 91 day period and during each of the ensuing twelve 91 day periods, the Option may be exercised (to the extent not already exercised) for not more than an additional one-sixteenth (6.25%) of the Shares. After the fourth anniversary of the date of grant, for the duration of the Option, the Option may be exercised in full.
5. Exercise. (a) The Option may be exercised from time to time with respect to all or any part of the Shares as to which it is exercisable at the time; provided, however, that it may not be exercised as to less than 100 Shares at any one time, except with respect to the remaining Shares then purchasable under the Option, if less than 100 Shares. No fractional Shares may be purchased except in combination with a fraction or fractions under another presently exercisable option or options granted under the Plan, and then only to the extent that such combination equals a full Share.
(b) To exercise the Option, the Optionholder (or other person exercising the Option) must deliver to the Corporation the following:
1. a completed and signed notice of exercise, in the form of Attachment A hereto, stating the number of Shares to be purchased. If the Option is being exercised by a person other than the Optionholder, the notice of exercise must be accompanied by proof of the right of such person to exercise the Option and such other pertinent information as the Corporation deems necessary;
2. two (2) signed Stock Restriction Agreements (the "Stock Restriction Agreement"), a copy of which is attached hereto as Attachment B or, in the event the Optionholder owns five percent (5%) or more of the capital stock of the Corporation, calculated on a fully diluted basis, in substantially the form attached hereto as Attachment C. The shares purchased pursuant to exercise
of the Option shall be subject to the restrictions and limitations set forth in such agreement ; or other agreement to which the optionee may be a party (e.g. a shareholders' agreement); and
3. payment in full of the exercise price for the Shares being purchased (i) in cash or by certified check, bank draft or money order made payable to the order of the Company, (ii) by delivery of shares of Common Stock having a fair market value (as determined by the Board in good faith in its reasonable discretion) on the date of exercise equal to the exercise price, (iii) by a combination of cash and Common Stock, or (iv) if previously approved by the Board, by a combination of cash, Common Stock and a promissory note in accordance with the terms of the Plan; provided , however , that payment of the exercise price by delivery of shares of Common Stock of the Company already owned by the Optionholder may be made only if such payment does not result in a charge to earnings for financial accounting purposes as determined by the Board (unless otherwise permitted by the Board).
In addition, the exercise of an Option shall be subject to satisfaction of all conditions the Board may impose on the exercise of such Option pursuant to this Agreement or the Plan, and any such exercise shall be effective only after all such conditions have been satisfied.
6. No Rights as Stockholder. The Optionholder (or any other person entitled to exercise the Option) shall not be entitled to any rights as a stockholder of the Corporation with respect to any Shares covered by the Option until such Shares shall have been registered on the stock transfer books of the Corporation in the name of the Optionholder (or such other person).
7. Compliance with Laws, Regulations and Rules. The Plan, this Agreement, the Option and the obligation of the Corporation to sell and deliver the Shares upon exercise of the Option are and shall be subject to (a) all applicable laws, government regulations and rules and (b) all applicable regulations and rules adopted by the Board in accordance with the Plan. If at any time the Board determines in its discretion that the listing, registration or qualification, on any securities exchange or under any federal or state law, of the Shares deliverable upon exercise of the Option, or the consent or approval of any regulatory body, or compliance with any law, rule or regulation, is necessary or desirable as a condition of, or in connection with, the delivery or purchase of Shares, then exercise of the Option shall not be effective unless such listing, registration, qualification, consent, approval or compliance shall have been effected or obtained free of any conditions not acceptable to the Board.
8. Legend on Certificates. Each certificate representing the Shares shall bear restrictive legends referring to the restrictions on transfer and repurchase rights of the Company contained in the Stock Restriction Agreement and the restrictions on transfer imposed by the Securities Act of 1933, as amended, and any applicable exemption therefrom pursuant to which the Shares may be issued.
9. No Employment Rights. Nothing in the Plan, the Option or this Option Agreement confers upon the Optionholder any right to continued employment or interferes with the right of the Corporation to terminate the Optionholder's employment.
10. Taxes. As a condition to the issuance of Shares under this Option, the Corporation shall have the right to require the Option holder to remit to the Corporation an amount sufficient to satisfy any federal, state or local withholding tax requirements or make other arrangements satisfactory to the Corporation with regard to such taxes, as provided in the Plan.
11. Definition. As used in this Agreement, the term "Corporation" shall include any subsidiary or parent of the Corporation as defined in Sections 424(e) and (f) of the Code.
12. Amendments. The Board may at any time or times amend the Plan or the Option for the purpose of satisfying the requirements of any changes in applicable laws or regulations or for any other purpose which at the time may be permitted by law. No termination or amendment of the Plan or
2
amendment of the Option shall, without the Optionholder's consent, adversely affect the Optionholder's rights under the Option.
13. Consistency with Plan. If there is any inconsistency between the provisions of this Agreement and the provisions of the Plan, the latter shall control.
TECHTARGET, INC. | ||||
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Optionholder |
3
Attachment A
Form of Exercise of Stock Option
(To be completed and signed only on exercise of Option)
I hereby exercise the stock option (the "Option") granted by TechTarget, Inc. (the "Corporation") to me on , 199 , subject to all the terms and provisions thereof as contained in the Nonqualified Stock Option Grant Agreement of the same date signed by me concerning such Option and in the TechTarget, Inc. 1999 Stock Option Plan referred to therein, and notify you of my desire to purchase Shares pursuant to the Option.
Enclosed is my check in the sum of $ in full payment for such Shares and applicable withholding taxes.
I also enclose completed and signed duplicate Stock Restriction Agreement in the required form.
DATED: | , 199 . | |||||||
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Attachment B
TECHTARGET, INC.
Stock Restriction Agreement
AGREEMENT (this "Agreement"), dated as of , by and between TechTarget, Inc., a Delaware corporation (the "Company") and (the "Stockholder"), who is the holder of an option (the "Option") to purchase shares of the Company's Common Stock granted pursuant to the TechTarget, Inc. 1999 Stock Option Plan (the "Stock Option Plan") (such shares of Common Stock presently owned and any additional shares which the Stockholder may acquire upon exercise of the Option or otherwise being hereinafter collectively called the "Shares").
WHEREAS, at or prior to the date this Agreement, the Stockholder has exercised the Option and has purchased thereunder all or a portion of the Shares; and
WHEREAS, the Company and the Stockholder believe it is in the best interests of the Company and of the Stockholder that certain restrictions be placed upon all of the Shares;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Restrictions on Transfer.
(a) No Transfer. The Stockholder shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively "transfer"), any of the Shares, or any interest therein, unless such transfer shall be made in compliance with the provisions of Section 2 of this Agreement.
(b) Investment Representation. The Stockholder hereby represents, warrants and agrees with the Company that he or she is acquiring the Shares for his or her own account, for investment and not with a view to or in connection with any distribution thereof. The Stockholder shall not transfer any Shares unless either (i) a registration statement under the Securities Act of 1933, as amended (the "Act"), with respect to the Shares shall have become, and continue to be, effective, or (ii) the Company receives an opinion of counsel that registration of such Shares is not required under the Act.
2. Right of First Refusal on Dispositions.
(a) Receipt of Third-Party Offer. If at any time the Stockholder desires to sell for cash, cash equivalents or any other form of consideration (including a promissory note) all or any part of his Shares pursuant to an offer or proposed offer from a third party (the "Proposed Transferee"), the Stockholder shall submit a written offer (the "Offer") to sell such Shares (the "Offered Shares") to the Company on terms and conditions, including price, not less favorable to the Company than those on which the Stockholder proposes to sell such Offered Shares to the Proposed Transferee. The Offer shall disclose the identity of the Proposed Transferee, the number of Offered Shares proposed to be sold, the total number of Shares owned by the Stockholder, the terms and conditions, including price, of the proposed sale, and any other material facts relating to the proposed sale. The Offer shall further state that the Company may acquire, in accordance with the provisions of this Agreement, all or any portion of the Offered Shares for the price and upon the other terms and conditions, including deferred payment (if applicable), set forth therein.
(b) Company Notice of Intent to Purchase. If the Company desires to purchase all or any portion of the Offered Shares, the Company shall give to the Stockholder written notice of the number of Offered Shares to be purchased by it, which notice shall be delivered in person or mailed to the Stockholder within twenty (20) days of the date of the Offer. Such communication
2
shall, when taken in conjunction with the Offer, be deemed to constitute a valid, legally binding and enforceable agreement for the sale and purchase of such Offered Shares. Sale of the Offered Shares to be sold to the Company pursuant to this Section 2 shall be made at the offices of the Company on the forty-fifth (45th) day following the date of the Offer (or, if such day is not a business day, then on the next succeeding business day). Such sale shall be effected by the Stockholder's delivery to the Company of a certificate or certificates evidencing the Offered Shares to be purchased by the Company, duly endorsed for transfer to the Company, against payment to the Stockholder of the purchase price therefor by the Company by a certified or cashier's check.
(c) Sale to Third Party. If, within twenty (20) days of its receipt of the Offer, the Company fails to deliver written notice to the Stockholder of its intention to purchase all of the Offered Shares (the Offered Shares which the Company does not elect to purchase being referred to as the "Refused Shares"), the Refused Shares not so purchased may be sold by the Stockholder at any time within ninety (90) days after the date the Offer was made to the Proposed Transferee, at not less than the price and upon other terms and conditions, if any, not more favorable to the Proposed Transferee than those specified in the Offer. If the Refused Shares are not sold within the ninety (90) day period, they shall continue to be subject to the requirements of a prior offer pursuant to this Section 2. If the Refused Shares are sold pursuant to this Section 2 to any purchaser who is not a party to this Agreement, the Company, may at its option, require the purchaser to execute and deliver a new Stock Restriction Agreement in substantially the form of this Agreement containing substantially the same terms as those set forth herein.
(d) Permitted Transfers. The Stockholder shall have the right to make Permitted Transfers of the Stockholder's Shares and the provisions of subsections (a), (b) and (c) above shall not apply to any such Permitted Transfer by the Stockholder. For purposes of this Agreement, "Permitted Transfer" shall mean any transfer by the Stockholder during his lifetime of all or any portion of his Shares (i) to the Company, (ii) to another holder of issued and outstanding shares of capital stock of the Company, (iii) to or for the benefit of any spouse, child or grandchild of the Stockholder, or to a trust for the benefit of any of the foregoing, including transfers by will or the laws of descent and distribution; provided, however, that, it shall be a condition of each such transfer, that (x) the transferee agrees to be bound by the terms of this Agreement as though no such transfer had taken place, and that (y) the Stockholder has complied with all applicable law in connection with such transfer.
3. Effect of Prohibited Transfer. The Company shall not be required (a) to transfer on its books any of the Shares which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement, or (b) to treat as owner of such Shares or to pay dividends to any transferee to whom any such Shares shall have been so sold or transferred.
4. Restrictive Legend. All certificates representing Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under federal or state securities laws:
The shares of stock represented by this certificate are subject to restrictions upon transfer set forth in a certain Stock Restriction Agreement between the Corporation and the registered owner of this certificate. The Corporation will furnish a copy of such Agreement to the holder of this certificate upon written request and without charge.
5. Adjustments for Stock Splits, Stock Dividends, Etc. If from time to time while this Agreement shall remain in force and effect there is any stock split-up, stock dividend, stock distribution or other reclassification of the Common Stock of the Company, any and all new, substituted or additional securities to which the Stockholder is entitled by reason of his ownership of Shares shall be immediately subject to the restrictions on transfer and other provisions of this Agreement in the same manner and to the same extent as such Shares.
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6. Miscellaneous.
(a) Termination of Restrictions on Transfer. This Agreement, and the obligations of the Stockholder and the Company hereunder, shall terminate upon the earliest to occur of: (i) the closing of the first underwritten public offering by the Company under the Securities Act of 1933 of any of its equity securities for its own account for cash; (ii) the sale of all or substantially all of the shares of capital stock, the assets or business of the Company, by merger, sale of assets or otherwise; or (iii) the expiration of ten (10) years from the date of this Agreement. The sale of the Shares pursuant to any of the transactions described in clauses (i) and (ii) of the preceding sentence shall not be subject to the provisions of said Section 1(a) and Section 2.
(b) Severability; Governing Law. If any provisions of this Agreement shall be determined to be illegal or unenforceable by any court of law, the remaining provisions shall be severable and enforceable in accordance with their terms. This Agreement shall be governed by, and construed in accordance with, the laws of Delaware.
(c) Injunctive Relief. It is acknowledged that it will be impossible to measure the damages that would be suffered by the Company if the Stockholder fails to comply with the provisions of this Agreement and that, in the event of any such failure, the Company will not have an adequate remedy at law. The Company shall, therefore, be entitled to obtain specific performance of each of the Stockholder's obligations hereunder and to obtain immediate injunctive relief. The Stockholder shall not urge, as a defense to any proceeding for such specific performance or injunctive relief, that the Company has an adequate remedy at law.
(d) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns.
(e) Modification or Amendment. Neither this Agreement nor any provision hereof can be modified, amended, changed, discharged or terminated except by an instrument in writing, signed by the Stockholder and the Company.
(f) Notices. All notices required or permitted hereunder shall be in writing and deemed effectively given upon personal delivery, upon deposit with the United States Post Office, by registered, certified mail, postage prepaid, or upon deposit with a recognized express overnight courier service, addressed, if to the Company, to 980 Washington Street, Suite 121, Dedham, MA 02026, attention Treasurer, and if to the Stockholder, to the address shown beneath his or her respective signature to this Agreement, or at such other address or addresses as either party shall designate to the other in accordance with this subsection (f).
(g) Merger Provision. This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, whether oral or written, of the parties hereto concerning the subject matter hereof.
(h) Waivers. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company.
(i) Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Stockholder.
[Remainder of This Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
(Corporate Seal) | TECHTARGET, INC. | |||||
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Secretary | its | |||||
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ACCEPTED: |
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(Signature of Stockholder) |
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Exhibit 10.12
LEASE
By and Between
WELLSFORD/WHITEHALL HOLDINGS, L.L.C.
("
Landlord
")
and
TECHTARGET.COM, INC.
("
Tenant
")
Cutler Lake Corporate Center
117 Kendrick Street
Needham,
Massachusetts
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Page
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---|---|---|---|---|---|---|
1. | BASIC TERMS AND DEFINITIONS | 1 | ||||
1.1. | "Additional Rent" | 1 | ||||
1.2. | Intentionally Omitted | 1 | ||||
1.3. | "Applicable Submarket" | 1 | ||||
1.4. | "Base Rent" | 1 | ||||
1.5. | "Broker" | 1 | ||||
1.6. | "Building" | 1 | ||||
1.7. | "Building Rentable Area" | 1 | ||||
1.8. | "Expansion Option" | 1 | ||||
1.9. | "Extension Option" | 2 | ||||
1.10. | "Extension Term" | 2 | ||||
1.11. | "Lease Commencement Date" | 2 | ||||
1.12. | "Land" | 2 | ||||
1.13. | Intentionally Omitted | 2 | ||||
1.14. | "Lease Year" | 2 | ||||
1.15. | "Notice Address" | 2 | ||||
1.16. | "Notice Address" | 2 | ||||
1.17. | "Operating Expense Base Year" | 2 | ||||
1.18. | "Parking Allocation" | 2 | ||||
1.19. | "Permitted Use" | 2 | ||||
1.20. | "Premises" | 2 | ||||
1.21. | "Premises Rentable Area" | 2 | ||||
1.22. | "Prime Rate" | 3 | ||||
1.23. | "Property" | 3 | ||||
1.24. | "Real Estate Tax Base Year" | 3 | ||||
1.25. | "Rent" | 3 | ||||
1.26. | "Rent Commencement Date" | 3 | ||||
1.27. | "Rent Payment Address" | 3 | ||||
1.28. | "Right of First Offer" | 3 | ||||
1.29. | "Tenant's Share" | 3 | ||||
1.30. | "Term" | 3 | ||||
1.31. | "Work Agreement" | 3 | ||||
2. |
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TENANT'S COVENANTS |
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3 |
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2.1. | Tenant's Covenant to Pay Rent | 3 | ||||
2.2. | Tenant's Covenant to Pay Additional Rent | 4 | ||||
2.3. | Guaranty | 9 | ||||
2.4. | Tenant's Covenants Regarding Use and Compliance with Laws | 9 | ||||
2.5. | Tenant's Covenants Regarding Environmental Matters | 10 | ||||
2.6. | Tenant's Covenant to Allow Landlord Access to the Premises | 13 | ||||
2.7. | Tenant's Covenants Regarding Surrender of the Premises | 13 | ||||
2.8. | Tenant's Covenants Regarding Financial Disclosure | 13 | ||||
2.9. | Tenant's Covenant to Indemnify Landlord | 14 | ||||
3. |
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LANDLORD'S COVENANTS |
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14 |
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3.1. | Landlord's Covenant to Provide Building Services | 14 | ||||
3.2. | Landlord's Covenant to Comply with Laws | 15 | ||||
3.3. | Landlord's Covenant Regarding Environmental Matters | 15 | ||||
3.4. | Landlord's Covenant of Quiet Enjoyment | 16 | ||||
3.5. | Landlord's Covenant to Indemnify Tenant | 16 | ||||
4. |
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COVENANTS REGARDING REPAIRS, ALTERATIONS, INSURANCE, CASUALTY AND CONDEMNATION |
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16 |
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4.1. | Repairs and Maintenance | 16 | ||||
4.2. | Alterations | 17 | ||||
4.3. | Insurance | 19 | ||||
4.4. | Casualty | 21 | ||||
4.5. | Condemnation | 22 | ||||
5. |
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SPECIAL RIGHTS AND OBLIGATIONS |
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23 |
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5.1. | Assignment and Subletting | 23 | ||||
5.2. | Signage | 26 | ||||
5.3. | Parking | 27 | ||||
5.4. | Extension Option | 27 | ||||
5.5. | Expansion Option | 28 | ||||
5.6. | Right of First Offer | 30 | ||||
6. |
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DEFAULT AND REMEDIES |
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32 |
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6.1. | Definition of Event of Default | 32 | ||||
6.2. | Remedies | 33 | ||||
6.3. | Damages | 35 | ||||
6.4. | Landlord's Default | 37 | ||||
6.5. | Intentionally Omitted | 37 | ||||
7. |
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LENDER PROTECTION |
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37 |
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7.1. | Subordination | 37 | ||||
7.2. | Estoppel Certificates | 38 | ||||
7.3. | Mortgagee Protection | 38 | ||||
8. |
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MISCELLANEOUS |
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39 |
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8.1. | Brokers | 39 | ||||
8.2. | Termination of 2000 Lease | 39 | ||||
8.3. | Notices | 39 | ||||
8.4. | Attorneys' Fees | 39 | ||||
8.5. | Security | 39 | ||||
8.6. | Inability to Perform; Force Majeure; Tenant Delay | 39 | ||||
8.7. | Additional Provisions Governing Indemnification Obligations | 40 | ||||
8.8. | Limitation Upon Landlord's Personal Liability | 40 | ||||
8.9. | Miscellaneous Provisions | 41 | ||||
8.10. | WAIVER OF JURY TRIAL | 43 | ||||
9. |
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EXHIBITS TO LEASE |
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43 |
THIS LEASE is made as of this 25th day of November 2003, by and between WELLSFORD/WHITEHALL HOLDINGS, L.L.C., a De aware limited liability company (" Landlord ") with a mailing address of c/o Archon Atlantic, Stony Brook Office Park, 130 Turner Street, Waltham, Massachusetts 02453, and TECHTARGET.COM, INC., a Delaware corporation (" Tenant ") with a mailing address of 117 Kendrick Street, Needham, Massachusetts 02494.
For and in consideration of the Rent (defined below) and agreements of Tenant set forth in this Lease, Landlord grants and conveys to Tenant, and Tenant hereby hires and takes from Landlord, a leasehold interest in the Premises (defined below) for the Term (defined below) hereinafter stated, -subject to all of the terms of this Lease.
NOW THEREFORE Landlord and Tenant hereby agree to the following:
1. BASIC TERMS AND DEFINITIONS. The following provisions and definitions shall apply throughout this Lease:
1.1. "Additional Rent" means all sums owed, payable or reimbursable by Tenant to Landlord under this Lease, including Tenant Electric, Tenant's Share of Expense Increases and Tenant's Share of Tax Increases, but excluding Base Rent.
1.2. Intentionally Omitted.
1.3. "Applicable Submarket" shall mean the Needham/Newton/Route 128/Massachusetts Turnpike area.
1.4. "Base Rent" shall mean the monthly payments of base rent for the Premises, which are payable for each month during the Term commencing on the Rent Commencement Date, as follows, subject to adjustment as set forth in this Lease, including, without limitation, Section 2.1.1.
Months
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Annual Basic Rent
per Square Foot |
Annual Base Rent
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Monthly Base Rent
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1-12 |
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$ |
19.00 |
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$ |
569,506.00 |
* |
$ |
47,458.83 |
13-18 |
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$ |
20.00 |
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$ |
599,480.00 |
* |
$ |
49,956.67 |
19-24 |
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$ |
20.00 |
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$ |
846,600.00 |
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$ |
70,550.00 |
25-36 |
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$ |
22.00 |
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$ |
931,260.00 |
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$ |
77,605.00 |
37-72 |
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$ |
24.00 |
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$ |
1,015,920.00 |
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$ |
84,660.00 |
1.5. "Broker" means Cushman & Wakefield of Massachusetts, Inc. and Meredith & Grew.
1.6. "Building" means that certain building located on the Land and commonly known as 117 Kendrick Street, Needham, Massachusetts.
1.7. "Building Rentable Area" means 211,555 square feet of rentable area. Landlord and Tenant hereby stipulate to the Building Rentable Area.
1.8. "Expansion Option" means Tenant's right to lease certain "Expansion Space" within the Building or in other Landlord-owned buildings within a two-mile radius of the Building, as more fully set forth in Section 5.5.
1.9. "Extension Option" means Tenant's option to extend the Initial Term (as defined in Section 1.29) for one (1) Extension Term of sixty (60) months, as set forth in Section 5.4, below.
1.10. "Extension Term" means an additional term of sixty (60) months for which Tenant has, or may have, the right to exercise an Extension Option pursuant to Section 5.4, below.
1.11. "Lease Commencement Date" means January 1, 2004.
1.12. "Land" means the parcel of land upon which the Building is situated, which is described in Exhibit A-2, attached hereto, and which shall be deemed to include all exterior site improvements other than the Building unless otherwise set forth herein.
1.13. Intentionally Omitted.
1.14. "Lease Year" means and refers to twelve (12) month periods within the Term, the first of which shall commence on the Rent Commencement Date and terminate on the last day of the twelfth full calendar month after the Rent Commencement Date. Each subsequent Lease Year shall commence on the date immediately following the last day of the preceding Lease Year and shall continue for a period of twelve (12) full calendar months.
1.15. "Notice Address" means, with regard to Landlord: Wellsford/Whitehall Holdings, L.L.C., c/o Archon Atlantic, Stony Brook Office Park, 130 Turner Street, Building 1, Waltham, Massachusetts 02453, Attention: Chief Operating Officer with a copy to (i) Archon Atlantic, Chatham Executive Center, 26 Main Street, First Floor, Chatham, New Jersey 07928, Attention: General Counsel; and (ii) Goodwin Procter LLP, Exchange Place, 53 State Street, Boston, Massachusetts 02109, Attention: Robert F. Houser, P.C.
1.16. "Notice Address" means, with regard to Tenant: Techtarget.com, Inc., 117 Kendrick Street, Needham, Massachusetts 02494, Attn: Eric Sockol.
1.17. "Operating Expense Base Year" means the calendar year ending December 31, 2004.
1.18. "Parking Allocation" means one hundred forty (140) unreserved parking spaces located within the Parking Facilities, subject to the terms of Section 5.3, below.
1.19. "Permitted Use" shall mean general office and administrative use.
1.20. "Premises" means the portion of the Building located in the northeast quadrant of the Building, together with a nonexclusive right to use parking and Common Areas (as defined in Section 2.2.1.C) as more fully provided in this Lease. The Premises are comprised of the Initial Premises, as hereinafter defined, and the Additional Premises, as hereinafter defined. The locations and configurations of the Initial Premises and the Additional Premises are shown on Exhibit A-1 attached hereto. If the Premises are comprised of one or more entire floors of the Building, the Premises shall include the elevator lobby, core area restrooms, janitor's closets and utility closets on each full floor (and, in such event, such areas shall not constitute Common Areas for purposes of Section 2.2.1.C). No easement for light or air is incorporated in the Premises. For purposes of this Lease, " Initial Premises " shall mean the 29,974 rentable square feet of space originally demised to Tenant under lease dated April 25, 2000, as amended by First Amendment to Lease dated as of October 10, 2000, which Initial Premises are denoted on Exhibit A-1 attached hereto as the "Initial Premises." " Additional Premises " shall mean the 12,356 rentable square feet of space denoted on Exhibit A-1 attached hereto as the "Additional Premises."
1.21. "Premises Rentable Area" means 42,330 square feet of rentable area comprised of (a) 29,974 rentable square feet of Initial Premises and (b) 12,356 rentable square feet of Additional Premises. Landlord and Tenant hereby stipulate to the Premises Rentable Area. The parties hereby acknowledge
2
and agree that the rentable area of the Premises is calculated by dividing the useable square footage of the Premises by 0.87 (representing a loss factor of 13%).
1.22. "Prime Rate" means "Prime Rate" of interest as published from time to time in the Wall Street Journal, or if not so published, then the "Prime Rate" as established from time to time by the bank in which Landlord maintains its bank accounts with respect to the Building.
1.23. "Property" means the Land, Building, Parking Facilities and all other improvements constructed in, on or under the Land and Building and serving the Land and Building.
1.24. "Real Estate Tax Base Year" means the fiscal year commencing on July 1, 2003 and ending on June 30, 2004.
1.25. "Rent" means Base Rent plus Additional Rent.
1.26. "Rent Commencement Date" means (a) subject to the provisions of Section 8.2 hereof, January 1, 2004 with respect to the Initial Premises and (b) July 1, 2005 with respect the Additional Premises, it being understood and agreed, however, that notwithstanding anything contained in this Lease to the contrary, payments of Additional Rent with respect to the entire Premises shall commence upon the Lease Commencement Date.
1.27. "Rent Payment Address" means c/o M&G Cutler Lake Corp. LLC. P. O. Box 414066, Boston, Massachusetts 02241-4066. Landlord may, upon ten (10) days' prior written notice to Tenant, designate a new Rent Payment Address.
1.28. "Right of First Offer" means Tenant's right of first offer to lease certain "Offer Space" in portions of the Building, as more fully set forth in Section 5.6.
1.29. "Tenant's Share" means 20%, which is calculated based on a fraction, the numerator of which is the Premises Rentable Area and the denominator of which is the Building Rentable Area. Tenant's Share shall be adjusted for changes in the Rentable Area of the Premises and/or Building.
1.30. "Term" shall commence on the date of final execution of this Lease and shall expire on December 31, 2009 (the "Lease Expiration Date"). References herein to the "Term" shall be deemed to mean and include the initial term of this Lease (the " Initial Term "), and any Extension Term provided for under Section 5.4, below, to the extent properly exercised and effective pursuant to the terms of this Lease.
1.31. "Work Agreement" means Exhibit C, to this Lease, which governs the design and construction of all leasehold improvements to be performed in connection with Tenant's initial occupancy of the Premises.
2. TENANT'S COVENANTS.
2.1. Tenant's Covenant to Pay Rent.
2.1.1. Rent Commencement Date. Tenant shall pay to Landlord the Rent set forth in this Lease in lawful money of the United States, without notice, demand, deduction or offset except as otherwise set forth in this Lease. Base Rent shall (except for Tenant's Advance Deposit) be paid in advance on or before the first day of each month, at the Rent Payment Address. Unless otherwise provided in this Lease, all other payments due under this Lease shall be paid no later than thirty (30) days after the date Landlord provides Tenant with a written request for payment which sets forth the amount due. Base Rent for any partial month at the beginning of the Lease Term shall be prorated based on the Base Rent in effect for the first month in which Base Rent is payable hereunder.
3
2.1.2. Late Charge. If Tenant fails to make any payment within seven (7) business days after the date due, then Tenant shall pay to Landlord a late charge (" Late Charge ") equal to four percent (4%) of such overdue amount. Notwithstanding the foregoing to the contrary, Landlord shall waive the first such Late Charge arising during any Lease Year during the Term, provided that Landlord receives such overdue Rent Payment within three (3) business days after the date Landlord provides Tenant with written notice that such Rent Payment is overdue.
2.1.3. Interest on Overdue Amounts. In addition to any Late Charge payable by Tenant, if any Rent or other amount due from Tenant to Landlord is not paid within seven (7) business days after the date due (if Tenant was not assessed a Late Charge by virtue of such late payment) or thirty (30) days after the date due (if Tenant was assessed a Late Charge by virtue of such late payment), such unpaid amount shall bear interest from the date originally due until the date paid at an annual rate of interest (the " Default Rate ") equal to the greater of (a) the highest late charge rate payable under any financing of the Property secured by a first mortgage or first deed of trust thereon assuming a default by Landlord in the payment of any monthly installment of principal and/or interest thereunder, or (b) the Prime Rate plus two percent (2%) per annum, but in no event shall the Default Rate be greater than the highest annual rate of interest permitted under applicable Laws. The term " Prime Rate " shall mean the "Prime Rate" of interest as published from time to time in the Wall Street Journal, or if not so published, then the "Prime Rate" as established from time to time by the bank in which Landlord maintains its bank accounts with respect to the Building.
2.2. Tenant's Covenant to Pay Additional Rent.
2.2.1. Defined Terms. The following capitalized terms shall have the meanings indicated:
A " Annual Statement " shall mean a written statement setting forth (i) Tenant Electric, Building Electric, Operating Expenses and Real Estate Taxes for a calendar year, (ii) Tenant's Share of Expense Increases for such year, and (iii) Tenant's Share of Tax Increases for such year, calculated in accordance with this Section 2.2.
B " Building Electric " shall mean all expenses paid or incurred by Landlord, and all surcharges imposed, for electrical service furnished to the Building and Common Areas, excluding Tenant Electric (as defined below).
C " Common Areas " shall mean and refer to those areas and facilities of the Property which are available for the use of tenants of the Building in common with Landlord and other tenants of the Building, including Parking Facilities, pedestrian walkways, landscaped areas, main lobby, elevators, stairs, corridors, and, on multi-tenanted floors, elevator lobbies, core area restrooms, janitor's closets and utility closets.
D " Laws " shall mean all present and future statutes, laws, codes, regulations, ordinances, orders, rules, bylaws, administrative guidelines, requirements, directives and actions of any federal, state or local governmental or quasi-governmental authority, and other legal requirements of whatever kind or nature that are applicable to the Property, (including Environmental Laws) and any amendments, modifications or changes to any of the foregoing.
E (i) " Operating Expenses " shall mean Landlord's costs and expenses incurred in operating the Property (except to the extent such costs and expenses are excluded under Section 2.2.I.E(ii), below), including all of the following: (a) all costs of operation, repair and maintenance incurred by Landlord under any provision of this Lease; (b) expenses and surcharges incurred for water, gas, sewer, oil, and other utility services and not paid by another tenant in the Building separately from Operating Expenses, including without limitation, Building Electric; (c) costs of Building supplies, materials and equipment; (d) subject to the provisions of Section 2.1.1, costs of cleaning, trash removal (including
4
recycling) and janitorial services; (e) costs of window glass replacement, repair and cleaning; (f) costs of landscaping, snow removal, and other service and/or management contracts; (g) costs of achieving ongoing compliance with any Laws, including charges and assessments; (h) all compensation, insurance premiums, fringe benefits and payroll taxes paid for all persons engaged in the operation, management, maintenance and repair of the Building (including the costs of uniforms and dry-cleaning for on-site personnel); (i) except to the extent excluded under clause (ii), below, capital expenditures incurred to reduce Tenant Electric, Building Electric, or Operating Expenses, to comply with any Laws enacted after the date of this Lease, to replace existing equipment and machinery necessary to the day-to-day operation of the Property, or which are in lieu of needed repairs, provided, however, that the amount recoverable as an Operating Expense in the year in which any such capital expenditure is made (and in each year of the Term thereafter) shall equal the sum of all amortization payments payable during each such year if such capital expenditure were amortized in equal monthly installments of principal and interest over the useful life of the item in question (not to exceed one hundred twenty (120) months) at an interest rate equal to the greater of (x) the Prime Rate plus two percent (2%) and (y) seven percent (7%) per annum; (j) cost of premiums for insurance for the Property (including property insurance, liability insurance, rent interruption insurance and any insurance required by a first mortgagee of the Land and/or Building); (k) reasonable and customary property management fees at rates consistent with rates charged for comparable office projects in Applicable Submarket providing similar services but in no event greater than 5% of revenues collected for the Building; (1) vault space rentals and public space rentals, if any; (m) the cost of operating any amenities furnished generally to tenants of the Building; (n) the cost of any services furnished by Landlord pursuant to Section 3.1, below, to the extent not otherwise included within this definition of Operating Expenses; (o) the cost of telephone, telegraph, postage, stationery supplies and other materials and expenses required for the routine operation of the Property; (p) association assessments or other assessments for project-wide common area services; (q) any other expense or charge whether or not described above which, in accordance with generally accepted accounting and management practices, would be considered a reasonable and necessary expense of maintaining, managing, operating or repairing the Property; and (r) to the extent Landlord reimburses Tenant for the exercise of its self-help rights relating to any cost which would constitute an Operating Expense, the amount reimbursed shall be included as an Operating Expense for the year in which Tenant performed the applicable Landlord obligation, but solely to the extent the same would otherwise have constituted an Operating Expense had Landlord performed such obligation directly.
(ii) Notwithstanding Section 2.2.1.E(i) to the contrary, Operating Expenses shall not include the following: (1) costs of any special services rendered to individual tenants (including Tenant), for which a special, separate charge shall be made; (2) Real Estate Taxes and Tenant Electric; (3) ground rent, if Landlord's interest in the Land is derived solely from a ground lease; (4) interest or principal on mortgages encumbering the Land relating to funds borrowed by Landlord; (5) leasing commissions, advertising, legal, space planning and construction expenses, incurred in procuring, negotiating leases with, and installing leasehold improvements for, tenants or prospective tenants of the Building; (6) salaries, wages, bonuses or other compensation paid to officers or executives of Landlord (or Landlord's property management firm) in their capacities as officers and executives; (7) any other expenses for which Landlord actually receives direct reimbursement from insurance, condemnation awards, other tenants or any other source, but excluding general payments on account of Expense Increases made by Tenant and other tenants of the Building; (8) any costs of renovating or otherwise improving space for tenants or other occupants of the Building; (9) any costs in connection with the
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repair, replacement or correction of any defective construction work which is covered by an applicable construction warranty; (10) any costs of repairs or replacements to Structural Elements (provided that the costs of ordinary day-to-day maintenance and minor repairs of Structural Elements shall be included in Operating Expenses); (11) in the Base Year only, any non-recurring capital expenditures; (12) any charges under any maintenance or management contract made with an affiliate of Landlord to the extent such charges exceed what would have been paid at arm's length with an unrelated party; (13) any of Landlord's general overhead not directly connected with the operation of the Property; (14) any costs, fines or penalties incurred due to the violation by Landlord of any Law; (15) any increases in premiums for any insurance maintained by Landlord resulting from the extra-hazardous activities of Landlord or tenants other than Tenant; (16) any costs of maintenance, repairs or replacements required because of the negligent or willful acts or omissions of Landlord; (17) any costs of artwork; (18) any capital expenditures incurred by Landlord in order to comply with any Laws enacted prior to the date of this Lease; (19) any Environmental Liabilities for which Landlord is responsible under "this Lease; and (20) any administrative fees or property management fees other than those specified in Section 2.2.1.(E)(i)(k) above.
F " Parking Facilities " shall mean the surface parking lot that serves the Building, as the same may be modified from time to time, including all means of ingress and egress thereto.
G " Real Estate Taxes " shall mean all taxes and assessments of any kind, assessed or imposed upon the Property, and/or the fixtures, machinery, equipment or systems in, upon or used in connection with the operation of the Property. Real Estate Taxes shall include (a) any taxes imposed upon the Property or the rents payable hereunder in the nature of a sales or use tax or other levy (but shall exclude any income or franchise tax, net profits tax, estate tax, inheritance tax or payroll tax), and (b) all reasonable expenses (including, but not limited to, attorneys' fees, consultant's fees and/or disbursements) incurred by Landlord in obtaining or attempting to obtain a reduction or refund of Real Estate Taxes. Landlord shall pay any special assessment in installments to the extent it has the right to do so, and in such event, Real Estate Taxes shall include such installments and interest paid on the unpaid balance of the assessment. In the event Landlord succeeds in obtaining a reduction or refund of Real Estate Taxes, then Tenant shall be entitled to receive Tenant's Share of the amount of any net reduction obtained or net refund received by Landlord to the extent allocable to the Term of this Lease, but in no event in excess of the Tax Increases paid by Tenant allocable to such period.
H " Building Systems " shall mean the roof and roof system, and the mechanical, electrical, plumbing, heating, ventilation and air-conditioning ( " HVAC " ), life safety, fire safety (including sprinkler) and security systems serving the Building and Common Areas;
I " Tenant Electric " shall mean all expenses paid or incurred by Landlord, and all surcharges imposed, for electrical service furnished to the Premises as shown on a separate submeter for the Premises, including the electrical lights, outlets, and other electrical connections located within, and the HVAC and other Building Systems which exclusively serve, the Premises.
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2.2.2. Payment Covenant. For each calendar year or portion thereof during the Term, Tenant shall pay as Additional Rent to Landlord the sum of (i) Tenant Electric, (ii) Tenant's Share of the amount (hereinafter referred to as " Expense Increases "), if any, by which Operating Expenses for such calendar year exceed Operating Expenses for the Operating Expense Base Year, provided, however, that Expense Increases for any calendar year shall not exceed eight percent (8%) of the immediately preceding calendar year, and (iii) Tenant's Share of the amount (hereinafter referred to as " Tax Increases ") if any, by which Real Estate Taxes for such calendar year exceed Real Estate Taxes for the Real Estate Tax Base Year.
2.2.3. Monthly Estimated Payments. Monthly payments on account of Tenant Electric, Tenant's Share of Expense Increases and Tenant's Share of Tax Increases, shall be paid at the same time and in the same manner as payments of Base Rent, in an amount equal to one-twelfth ( 1 / 12 ) of Landlord's good faith estimate of each such item for the then-current calendar year (which shall not exceed 105% of the actual amounts incurred for the prior calendar year unless Landlord determines, in good faith, that a larger estimate is warranted). Tenant's obligation to make monthly payments on account of Tenant Electric shall commence on the earliest to occur of (a) the Lease Commencement Date, (b) the date Tenant commences occupancy of the Premises or any portion thereof to commence the TI Work, as defined in the Work Agreement, (c) the date Tenant commences occupancy of the Premises or any portion thereof for purposes of business operations, and Tenant's obligation to make monthly payments on account of Tenant's Share of Expense Increases and Tenant's Share of Tax Increases shall commence on the first (1st) day of the calendar year following the expiration of the Operating Expense Base Year. Landlord shall endeavor to communicate such estimate to Tenant on or before the date Landlord provides Tenant with the Annual Statement, provided that until Landlord provides such estimate to Tenant, Tenant's estimated payments will be based upon 105% of the prior year's estimate. The foregoing notwithstanding, to the extent Tenant Electric is determined on the basis of submetering or measuring devices, Tenant shall pay Tenant Electric after Landlord's written invoice therefor based upon Tenant's actual consumption (without markup).
2.2.4. Annual Reconciliation. Within approximately one hundred twenty (120) days after the end of each calendar year, Landlord shall deliver the Annual Statement to Tenant. Tenant shall pay to Landlord any deficiency between (a) the sum of (i) the amount shown as Tenant Electric for such calendar year, (ii) the amount shown as Tenant's Share of Expense Increases, if any, for such calendar year, and (iii) the amount shown as Tenant's Share of Tax Increases, if any, for such calendar year, and (b) the sum of any payments made by Tenant on account thereof in accordance with Section 2.2.3, above. If the payments made by Tenant pursuant to Section 2.2.3 exceed the total amount shown as being due from Tenant for such calendar year in the Annual Statement, the excess amount shall be applied against the next payment(s) of Base Rent or Additional Rent coming due hereunder, unless the Lease shall have expired and Tenant shall have surrendered possession of the Premises to Landlord in accordance with the terms of this Lease, in which event Landlord shall refund such excess to Tenant at the time of its delivery of the Annual Statement.
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2.2.5. Additional Provisions.
A Further Adjustment to Operating Expenses. In the event Landlord shall furnish services to less than ninety-five percent (95%) of the rentable area of the Building because (i) the average occupancy level of the Building for the applicable period was less than ninety-five percent (95%) of full occupancy, (ii) any such utility or service is not required by or provided to one or more of the tenants or occupants of the Building, or (iii) any tenant or occupant is itself obtaining or providing any such utility or services directly, then Operating Expenses for such period (including, if applicable, the Operating Expense Base Year) shall be adjusted to include all Operating Expenses which Landlord reasonably determines that Landlord would have incurred for such period if Landlord had furnished services to ninety-five percent (95%) of the rentable area of the Building. The intent of this Section 2.2.5A is to ensure that the reimbursement of all Operating Expenses is fair and equitably allocated among the tenants receiving such utilities and services. In the calculation of Operating Expenses hereunder, no expense shall be charged more than once.
B Partial Year; End of Term. In any partial calendar year during the Term, Tenant's obligation to pay Tenant Electric, Tenant's Share of Building Electric, Tenant's Share of Operating Expenses, and Tenant's Share of Real Estate Taxes shall be prorated on an equitable basis. To the extent Real Estate Taxes, Operating Expenses, Tenant Electric or Building Electric cannot be determined more accurately or equitably for any partial calendar year by a method other than proration, the parties agree that such determination shall be made by multiplying the amount thereof for the full calendar year by a fraction, the numerator of which is the number of days during such partial calendar year falling within the Term and the denominator of which is 365. If a more accurate or equitable method of allocation is available, the parties agree to utilize such method.
C Intentionally Omitted.
D Payment Pending Resolution of Dispute. In the event of any dispute concerning the computation of the amount of any Additional Rent due, Tenant shall pay the amount specified by Landlord pending the resolution of the dispute, provided such payment shall be without prejudice to Tenant's right to continue to challenge the disputed computation. In the event that Tenant successfully challenges the disputed computation, Landlord shall refund to Tenant the amount of any overpayment of such Additional Rent (together with interest thereon at the rate of two percent (2%) over the Prime Rate) within thirty (30) days after the dispute is finally resolved.
E Tenant's Right of Review. Each Annual Statement that Landlord provides to Tenant pursuant to Section 2.2 shall be conclusive and binding upon Tenant unless, within one hundred eighty (180) days after Tenant's receipt of the Annual Statement for a particular calendar year, Tenant provides Landlord with written notice (the " Review Notice ") stating that Tenant is exercising its right to undertake a more extensive review of the Operating Expenses, Tenant Electric or Real Estate Taxes (hereinafter " Total Expenses ") for the Building for such calendar year. Such review shall commence within sixty (60) days after Tenant's Review Notice on a mutually agreeable time and date, at the offices of Landlord (or such other location as is reasonably designated by Landlord), and shall be completed within seventy-five (75) days after commenced. Tenant's review shall take place during Landlord's normal business hours, and shall be limited to those books and/or documentation which contain the data for and the method used by Landlord in calculating the Total Expenses for the Building for the applicable year. Tenant shall have the right to review Total Expenses for the Building for a particular calendar year no more than once in any given Lease Year. Tenant shall notify Landlord in writing of the results of Tenant's review within thirty (30) days after such review is completed.
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If Tenant's review demonstrates that Landlord has overstated Total Expenses, but by less than five percent (5%), then Landlord shall credit the amount of such overstatement against Tenant's next due payment of Base Rent and additional rent (or refund the same to Tenant if this Lease has expired), and Tenant shall bear the full cost of Tenant's review. If Tenant's review demonstrates that Landlord has overstated Total Expenses by five percent (5%) or more, then Landlord shall credit such amount against Tenant's next due payment of Operating Expenses and Real Estate Taxes (or refund the same to Tenant if this Lease has expired), and provided the consultant or accountant engaged by Tenant is not compensated on the basis of a contingency fee or a success fee, Landlord shall reimburse Tenant the reasonable and actual costs of Tenant's review, not to exceed the greater of (a) Five Thousand Dollars ($5,000), or (b) the amount of the overstated Total Expenses demonstrated by Tenant's review
2.3. Guaranty.
2.3.1. Intentionally Omitted.
2.3.2. Guaranty of Lease. Simultaneously with the execution and delivery of this Lease by Tenant to Landlord, Tenant shall also deliver to Landlord a guaranty executed by United Communications Group Limited Partnership (the " Guarantor "), in the form attached hereto as Exhibit F (the " Guaranty "), pursuant to which Guarantor guarantees, unconditionally and absolutely, to Landlord for the period commencing upon the Lease Commencement Date and terminating on July 31, 2006 (except as otherwise expressly provided herein) the full and faithful keeping, performance and observance of all the covenants, agreements, terms, provisions and conditions of the Lease provided to be kept, performed and observed by Tenant (expressly including, without being limited to, the payment as and when due of the Base Rent, Additional Rent, charges and damages payable by Tenant under the Lease) and the payment of any and all other damages for which Tenant shall be liable by reason of any act or omission contrary to any of said covenants, agreements, terms, provisions or conditions.
2.4. Tenant's Covenants Regarding Use and Compliance with Laws.
2.4.1. General Use Covenants. Tenant covenants and agrees:
A to use the Premises for the Permitted Use, and for no other business, activity or purpose;
B that any of its office machines or equipment or other activities within the Premises which involve unusual noise or vibration, or cold, heat or fumes that may be transmitted to the Building or to any other leased space therein to such a degree as to be reasonably objectionable to Landlord or to any other tenant in the Building, shall be placed, maintained, isolated, stored and/or vented by Tenant (at its expense) so as to absorb such vibration, noise, cold, heat or fumes and prevent disturbance to any other tenant in the Building (or Tenant shall take such other actions, at its sole cost and expense, as may be necessary to eliminate such disturbance);
C that it shall observe the rules and regulations for the Building which are attached as Exhibit D hereto (as the same may be amended pursuant to Section 2.4.3, the " Rules and Regulations ");
D that it will not, without Landlord's prior written consent, place a load upon the floor of the Premises which exceeds the maximum live load per square foot which the Building was designed to accommodate, as reasonably determined by Landlord;
E that it will notify Landlord prior to the installation of any high-density filing systems, or any unusually heavy equipment or machinery, in the Premises (and that all such installations shall be subject to Landlord's reasonable consent).
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F that it will not (except as otherwise shown on Tenant's Plans) install or operate in the Premises any electrical or other equipment whose electrical energy consumption exceeds that of normal office use, without first obtaining the prior consent in writing of Landlord (who may condition such consent upon the payment by Tenant of Additional Rent to compensate for excess consumption of water and/or electricity, increases to the capacity of Building Systems, and other similar requirements).
G that it shall not conduct or permit to be conducted any sale by auction in, upon or from the Premises, whether said auction be voluntary, involuntary, pursuant to any assignment for the payment of creditors or pursuant to any bankruptcy or other insolvency proceedings.
2.4.2. Covenants Regarding Compliance with Laws. Tenant covenants and agrees that it will, at its own cost, promptly comply with and carry out all Laws to the extent that same apply to (i) the manner of Tenant's specific occupation or use of the Premises, (ii) the conduct of Tenant's business therein, (iii) the construction of any improvements in, or Alterations to, the Premises to the extent designed by Tenant or Tenant's architect, or performed under Tenant's direction and/or supervision, (iv) any assignment, sublease or license of the Premises or any part thereof by Tenant, (v) any termination of this Lease and surrender of possession by Tenant, whether or not after an Event of Default, (vi) any corporate reorganization, consolidation, recomposition, or similar change in Tenant's organization, (vii) any acts, omissions or other activities of Tenant in or on the Property, and/or (viii) any other fact or circumstance specific to Tenant or to Tenant's specific occupation or use of the Premises, the existence or continuation of which imposes upon Tenant the obligation to comply with Laws. Subject to the foregoing, to the extent that any Laws require modifications to the Premises, the Building, or the Land in order to bring same into compliance with such Laws and either (a) such Laws which were in effect prior to the date of this Lease and are not Tenant's responsibility under this Section 2.4, and (b) such Laws relate to modifications of items, the design or installation of which was Landlord's responsibility under the Work Agreement, Landlord shall be responsible for the compliance of such item(s) with such Laws at Landlord's cost.
2.4.3. Modifications to Rules and Regulations. Landlord shall have the right from time to time upon thirty (30) days' prior written notice to Tenant to reasonably modify the Rules and Regulations, provided that such modification shall not materially adversely affect Tenant's use and occupancy of the Premises for the Permitted Use. Landlord shall not be responsible to Tenant for the nonperformance of any Rules and Regulations.
2.4.4. Acts Which Are Unlawful or Which Increase Insurance Premiums. Tenant shall not perform, nor permit any act to be done in or about the Property by Tenant's Agents that is unlawful or that will increase the existing rate of insurance on the Building. Landlord acknowledges and agrees that Tenant's use of the Premises for the Permitted Use shall not violate the previous sentence. In the event the existing rate of insurance is increased because of any breach of this covenant, Tenant shall pay to Landlord any and all fines, penalties, and/or increases in insurance premiums resulting from such breach.
2.5. Tenant's Covenants Regarding Environmental Matters .
2.5.1. Defined Terms. For purposes of this Lease, the following terms shall have the following meanings:
A " Costs and Claims " shall mean third party claims, liabilities, judgments, demands, causes of action, losses, damages, penalties, fines, fees, settlement payments, obligations, actions or causes of actions, encumbrances, and costs and expenses (including reasonable attorneys', consultants', engineers' and expert witness fees, expenses and costs).
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B " Discharge " means releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping as defined by Environmental Laws.
C " Environmental Laws " means any and all Laws relating to the environment and/or human health and safety, including the Resource Conservation and Recovery Act, as amended, 42 U.S.C. §6901 et seq. (" RCRA "); the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. §9601 et seq. (" CERCLA "); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. §1801 et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. § 1251 et seq.; the Clean Air Act, as amended, 42 U.S.C. §7401 et seq.; the Oil Pollution Prevention Act, as amended, 33 U.S.C. §2701 et seq; the Occupational Safety and Health Act, as amended, 29 U.S.C. 650 et seq.; the Massachusetts Oil and Hazardous Material Release Prevention Act, as amended, M.G.L. c.21E, §§1-19; the Massachusetts Clean Air Act, as amended, M.G.L. c. 11, §§142A142K; the Massachusetts Clean Waters Act, as amended, M.G.L. c.21, §§26-53; the Massachusetts Water Management Act, as amended, M.G.L. c.21-G, §§ 1-19; the Massachusetts Wetlands Protection Act, as amended, M.G.L. c.131, § 140; the Massachusetts Hazardous Waste Management Act, as amended, M.G.L. c.21C, et seq. and the regulations promulgated pursuant thereto.
D " Environmental Liabilities " mean any and all Costs and Claims suffered, sustained, incurred or required to be paid by any party indemnified arising as a result of, or in connection with, any violation by Tenant of its environmental covenants, including Costs and Claims associated with (1) claims of governmental agencies or third parties for cleanup costs and costs of assessment, investigation, feasibility study, remediation and remedial and response actions, removal, discharge and abatement, (2) permits and licenses required by, or undertaken in order to comply with, any Environmental Laws, (3) damages for injury to person, property or natural resources, and (4) satisfaction of all liens, encumbrances and restrictions on the Property relating to the foregoing.
E " Governmental Authorities " shall mean any and all Applicable federal, state and local governmental agencies, authorities, and/or officials.
F " Hazardous Substances " means pollutants, contaminants, flammables, explosives, radioactive materials, petroleum, oil, dangerous substances, toxic substances, hazardous wastes, hazardous materials, or hazardous substances as defined in or controlled pursuant to any Environmental Laws.
G " Notice " includes any summons, citation, directive, order, claim, litigation, investigation, proceeding, judgment, letter or other communication, written or oral, actual or threatened, from the Massachusetts Department of Environmental Protection (" MADEP "), the United States Environmental Protection Agency (" USEPA ") or other Governmental Authorities, or any other entity or any individual, concerning any act or omission resulting in or which may result in the Discharge of Hazardous Substances or noncompliance with any Environmental Law.
H " Permitted Materials " means reasonable amounts of Hazardous Substances which are typically used in the operation of standard office equipment or for cleaning purposes, such as office cleaners, printing toners and the like, and which are used, stored and disposed of in accordance with all Environmental Laws. Permitted Materials shall include materials sold or displayed by Tenant in its retail stores such as cleaning products and other general merchandise sold by Tenant.
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2.5.2. Tenant's Warranties and Covenants. Tenant warrants, represents, agrees and covenants that:
A Except as (and only to the extent) expressly permitted under this Lease, Tenant shall not engage in, nor permit, any activities involving, directly or indirectly, the Discharge, use, generation, treatment, transportation, storage or disposal of any Hazardous Substances on, in, under, to or about the Property, other than Permitted Materials, but only to the extent permitted under this Lease.
B The Premises will not, as the result of any acts or omissions of Tenant, contain (1) asbestos in any form , (2) urea formaldehyde foam insulation, (3) transformers or other equipment which contain dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty (50) parts per million, or (4) any Hazardous Substances other than Permitted Materials.
C Tenant shall be permitted to use and store in the Premises, in compliance with and subject to this Section 2.5. If Tenant uses, stores or disposes of Permitted Materials other than as expressly permitted by this Lease, then Tenant shall immediately notify Landlord of the same and shall take such corrective action as is required by Environmental Laws and/or Governmental Authorities or as may be requested by Landlord. Tenant's failure to take such corrective action within forty-eight (48) hours (or such lesser time period as may be appropriate in the event of Emergency), shall constitute an Event of Default without requirement of any further notice or cure rights.
D Tenant, upon receipt of any Notice, shall give immediate oral notice and written notice within two (2) business days to Landlord, detailing all relevant facts and circumstances regarding the Notice. Tenant shall promptly supply to Landlord any and all reports and notices relating to the Property made pursuant to Environmental Laws.
E In the event a Discharge of Hazardous Substances has occurred for which Tenant is responsible pursuant to this Lease, Tenant shall immediately notify Landlord of such Discharge and shall, at Tenant's sole cost and expense and after consultation with Landlord, take all actions required by Environmental Laws and by any Governmental Authorities, including any assessment, investigation, testing, sampling, monitoring, removal, remediation, or response activities associated with such Discharge. Tenant shall provide Landlord with advance notice of any activities to be undertaken by Tenant to address such Discharge, and shall keep Landlord apprised of the progress and results of same. Tenant's failure to take actions required by Environmental Laws in connection with such Discharge, within the deadlines set out in applicable Environmental Laws or imposed by Landlord in writing to Tenant, shall constitute an Event of Default without any requirement of further notice or cure rights.
F Prior to the submission of any report to a Governmental Authority, Tenant shall provide such report in draft to Landlord for review and comment and Tenant shall incorporate any reasonable comments provided by Landlord prior to the submission of any report to the Governmental Authority (and shall provide Landlord with a copy of such submittal simultaneously with its submission to the applicable Governmental Authority).
G Neither Tenant nor Tenant's Agents shall cause, permit or suffer, a lien against the Property pursuant to any Environmental Laws.
H In the event a Discharge of Hazardous Substances occurred for which Tenant is responsible pursuant to this Lease, Tenant shall deliver a No Further Action letter issued by USEPA or the applicable Governmental Authority.
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2.5.3. Tenant's Covenants Regarding Solid Wastes and Recycling. Tenant shall comply with all applicable Laws regarding the collection, sorting, separation and recycling of solid waste products, garbage, refuse and trash (hereinafter collectively called " Waste Products ") including the separation of such Waste Products into receptacles reasonably approved by Landlord and the removal of such receptacles in accordance with any collection schedules prescribed by such Laws. Landlord reserves the right to refuse to accept from Tenant any Waste Products that are not prepared for collection in accordance with any such Laws.
2.6. Tenant's Covenant to Allow Landlord Access to the Premises. Tenant shall permit Landlord and Landlord's Agents to enter the Premises at all reasonable times and (except in cases of Emergency, as defined in Section 4.1.1.A) upon reasonable prior notice, not to exceed two (2) business days (but in no event less than 24 hours): to inspect the same; to show the Premises to prospective tenants, or interested parties such as prospective lenders and purchasers; to clean, repair, alter or improve the Premises or the Building; to discharge Tenant's obligations when Tenant has failed to do so within any applicable period provided for herein; to post notices of non-responsibility and similar notices provided that, in no event shall Landlord place "For Sale" or "For Lease" signs within ten feet (10') of the entryway to the Premises unless the Premises has been vacated by Tenant; to take any actions that may be required by applicable Laws or as directed by any Governmental Authority; or for any other legitimate business purpose. Tenant shall permit Landlord and Landlord's Agents to enter the Premises at any time, and without notice, in the event of an Emergency. Landlord, in the exercise of its rights under this Section 2.6, shall use commercially reasonable efforts to minimize disruption of Tenant's use and occupancy of the Premises.
2.7. Tenant's Covenants Regarding Surrender of the Premises. Upon the Lease Expiration Date (or sooner termination of this Lease), Tenant shall promptly and peacefully surrender the Premises to Landlord, broom clean, and (i) free of Tenant's furniture, fixtures, equipment, and personal property (" Tenant's Property "), (ii) free of all Alterations required to be removed by Tenant under this Lease, (iii) free of all of Tenant's signs, (iv) free of any and all Hazardous Substances introduced by Tenant, and any liens, encumbrances and restrictions relating thereto, and (v) otherwise in good condition, reasonable use and wear and tear and damage by casualty and/or condemnation excepted. Tenant shall repair any damage to the Premises and Property caused by the removal of Tenant's Property, Alterations and signs, and, except as otherwise provided herein, restore the affected portion of the Premises and Property to its condition prior to the installation of such Tenant's Property, Alterations and/or signs, without disturbance of any subsequent improvements made by Landlord unless otherwise directed by Landlord. All items of Tenant's Property, Alterations and/or signs that are not removed from the Premises or the Building by Tenant at the termination of this Lease (or at any time when Landlord has the right of reentry due to an Event of Default by Tenant) shall be deemed abandoned and, at Landlord's sole option, become the exclusive property of Landlord, without further notice to or demand upon Tenant. If Tenant shall remain in possession of the Premises after the Lease Expiration Date (or the date of sooner termination of this Lease) without the prior written consent of Landlord (hereinafter, an " Unauthorized Holdover "), Tenant shall be deemed to be a tenant-at-sufferance, which tenancy may be terminated immediately by Landlord as provided by applicable Law. In the case of a holdover which has been consented to by Landlord, Tenant shall be deemed to be a month-to-month tenant subject to all of the provisions of this Lease, except the monthly Base Rent shall be as agreed by Landlord and Tenant with respect to such consented holdover.
2.8. Tenant's Covenants Regarding Financial Disclosure.
2.8.1. Generally. Within ten (10) days after Landlord's written request, which request may only be made upon the refinancing or proposed sale of the Building or upon the occurrence of a default by Tenant, Tenant shall deliver or cause to be delivered to Landlord, Tenant's and Guarantor's unaudited quarterly financial statement for its most recent fiscal quarter and Tenant's and Guarantor's audited annual financial statement for its most recent fiscal year. Such financial
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statements shall include, at a minimum, a balance sheet, an income statement, and a statement of change in financial position or sources and uses of cash, together with any accompanying notes. Tenant hereby agrees that Tenant's and Guarantor's annual financial statements shall be completed within one hundred twenty (120) days after Tenant's and Guarantor's fiscal year-end and that Tenant's and Guarantor's quarterly financial statements shall be completed within thirty (30) days after Tenant's and Guarantor's fiscal quarter-end. The certified public accountant preparing any such annual financial statement shall provide an opinion that such financial statement is complete and materially accurate and that the same has been prepared in accordance with generally accepted accounting principles consistently applied.
2.8.2. Public Company and Guarantor Exception. Notwithstanding Section 2.8.1 to the contrary, for so long as Tenant is a publicly traded company which files its annual and quarterly financial statements with the United States Securities and Exchange Commission (the " SEC "), or for so long as (a) the obligations of Tenant have been guaranteed by Guarantor, (b) the Guaranty is still in full force and effect, and (c) Guarantor delivers to Landlord the information requested by Landlord under Section 2.8.1 above, Tenant's financial reporting obligations under this Section 2.8 shall be deemed satisfied.
2.9. Tenant's Covenant to Indemnify Landlord. Subject to Section 4.3.4, below, Tenant shall indemnify, hold harmless and defend Landlord, and each of Landlord's shareholders, subsidiaries, affiliates, officers, directors, partners, members, contractors, subcontractors, employees, agents and trustees, and any receiver, trustee or other fiduciary appointed for the Property, from and against any and all Costs and Claims and Environmental Liabilities asserted against Landlord by third parties, or otherwise sustained or suffered by Landlord as a result of such third party claims, arising from (i) the use, manner of use, occupancy, conduct, or operation of the Premises by Tenant or Tenant's Agents, (ii) the acts or omissions of Tenant or Tenant's Agents on or about the Property, (iii) any Unauthorized Holdover, or (iv) any other failure of Tenant to comply with the terms of this Lease (including the representations, warranties and covenants contained in this Lease).. This provision shall not be construed to make Tenant responsible for Costs and Claims resulting from injuries or death to third parties or to the property of third parties to the extent caused by the negligence or willful misconduct of Landlord or Landlord's Agents, or by the breach of this Lease by Landlord, or by the acts or omissions of any other tenant or other occupant of the Property.
2.9.1. Tenant's Covenant of Further Assurances. Tenant agrees that it shall give such further assurances, execute and deliver such further instruments and confirmatory documents reasonably acceptable-to Tenant, and do such further acts and things, as may be reasonably required to carry out the specific intent and purposes of this Lease.
3. LANDLORD'S COVENANTS
3.1. Landlord's Covenant to Provide Building Services .
3.1.1. Generally. During Normal Business Hours, as defined in Exhibit E hereto, Landlord shall furnish the services described in Exhibit E to the Premises and, if applicable, Common Areas, for normal and customary office use consistent with services normally provided for other comparable office buildings in the Applicable Submarket. Such services are sometimes referred to herein as " Building Services ", the cost for which Building Services shall constitute Operating Expenses under this Lease. At Tenant's request and expense, and to the extent such services are usual and customary in similar office properties in the Applicable Submarket, Landlord shall furnish reasonable additional Building services not listed in Exhibit E at reasonable and equitable rates.
3.1.2. Additional Provisions. Except to the extent of net insurance proceeds received by Landlord, Landlord shall not be liable to Tenant for any loss, injury or damage to property, or loss
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of income or other business loss, caused by or resulting from (a) any variation, interruption, or failure of such services due to any cause whatsoever, (b) failure to make any repairs or perform any maintenance, (c) bursting, rupture, leakage or overflow of any plumbing or other pipes, other water leakage or flooding, or other similar causes in, above, upon or about the Premises or the Building.
3.2. Landlord's Covenant to Comply with Laws. Except to the extent such compliance is the responsibility of Tenant under Section 2.4.2, above, or of other tenants of the Building under provisions comparable to Section 2.4.2, Landlord covenants and agrees that it will comply with and carry out all Laws to the extent that same apply to (i) the operation of the Building, Property and Common Areas, (ii) the construction of any improvements or alterations to the Building or Common Areas, (iii) any Laws which require modifications to the Building or Land in order to bring same into compliance therewith, and/or (iv) any other fact or circumstance, the existence or continuation of which imposes upon Landlord the obligation to comply therewith.
3.3. Landlord's Covenant Regarding Environmental Matters.
3.3.1. If, during the Term, (a) Landlord Discharges Hazardous Substances in, on or under the Property, or violates the requirements of any Environmental Laws applicable to Landlord, or (b) Hazardous Substances contamination in, on or under the Property which existed prior to Tenant's taking occupancy of the Premises is discovered, and, in either case, such contamination is not the responsibility of Tenant pursuant to Section 2.5, above, then as between Landlord and Tenant, Landlord, at Landlord's sole cost and expense, shall be responsible for taking those actions necessary to comply with the applicable Environmental Law. In performing any remedial actions for which Landlord may be responsible under this Section 3.3, if such action directly affects Tenant or the Premises, Landlord will use commercially reasonable efforts to minimize interference with and/or disruption to Tenant's ongoing business operations (subject to applicable Laws associated with such remediation). The foregoing is without prejudice to Landlord's right to seek recovery of damages or losses from the parties responsible for any Discharge of Hazardous Substances.
3.3.2. In the event that during the Term of this Lease, Tenant is prevented from doing TI Work and/or operating its business for a period of at least ten (10) days as a result of the existence of such Hazardous Substances not caused by Tenant or its employees, agents, contractors or invitees, then, Tenant's Rent and all other charges due hereunder shall abate, until such time as Tenant is able to resume TI Work or the operation of its business in the Premises, subject to the other provisions of this Lease. If Tenant's Rent and other charges shall be so abated for five (5) months, then, at any time thereafter until such abatement shall cease, Tenant may terminate this Lease upon thirty (30) days prior notice to Landlord, Tenant acknowledging and agreeing that the foregoing shall be Tenant's sole remedy at law or in equity. Each of Landlord's obligations pursuant to this Article shall survive any expiration and/or termination of this Lease.
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3.4. Landlord's Covenant of Quiet Enjoyment. Upon Tenant's paying the Rent and performing all of Tenant's other obligations hereunder, Tenant shall have quiet possession of the Premises for the Term, free from any disturbance by Landlord, or anyone claiming by, through or under Landlord, but in all events subject to all the provisions of this Lease.
3.5. Landlord's Covenant to Indemnify Tenant. Subject to Section 4.3.4, below, Landlord shall indemnify, hold harmless and defend Tenant, and each of Tenant's shareholders, subsidiaries, affiliates, officers, directors, partners, contractors, subcontractors, employees, agents and trustees, and any receiver, trustee or other fiduciary appointed for the Property, from and against any and all Costs and Claims asserted against Tenant by third parties, or otherwise sustained or suffered by Tenant as a result of such third party claims, arising from (i) the use, occupancy, conduct, operation, or management of the Property or Common Areas by Landlord or Landlord's Agents, (ii) the willful misconduct or negligence of Landlord or Landlord's Agents, or (iii) any failure of Landlord to comply with the terms of this Lease. This indemnification shall survive termination of this Lease. This provision shall not be construed to make Landlord responsible for Costs or Claims resulting from injuries or death to third parties or to the property of third parties to the extent caused by the negligence or willful misconduct of Tenant, or Tenant's Agents, the breach of this Lease by Tenant, or by the acts or omission of any other tenants or occupants of the Building. Notwithstanding anything contained in this Lease to the contrary, in no event shall Landlord be liable for indirect or consequential damages.
4. COVENANTS REGARDING REPAIRS, ALTERATIONS, INSURANCE, CASUALTY AND CONDEMNATION
4.1. Repairs and Maintenance.
4.1.1. Defined Terms. The following terms shall have the following meanings:
A " Emergency " shall mean any situation or circumstance where there is an immediate or imminent risk of injury or death to persons or damage to property unless immediate action is taken to address such situation or circumstances, as determined by the party invoking such term in good faith.
B " Structural Elements " shall mean the roof, roof underflooring, floor slab, and structural (i.e., load bearing) components of the Building's footings, foundations, exterior structural walls, interior structural columns and other load-bearing elements of the Building.
4.1.2. Landlord's Responsibilities.
A Except for normal and reasonable wear and use, and as provided in Section 4.1..3, below, Landlord shall maintain, and, after receiving notice or actual knowledge of the need for repair, shall repair and/or replace (as necessary) the Building Systems, Common Areas and Structural Elements in a first class manner comparable to the maintenance of similar properties in the Applicable Submarket. Tenant shall promptly report in writing to Landlord any condition in the Premises known to Tenant which Landlord is required to repair, and failure to so report such conditions (whether knowing or not) shall excuse any delay by Landlord in commencing and completing such repair to the extent the same would otherwise be Landlord's responsibility hereunder. All costs associated with the fulfillment of Landlord's responsibilities under this Section 4.1.2 shall constitute Operating Expenses, except (i) as limited under Section 2.2-1.E., above, and (ii) those expenses which are Tenant's sole responsibility under Section 4.1.3, below.
B In the event of (i) an Emergency or (ii) Landlord's failure to commence such maintenance and repairs required under this Lease within thirty (30) days after notice thereof from Tenant, Tenant may, but shall not be obligated to, perform any such obligation of Landlord, and to recover from Landlord the reasonable and actual costs incurred by Tenant in
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performing such obligation, which shall be payable within thirty (30) days after Tenant's written demand accompanied by reasonable substantiation of the applicable costs. The foregoing right to perform Landlord's obligations shall only apply after the requisite notice and opportunity to cure has been afforded to Landlord (including any shortened cure period permitted in cases of Emergency), as long as Tenant notifies Landlord of the needed repair or other default as soon as possible after Tenant learns of its existence.
4.1.3. Tenant's Responsibilities. Tenant shall (at Tenant's sole cost and expense) be responsible for all repairs and maintenance to the Premises (including the cost of repairs and maintenance to portions of Building Systems that serve the Premises exclusively, even though such repairs and maintenance are to be performed by Landlord under Section 4.1.2, above), except for (i) warranty repairs related to Landlord's Work (if any), (ii) janitorial and cleaning services to the extent provided by or through Landlord under Section 3.1.1 herein, and (iii) repairs to the interior of the Premises to the extent rendered necessary by the negligence or willful misconduct of Landlord or Landlord's Agents unless, and then solely to the extent the same is, covered by the fire and casualty insurance maintained, or required to be maintained, by Tenant under this Lease. To the extent any maintenance or repairs for which Landlord is responsible under Section 4.1.2 are rendered necessary (i) by the manner of use, misuse, negligence or willful misconduct of Tenant or Tenant's Agents, (ii) by the use or misuse of any equipment or items installed by Tenant or Tenant's Agents, or (iii) by virtue of any Tenant Work, Alteration and/or other installations by Tenant, Landlord shall perform such repairs, but Tenant shall be obligated to reimburse Landlord for all costs sustained by Landlord in connection therewith (unless, and solely to the extent the same is, covered by the fire and casualty insurance maintained, or required to be maintained, by Landlord on the Building).
4.2. Alterations.
4.2.1. AlterationsGenerally. Except as otherwise provided in Exhibit C with respect to the TI Work, all alterations, additions and improvements (collectively, " Alterations ") which Tenant proposes to make to the Premises shall be subject to the following standards and consent requirements:
A " Cosmetic Alterations " shall mean Alterations involving repainting, replacement of carpeting, installation of wall covering, etc. to or in the Premises. Tenant may make Cosmetic Alterations without Landlord's prior approval, provided that (i) Landlord is notified in writing prior to commencement of any Cosmetic Alterations, and (ii) the same do not diminish the value of the Premises in more than a de minirnis amount.
B " Exterior Alterations " shall mean Alterations which are visible from the exterior of the Premises. Any Exterior Alterations shall be subject to Landlord's prior written approval, which may be withheld in Landlord's sole discretion.
C " Structural Alterations " shall mean Alterations involving or affecting Structural Elements. Any Structural Alterations shall be subject to Landlord's prior written approval, which may be withheld in Landlord's sole discretion.
D " Minor Alterations " shall mean Alterations which are not Cosmetic Alterations, Structural Alterations or Exterior Alterations and do not cost more than $30,000.00. Tenant may make Minor Alterations without Landlord's prior approval, provided that (i) Landlord is notified in writing prior to the commencement of any Minor Alterations, and (ii) the same do not diminish the value of the Premises in more than a de minimis amount.
E " Other Alterations " shall mean Alterations which are not Cosmetic Alterations, Structural Alterations, Exterior Alterations or Minor Alterations and which cost more than $30,000.00. Tenant may make Other Alterations subject to Landlord's prior written approval,
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which shall not be unreasonably withheld, conditioned or delayed. Without limitation, it shall not be unreasonable for Landlord to deny its consent to any Other Alterations which would (i) diminish the value of the leasehold improvements to the Premises in more than a de minimis amount, (ii) adversely affect any Building Systems, (iii) adversely affect any Structural Elements, (iv) impose on Landlord any obligation not specifically contemplated under this Lease, (v) require the removal or relocation of Building Systems, Structural Elements or Common Areas, or (vi) constitute "non-standard office improvements," meaning improvements which are unusual or extraordinary for standard office usage, including curved walls, circular rooms, windowless office areas, vault areas, areas involving special electrical or fire suppression systems, etc. The foregoing notwithstanding, (1) Landlord will not withhold its consent to a proposed Other Alteration solely on the basis described in clause (iv) if Tenant agrees, at the time of its request for approval or notice of such Other Alteration, to pay all costs associated with Landlord's meeting the additional obligations described in clause (iv), and (2) Landlord will not withhold its consent to a proposed Other Alteration solely on the basis described in clause (vi) if Tenant agrees, at the time of its request for approval or notice of such Other Alterations, to remove such Other Alteration(s) and restore the Premises to its condition prior to the installation thereof, at Tenant's sole cost and expense, upon the Lease Expiration Date or sooner termination of this Lease, provided that it shall not be unreasonable for Landlord to require a security deposit to support Tenant's restoration obligation as aforesaid.
Except for Tenant's Property and Alterations which Landlord requires Tenant to remove pursuant to this Lease, all Alterations shall become part of the realty immediately upon installation and shall be surrendered with the Premises. Upon the Lease Expiration Date (or sooner termination of the Lease Term), Tenant shall, at Tenant's expense, diligently remove all Alterations made by Tenant (other than the TI Work) after the date of this Lease and designated to be removed by Landlord or agreed to be removed by Tenant, as the case may be, under this Lease, which designation shall be made at the time of Landlord's approval (in Landlord's reasonable discretion) or Tenant's request for approval or notice thereof.
4.2.2. Additional Covenants Regarding Alterations.
A Except as otherwise provided in Exhibit C with respect to the TI Work, all Alterations shall be made (1) at Tenant's sole cost and expense, (2) according to plans and specifications approved in writing by Landlord (to the extent Landlord's consent is required), (3) in compliance with all applicable Laws, (4) by a contractor approved by Landlord and duly licensed in the jurisdiction in which the Premises is located, (5) using only new, first-class materials, (6) in a good and workmanlike manner conforming in quality and design with the Premises existing as of the date of this Lease, and (7) in a manner so as not to unreasonably interfere with, or cause unreasonable disturbance to, ongoing operations in the Building.
B Tenant shall keep the Property free from any liens arising in connection with any Alterations performed by Tenant, or under Tenant's direction.
C Tenant shall ensure that all contractors and subcontractors performing Alterations are (i) insured in amounts required by law and as set forth below, and (ii) bonded (or at Landlord's sole option, bondable) for work involving a cost in excess of $40,000. Alterations may not commence, nor may Tenant permit its contractors and subcontractors to commence or continue any such work, until all required insurance has been obtained, and, if Landlord requests, until certificates of such insurance have been delivered to Landlord. Without limitation, Tenant shall cause its contractor to procure and keep in effect during the performance of such Alterations the following General Contractor's and Subcontractor's Required Minimum Coverages (having policy limits reasonably acceptable to Landlord):
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Worker's Compensation, Employer's Liability Insurance, any insurance required by any Employee Benefit Act (or similar statute), Comprehensive General Liability Insurance (including Contractor's Protective Liability), Comprehensive Automotive Liability Insurance (having a minimum limit of $1,000,000 per occurrence and $2,000,000 aggregate), and Builder's Risk insurance (in an amount commensurate with the value of the improvements being constructed). Such insurance policies shall be issued by companies reasonably acceptable to Landlord. Landlord, Landlord's property manager, and Landlord's mortgagee(s) shall be named as additional insureds. Certificates of such insurance shall provide that no change or cancellation of such insurance coverage shall be undertaken without sixty (60) days' prior written notice to Landlord.
D Tenant shall cause its contractor(s) to keep all construction areas clean and free of trash and debris and shall otherwise comply with any other reasonable rules and regulations established by Landlord with regard to construction activities within the Building. Tenant's construction contract shall indemnify Tenant and Landlord from damages, losses and expenses associated with the acts and omissions of Tenant's contractor, its agents, employees and subcontractors. Tenant shall provide to Landlord copies of all applications for permits, copies of all governmental inspection reports and/or certificates, and any and all notices or violations communicated to Tenant or its contractors by applicable governmental authorities, promptly upon receipt and/or submission thereof, as the case may be. Tenant and its contractor performing Alterations shall (a) provide to Landlord copies of warranties for Alterations and the materials and equipment which are incorporated into the Building and Premises in connection therewith, (b) provide to Landlord all operating and maintenance manuals for all equipment and materials incorporated into the Building and/or Premises as part of any Alterations, and (c) either assign to Landlord, or (to the extent not assignable) enforce on Landlord's behalf, all warranties on Alterations to the extent repairs and/or maintenance of warranted items are covered by such warranties and would otherwise be Landlord's responsibility under this Lease.
4.3. Insurance.
4.3.1. Tenant's Insurance. Tenant shall maintain the following insurance:
A Commercial general liability insurance written on an occurrence basis with a broad form, per location endorsement, having a combined single limit of not less than One Million Dollars ($1,000,000) per occurrence with a Two Million Dollar ($2,000,000) aggregate limit and excess umbrella liability insurance in the amount of Three Million Dollars ($3,000,000) naming the Landlord and Landlord's managing agent (and such other parties as Landlord may designate to Tenant in writing from time to time) as additional insureds;
B Personal property insurance insuring all equipment, trade fixtures, inventory, fixtures and personal property located within the Premises on an "all risk, fire and extended perils" basis, which insurance shall be written on a replacement cost basis in an amount equal to one hundred percent (100%) of the full replacement value of the aggregate of the foregoing;
C Workers' compensation insurance in accordance with statutory laws and employers' liability insurance with a limit of not less than One Hundred Thousand Dollars ($100,000) per employee and not less than Five Hundred Thousand Dollars ($500,000) per occurrence;
D Business interruption insurance in an amount equal to at least One Million Dollars ($1,000,000), and which shall not contain a deductible greater than an amount equal to seventy-two (72) hours of the Base Rent and Additional Rent in effect at such time (or an equivalent amount expressed in dollars); and
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E Such other insurance as may be required by Landlord or the holder of any deed of trust or mortgage encumbering the Premises, or as is reasonable and customary for comparable office buildings in the Applicable Submarket.
All liability insurance described above shall be primary and not contributing to any insurance available to Landlord, and Landlord's insurance shall be in excess thereto. Except as provided above with regard to Tenant's business interruption insurance, any deductible amounts under the insurance policies required of Tenant hereunder shall not exceed Twenty-Five Thousand Dollars ($25,000). Evidence of insurance (certificates and copies of the policies may be required) shall be delivered to Landlord on or before the date of this Lease. Each policy of insurance maintained by Tenant shall provide notification to Landlord at least thirty (30) days prior to any cancellation or modification. In no event shall the limits of any insurance described or required herein be construed to limit the liability of Tenant under this Lease.
4.3.2. Landlord's Insurance. Landlord will maintain (a) property insurance on an "all risk, fire and extended perils" basis covering the Building, in an amount sufficient to prevent Landlord from being a co-insurer under its policies of insurance, (b) rent loss insurance, and (c) public liability and property damage insurance, in each instance in an amount customary for properties which are comparable to the Building in the Applicable Submarket, as determined by Landlord in its reasonable discretion, or such greater levels of insurance as required by Landlord's mortgagee. Landlord shall also have the right to obtain such other types and amounts of insurance coverage on the Building and Landlord's liability in connection with operating the Building as Landlord determines is customary or advisable for a comparable office building in the Applicable Submarket.
4.3.3. Rating; Certificates; Cancellation. The policies required to be maintained hereunder shall be with companies rated A:VII or better in the most current issue of Best's Insurance Guide, domiciled in the United States of America, and licensed to do business in the state in which the Premises are located. Each party shall have the right to provide insurance coverage which it is obligated to carry pursuant to the terms hereof in a blanket policy, provided such blanket policy expressly affords the coverage required by this Lease.
4.3.4. Mutual Release of Claims and Waiver of Subrogation. Notwithstanding anything to the contrary in this Lease, Landlord and Tenant, for itself, and for any insurer claiming rights of subrogation, hereby releases and waives any and all rights of recovery against the other (and its respective Agents) for (i) any and all loss or damage to property owned by such party located in, on or about the Building (including, in the case of Landlord, the Building and any property as may be attached to the Building), arising out of any of the perils which are or may be covered under the property insurance policy, with extended coverage endorsements, that such party is required to maintain under this Lease, whether or not actually maintained, or such greater insurance as such party may have obtained, and/or (ii) loss resulting from business interruption or loss of rental income, at the Premises, arising out of any of the perils which are or may be covered by under business interruption or loss of rental income insurance that such party is required to maintain under this Lease, whether or not actually maintained, or such greater insurance as such party may have obtained. Landlord and Tenant shall each cause its respective insurance carrier(s) to consent to the foregoing waiver of subrogation, and to issue an endorsement to all policies of insurance obtained by such party confirming that the foregoing release and waiver will not invalidate such policies.
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4.4. Casualty.
4.4.1. Damage Repair.
A If the Premises shall be destroyed or rendered untenantable, either wholly or in part, by fire or other casualty, or if access to the Premises shall be denied by virtue of damage caused in a fire or other casualty, then, unless this Lease is terminated pursuant to this Section 4.4. Landlord shall, within thirty (30) days after the date of such casualty, provide Tenant with Landlord's good faith written estimate (the " Estimate ") of how long it will take to repair or restore the Premises to the extent described in Section 4.4.3, below.
B If the Estimate indicates that Landlord will require less than two hundred ten (210) days after the date of such casualty to perform such repairs or restoration, then Landlord shall restore the Premises in accordance with Section 4.4.3, below. Pending substantial completion of such restoration, Rent shall be abated in the same proportion as the untenantable portion of the Premises bears to the whole thereof.
C If Landlord indicates in the Estimate that it will require in excess of two hundred ten (210) days after the date of such casualty to restore the Premises in accordance with this Section 4.4, then within thirty (30) days after Landlord delivers Tenant the Estimate, either Landlord or Tenant shall have the right to terminate this Lease by a written notice to the other specifying the effective date of termination. The effective date of termination specified in the notice shall not be less than thirty (30) nor more than forty-five (45) days after the date such notice is given.
D If neither party elects to terminate the Lease under Section 4.4.1.C., and Landlord fails or declines to exercise any other termination right pursuant to this Section 4.4, Landlord shall restore the Premises in accordance with Section 4.4.3, below. If such restoration is not substantially completed within two hundred ten (210) days after the date of the casualty (or such longer period as indicated in the Estimate, if applicable), then for a period of up to thirty (30) days after the expiration of such period (but in all events no later than the date Landlord substantially completes its restoration of the Premises), Tenant, as its sole remedy, shall have the right to terminate this Lease upon thirty (30) days' prior written notice to Landlord; provided, however, that if Landlord completes such restoration prior to the end of such thirty (30) day notice period, Tenant's notice of termination shall be deemed rescinded, and this Lease shall continue in full force and effect. The provisions of this Section are in lieu of any statutory termination provisions allowable in the event of casualty damage.
4.4.2. Termination for Material or Uninsured Damages. If (i) the Building shall be materially destroyed or damaged to the extent that restoration is, in Landlord's judgment, not economical or feasible, or (ii) the Building shall be materially destroyed or damaged by any casualty other than a casualty covered by the insurance policies required to be maintained by Landlord hereunder, notwithstanding that the Premises may be unaffected directly by such destruction or damage, or (iii) Landlord's mortgagee (if any) requires that the proceeds of insurance be applied to reduce any amounts outstanding under such mortgage, then in any such event, Landlord may, at its election, terminate this Lease by written notice to Tenant specifying the effective date of termination. The effective date of termination specified in the notice shall not be less than thirty (30) nor more than forty-five (45) days after the date such notice is given.
4.4.3. Repairs and Restoration. If this Lease is not terminated pursuant to the terms of this Section 4.4, then Landlord shall promptly commence and diligently pursue the restoration of the Premises in accordance with this Section 4.4.3. Landlord's restoration obligation shall be subject to all then existing Laws, and shall be further limited to restoration of the Building, Landlord's Work, and any other installations within the Premises paid for by Landlord or covered under the
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insurance policies required to be maintained by Landlord hereunder (to the extent not inconsistent with then existing Laws).
4.4.4. End of Term Casualty. Anything herein to the contrary notwithstanding, if the Premises are destroyed or materially damaged (to an extent in excess of 20% of the Premises Rentable Area) during the last eighteen (18) months of the Term, then either Landlord or Tenant shall have the right to terminate this Lease by written notice to the other specifying the effective date of termination. The effective date of termination specified in the notice shall not be less than thirty (30) nor more than forty-five (45) days after the date such notice is given. The notice of termination contemplated under this Section 4.4.4 must be delivered within thirty (30) days after the date of such casualty, or shall be deemed waived.
4.5. Condemnation.
4.5.1. Taking. If the whole of the Premises is taken by condemnation or by exercise of the right of eminent domain, or by voluntary transfer made under threat of condemnation or exercise of right of eminent domain (a " Taking "), and such Taking is permanent (a " Permanent Taking "), this Lease shall automatically terminate as of the date (the " Vesting Date ") that title vests in the condemning authority, and Tenant shall pay all Rent due under this Lease up to the Vesting Date. Any temporary Taking for a period in excess of twelve (12) consecutive months shall be deemed to be a Permanent Taking within the meaning of this Section 4.5. If any Permanent Taking occurs with regard to twenty percent (20%) or more of the Premises, Landlord and Tenant shall each have the right (to be exercised by written notice to the other within sixty (60) days after receipt of notice of said Permanent Taking) to terminate this Lease effective upon the Vesting Date. If neither party elects to terminate this Lease, as aforesaid, then Landlord shall diligently, and within a reasonable time, after the Vesting Date, repair and restore, at Landlord's expense, the portion of the Premises not subject to such Taking, so as to render same an architectural whole to the extent reasonably practicable, and, with regard to any portion of the Premises which is subject to such Taking, the Base Rent (and Tenant's Share) shall be reduced (on a per square foot basis) in proportion to the portion of the Premises subject to such Taking. If there is a temporary Taking involving the Premises or Building, or if less than twenty percent (20%) of the Premises is permanently taken by a Taking, then this Lease shall not terminate, and Landlord shall, as soon as reasonably practicable thereafter, repair and restore, at its own expense, the portion not affected by such Taking so as to render same into an architectural whole to the fullest extent reasonably practicable. If any portion of the Premises was subject to a temporary Taking, then the Base Rent (and Tenant's Share) shall be reduced (on a per square foot basis) in proportion to the portion of the Premises subject to such Taking, but only for the period of such temporary Taking, that is, from the date upon which Tenant is deprived of the use of such portion of the Premises until the date Tenant is restored to the use of such portion of the Premises.
4.5.2. Termination for Material or Uninsured Damages. If (i) the portion of the Property subject to a Taking is so substantial that restoration is, in Landlord's judgment, not economical or feasible, or (ii) Landlord's mortgagee (if any) requires that any condemnation award be applied to reduce any amounts outstanding under such mortgage, then in any such event, Landlord may, at its election, terminate this Lease by written notice to Tenant specifying the effective date of termination. The effective date of termination specified in the notice shall not be less than thirty (30) nor more than forty-five (45) days after the date such notice is given.
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4.5.3. Award. Landlord reserves all rights to all awards made for damages to the Premises, the Building, and/or any leasehold interest created by this Lease or otherwise, arising in connection with any Taking of whatever duration or magnitude. Tenant hereby assigns to Landlord any right Tenant may have to such award, and Tenant shall make no claim against Landlord or the condemning authority for damages for termination of Tenant's leasehold interest or for interference with Tenant's business as a result of such Taking. The foregoing notwithstanding, Tenant shall have the right to claim and recover from the condemning authority separate compensation for the unamortized value of its leasehold improvements, and any loss which Tenant may incur for Tenant's moving expenses, business interruption or taking of Tenant's Property (but specifically excluding any leasehold interest in the Building or the Premises) under the then applicable eminent domain code, provided that Tenant shall not make any claim that will detract from or diminish any award for which Landlord may make a claim.
5. SPECIAL RIGHTS AND OBLIGATIONS
5.1. Assignment and Subletting.
5.1.1. Generally. Tenant shall not assign this Lease, nor sublease, encumber, mortgage, pledge, license, hypothecate or otherwise transfer all or any part of the Premises (or Tenant's interest therein), nor permit the use or occupancy of the Premises by any party other than Tenant, except in accordance with this Section 5.1.
5.1.2. Proposal and Response Options.
A Proposal Notice. Tenant must notify Landlord in writing of any proposed assignment or sublease at least thirty (30) days prior to the commencement date of the proposed sublease or assignment, which written notice (a " Proposal Notice ") must include (1) the name and address of the proposed assignee or subtenant, (2) the nature and character of the business of the proposed assignee or subtenant, (3) financial information (including financial statements) of the proposed assignee or subtenant, (4) the proposed effective date of the assignment or sublease, which shall be not less than thirty (30) days thereafter, (5) a copy of the proposed sublease or assignment agreement and (6) a $250.00 processing fee in the event such fee is charged by Landlord's then current mortgagee. Tenant shall also provide any additional information Landlord reasonably requests regarding such proposed assignment or subletting.
B Landlord Response Options. Unless the proposed assignment or sublease is one which is permitted without Landlord's consent pursuant to Section 5.1.5, below, then within thirty (30) days after Landlord receives Tenant's Proposal Notice (with all required information included), Landlord shall have the option (i) to grant its consent to such proposed assignment or subletting, (ii) to deny its consent to such proposed assignment or subletting, or (iii) to terminate (" Right of Recapture ") this Lease for the balance of the Term with regard to (a) the entire Premises in the event an assignment has been proposed (a "Recapture") or (b) the portion of the Premises proposed to be subleased (a " Partial Recapture ") in the event a sublease has been proposed. If Landlord does not exercise one of the three options described above within thirty (30) days after Landlord receives a proper Proposal Notice from Tenant, then Tenant may assign or sublease the Premises upon the terms stated in such Proposal Notice (but subject in all respects to Section 5.1.4, below).
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C Recapture. In the event Landlord shall exercise its Right of Recapture or Partial Recapture: (i) this Lease and the term hereof shall terminate (a) in its entirety (in the event of a Recapture), or (b) as to the portion of the Premises which Tenant is proposing to sublease, but only such portion (in the event of a Partial Recapture), as of the later of (1) the proposed effective date of such assignment or sublease, as set forth in Tenant's Proposal Notice, or (2) thirty (30) days after the date Landlord received Tenant's Proposal Notice; (ii) Tenant shall be released (a) from all of its obligations under the Lease (in the event of a Recapture) or (b) from its obligations relating to the proposed subleased portion of the Premises only (in the event of a Partial Recapture), in each case with respect to the period after the effective date of such termination, except for any obligations of Tenant which would otherwise survive the termination or expiration of this Lease; (iii) all Rent shall be prorated to the date of such termination, and appropriately adjusted if there is only a Partial Recapture; (iv) upon such termination date, Tenant shall surrender the Premises (or the applicable portion thereof) to Landlord in accordance with the terms of Section 2.7 hereof; and (v) in the case of a Partial Recapture, Landlord shall have the right to take all steps necessary to physically separate the portion of the Premises subject to such Partial Recapture from the balance of the Premises.
D Short Term Subleases. The foregoing provisions of this Section 5.1.2 to the contrary notwithstanding, Tenant shall have the right to sublet, in the aggregate, up to twenty-five percent (25%) of the rentable area of the Premises, for periods not in excess of two (2) years, before a proposed sublease triggers Landlord's Right of Recapture, but any such sublease(s) shall remain subject to Landlord's approval, which shall not be unreasonably withheld as provided in Section 5.1.3.
5.1.3. Reasonable Consent. If Landlord does not elect to exercise its Right of Recapture in connection with a Proposal Notice submitted by Tenant, then Landlord will not unreasonably withhold its consent to the assignment or sublease described in the Proposal Notice. Without limitation, it shall not be unreasonable for Landlord to deny its consent to any proposed assignment or sublease if (a) as of the date of the Proposal Notice, there is a material uncured default of Tenant under this Lease as to which a notice has been sent to Tenant; (b) the proposed assignee or subtenant has a history of landlord/tenant, debtor/creditor or other contractual problems (such as defaults, evictions, enforcement litigation or other disputes) with Landlord, other landlords or creditors or other contracting parties; (c) the proposed use of the Premises is not a Permitted Use; (d) the proposed assignee or sublessee is an existing tenant, occupant or licensee, or an affiliate thereof, in the Building and the Building has vacancy to accommodate such proposed assignee or sublessee; (e) the proposed assignee or sublessee is entitled to, or otherwise enjoys, sovereign or diplomatic immunity; (f) the proposed assignee or sublessee has had lease negotiations with Landlord or an affiliate of Landlord within the six month period prior to the date of the Proposal Notice, as evidenced by a written lease proposal, term sheet or letter of intent, (g) a proposed sublease involves, in Landlord's reasonable' judgment, a portion of the Premises which is not independently leasable space (which shall be understood to mean that, in order to satisfy this criteria, the proposed sublease space must have a proportion of windowed offices relative to the rentable area thereof which is comparable to the floor as a wholei.e., must satisfy the " Window Ratio Criteria ", and cannot lack reasonable means of ingress, egress or access to the Common Areas or Building Systems), it being understood and agreed, however, that the Window Ratio Criteria shall not apply with respect to any sublease of the western half of the Additional Premises, or (h) consenting to the proposed assignment or sublease could cause Landlord to be in violation under another lease at, or contractual obligation relating to, the Property. Notwithstanding the provisions set forth in clause (g) above to the contrary, Landlord agrees not to withhold its consent to a proposed sublease involving, in Landlord's reasonable judgment and as set forth above, a portion of the Premises which is not independently leasable
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space, provided (i) that Landlord shall not be required to recognize such sublessees's rights under such sublease, and (ii) that Tenant shall provide financial assurances reasonably satisfactory to Landlord securing Tenant's obligation to restore the proposed sublease space to independently leasable condition upon expiration or earlier termination of this Lease.
5.1.4. Approval Terms. Except as otherwise provided herein, all subleases and/or assignments shall be subject to all of the following terms and conditions:
A Except in the case of an assignment or sublease to an Affiliate permitted under Section 5.1.5.A., below, Tenant shall pay to Landlord, as Additional Rent under this Lease, (i) in the case of an assignment, fifty percent (50%) of all sums received by Tenant in consideration of such assignment, calculated after Tenant has recovered in full from such consideration its "Transaction Expenses" (as hereafter defined), and (ii) in the case of a sublease, the amount, if any, by which the rent, any additional rent and any other sums payable by the subtenant to Tenant under such sublease, exceeds that portion of the Base Rent plus Tenant Electric, Tenant's Share of Expense Increases and Tax Increases payable by Tenant hereunder which is allocable to the portion of the Premises which is the subject of such sublease, calculated after Tenant has recovered in full its Transaction Expenses from such net amount . The term " Transaction Expenses " shall mean all reasonable and actual out-of-pocket expenses incurred by Tenant in procuring such assignment or sublease, including broker fees and legal fees (if any) paid by Tenant, any improvements which Tenant makes to the applicable portion of the Premises at Tenant's expense in connection with such assignment or sublease, and any buy-out of the assignee's or sublessee's existing lease paid for by Tenant as a part of such transaction.
B No consent to any assignment or sublease shall constitute a waiver of the provisions of this Section 5.1, or be construed to permit any further assignments or subleases without compliance with this Section 5.1. Accordingly, each and every subsequent assignment or sublease will be subject to the provisions of this Section 5.1.
C The assignee under any assignment of this Lease shall be jointly and severally liable with Tenant for all of the obligations of "Tenant" under this Lease (and in no event will Tenant be released from any of its obligations under this Lease, whether accruing before or after the date of such assignment or sublease).
D Any sublease or assignment shall require that the sublessee or assignee thereunder be subject to and bound in all respects by all of the provisions of this Lease (but in the case of a sublease, to the extent that such Lease provisions relate to the portion of the Premises subleased and/or the operations and conduct of business by the sublessee).
E Any and all guaranties of this Lease shall be unaffected by such sublease and/or assignment and shall remain in full force and effect. Landlord may require that the Guarantor re-affirm the validity and continuing effect of all such guaranty(ies) as a condition precedent to the effectiveness of such assignment or sublease.
F Tenant shall reimburse Landlord for all of Landlord's reasonable attorneys fees and actual out-of-pocket expenses incurred in connection with Landlord's review of such sublease or assignment, not to exceed Two Thousand Five Hundred Dollars ($2,500).
5.1.5. Permissive Assignments and Subleases.
A Notwithstanding anything to the contrary in this Lease, provided that (i) there is no uncured Event of Default as of the effective date of the proposed sublease or assignment, and (ii) such transfer is not effectuated as part of a transaction or series of transfers orchestrated in order to effect a transfer of this Lease (or Tenant's interest herein) in isolation to Tenant's
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other leasehold interests and assets, Tenant may sublease all or any portion of the Premises, or assign this Lease, to an "Affiliate" (as hereinafter defined), provided, that (a) the assignee or sublessee is financially able, after consummation of the transaction giving rise to such sublease or assignment, to meet all of its obligations under this Lease (in- the case of an assignment) or under the applicable sublease (in the case of a sublease), and (b) in such event, (1) except in cases of statutory merger, in which case the surviving entity in the merger shall be liable as the Tenant under this Lease, Tenant shall continue to remain fully liable under the Lease, on a joint and several basis with the assignee or acquiror of such assets or stock, (2) the terms of any guaranty of this Lease shall remain unmodified and in full force and effect, (3) if such assignment is effectuated by a transfer of 100% of the ownership interests of Tenant, and the obligations of Tenant under this Lease were guarantied by any third party prior to the date of such assignment, the person(s) or entity(ies) acquiring such ownership interests shall execute guaranties of this Lease on substantially the same form (and to substantially the same extent) as such pre-existing guaranty(ies) of this Lease, and (4) following such sublease or assignment, Tenant or such assignee, as the case may be, shall continue to comply with all of the provisions of this Lease. For purposes of this Section 5.1.5, the term " Affiliate " shall mean and refer to any person or entity (i) which controls or is controlled by Tenant, (ii) which is under common control with Tenant, (iii) which purchases all or substantially all of the assets of Tenant or Guarantor, (iv) which purchases all or substantially all of the ownership interests of Tenant or Guarantor, or (v) which merges with Tenant pursuant to a valid statutory merger. Tenant shall be required to give Landlord reasonable prior written notice of any sublease or assignment within the scope of this Section 5.1.5.A., and evidence its compliance with this Section 5.1.5.A. prior to the effective date of the applicable transaction.
B Any other transfer of fifty percent (50%) or more of the ownership interests (including, without limitation, partnership interests, membership interests or stock) in Tenant or of operating control over Tenant (whether by management agreement, stock sale or other means) shall be deemed to constitute an assignment of this Lease, and shall be subject to the provisions of this Section 5.1 as if the subject transaction were an assignment of this Lease to the new owners of Tenant.
C Notwithstanding Section 5.1.5.A. and 5.1.5.B. to the contrary, Landlord agrees that the offer and sale by Tenant (or any stockholder of Tenant) of any stock pursuant to an effective registration statement filed pursuant to the Securities Act of 1933 (including any initial public offering of registered stock of the Tenant) or pursuant to and in accordance with the securities laws of any foreign country governing publicly traded companies and not in violation of applicable Laws, shall not constitute an assignment of this Lease.
D Tenant shall not transfer all or substantially all of its assets to any person or entity unless this Lease is one of the assets so transferred to such other person or entity, and the transferee assumes in writing, for Landlord's benefit, the obligations of Tenant accruing under this Lease.
5.2. Signage.
5.2.1. Generally. Except as provided below, Tenant shall not display any sign, graphics, notice, picture, or poster, or any advertising matter whatsoever, anywhere in or about the Premises or the Building at places visible from anywhere outside of or at the entrance to the Premises without obtaining Landlord's prior written consent, which Landlord may grant or withhold-in its sole discretion. Tenant, at Tenant's sole cost and expense, shall maintain any permitted signs in good order and repair and in accordance with all applicable Laws.
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5.2.2. Signage Program/Permitted Signage. Notwithstanding Section 5.2.1 to the contrary, lobby and suite identification signage shall be permitted in accordance with applicable Laws and Landlord's overall signage program for the Building, subject to Landlord's approval which shall not be unreasonably withheld. Generally, Tenant shall be permitted (at Tenant's expense) to install a standard suite entry sign, and (if applicable) directory identification panels on that portion of the Building's lobby directory located in the main lobby of the Building (if any), commensurate with the relative square footage of the Premises as compared to the square footage of the Building as a whole. If, after the Building has been 90% leased, Tenant is one of the two largest tenants in the Building (in terms of rentable square footage), Tenant shall be entitled to install, at Tenant's sole cost and expense, exterior signage on the Kendrick Street facade of the Building, subject to the provisions of Section 5.2.1 above and subject further to Landlord's approval of the plans and specifications therefore, which approval shall not be unreasonably withheld or delayed.
5.3. Parking. Tenant shall have the right to park, up to its Parking Allocation, in the Building parking facilities on a non-exclusive basis with other tenants of the Building, upon such reasonable terms and conditions, as Landlord establishes from time to time during the Term. Tenant agrees not to overburden the parking facilities beyond its Parking Allocation, and agrees to cooperate with Landlord and other tenants in the use of the parking facilities. If, for any reason, the square footage of the Premises is reduced during the Term, the foregoing Parking Allocation shall be proportionately reduced. If, for any reason, the square footage of the Premises is increased during the Term, the foregoing Parking Allocation shall be proportionately increased. Landlord shall have the absolute right to allocate and assign parking spaces among some or all of the tenants of the Building (and Tenant shall comply with any such parking assignments) consistent with Tenant's Parking Allocation.
5.4. Extension Option.
5.4.1. General. Tenant is hereby granted the option (the " Extension Option ") to extend the Term for the Extension Term, provided that both at the time of the exercise of the Extension Option and at the time of commencement of the Extension Term, (i) this Lease is in full force and effect, (ii) no uncured Event of Default of Tenant exists under this Lease, and (iii) Tenant is in occupancy of at least fifty percent (50%) of the Premises. The Extension Term shall commence at the expiration of the initial Term. Tenant shall exercise the Extension Option by delivering notice of such election (the " Extension Notice ") to Landlord not less than nine (9) months, nor more than twelve (12) months, prior to the expiration of the Term. If Landlord does not receive the Extension Notice prior to the expiration of such time period (time being of the essence), then such Extension Option shall become null and void and of no further force or effect.
5.4.2. Terms. If Tenant exercises the Extension Option in accordance with this Section 5.4, Tenant's lease of the Premises during the Extension Term shall be upon the same terms and conditions of this Lease except that (a) the Base Rent during the Extension Term shall be as agreed upon by Landlord and Tenant or, if Landlord and Tenant are unable to reach agreement within the twenty (20) day period following Landlord's receipt of the Extension Notice (the " Extension Rent Negotiation Period ") during which period Landlord and Tenant agree to negotiate the Base Rent payable for the Extension Term in good faith, then the Base Rent for the Extension Term shall be an annual base rental rate equal to ninety-five percent (95%) of the annual fair market rental rate and annual escalation rate (collectively, "FMR") for lease extensions of space in its "as-is" condition comparable to the Premises in the Applicable Submarket for the applicable Extension Term, as determined by the three appraiser method set forth in Section 5.4.3 of this Lease; and (b) Tenant shall have no option to extend the Lease Term beyond the expiration of the Extension Term. The Premises shall be delivered in their then "as is" condition at the time the Extension Term commences.
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5.4.3. Three Appraiser Method .
A Landlord and Tenant shall each appoint one arbitrator who, by profession, shall be an M.A.I. real estate appraiser, and who shall have been active over the five (5) year period ending on the date of the Extension Notice in the appraisal of office properties in the Applicable Submarket. Each such arbitrator shall be appointed within thirty (30) days after the expiration of the Extension Rent Negotiation Period.
B The two arbitrators so appointed shall, within ten (10) days of the date of the appointment of the last appointed arbitrator, agree upon and appoint a third arbitrator who shall be qualified based upon the same criteria set forth above for the qualification of the initial two arbitrators.
C The three arbitrators shall, within ten (10) days of the appointment of the third arbitrator, reach a decision regarding the FMR and notify Landlord and Tenant thereof.
D The decision of the majority of the three arbitrators shall be binding upon Landlord and Tenant. Failure of a majority of said arbitrators to reach agreement shall result in the FMR being designated by averaging the appraisals of the three arbitrators, ignoring for the purposes of such averaging the high and/or low appraisal which is more than ten percent (10%) in excess of or less than the middle appraisal.
E If either Landlord or Tenant fails to appoint an arbitrator within the time period specified in subparagraph 5.4.3.A., hereinabove, the arbitrator appointed by one of them shall reach a decision and notify Landlord and Tenant thereof, and such arbitrator's decision shall be binding upon Landlord and Tenant.
F The cost of arbitration shall be paid by Landlord and Tenant equally.
The term "comparable space" as used herein for the purpose of determining "market rates" shall mean comparable Class A office buildings located in the Applicable Submarket.
5.5. Expansion Option.
5.5.1. Defined Terms. The following capitalized terms shall have the meanings indicated:
A " Tenant Expansion Notice " means a written notice from Tenant to Landlord, delivered no later than December 31, 2004, of Tenant's intent to lease Expansion Space and identifying the rentable square footage of such Expansion Space required by Tenant. Nothing contained in this Lease, however, shall require Landlord to provide less than 5,000 rentable square feet nor more than 20,000 rentable square feet of Expansion Space.
B " Expansion Lease " means a lease whereby Landlord leases the Expansion Space to Tenant, whether in the form of an amendment to this Lease or a separate lease.
C " Expansion Commencement Date " means the date upon which Landlord delivers possession of such Expansion Space to Tenant, which shall in no event be later than six (6) months after the date Landlord receives the Tenant Expansion Notice. Landlord shall deliver the Expansion Space free of all occupants and broom clean, but otherwise in its then "as-is, where-is" condition.
D " Landlord Expansion Notice " means a notice from Landlord to Tenant setting forth (i) the location, configuration and " Premises Rentable Area " of the available Expansion Space, (ii) the date upon which Landlord anticipates being able to deliver possession of such Expansion Space to Tenant, and (iii) the proposed business terms of the Expansion Lease (including rent, additional rent, term, extension terms, construction allowance, lease
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concessions, etc., as applicable) to the extent different from the terms and conditions of this Lease.
E " Expansion Option Period " means the period commencing on the Lease Commencement Date and ending on December 31, 2004.
F " Expansion Space " means the additional space requested by Tenant in the Tenant Expansion Notice consisting of no less than 5,000 rentable square feet nor more than 20,000 rentable square feet, and located either within the Building or within other Landlord-owned buildings within a two-mile radius of the Building.
G " Expansion Lease Terms " means the legal and business terms applicable to the Expansion Space, which shall be substantially identical to the legal and business terms of this Lease, as if the Expansion Space were made a part of the Premises hereunder as of the Expansion Lease Commencement Date, subject to the following modifications or clarifications and except as otherwise expressly set forth in Landlord Expansion Notice:
(i) The Term of the Expansion Lease (the " Expansion Term ") shall commence upon the Expansion Lease Commencement Date, and shall expire on the Lease Expiration Date under this Lease.
(ii) The Base Rent (and any escalation thereof) payable for the Expansion Space during the Expansion Term shall be an annual base rental rate equal to the FMR for lease expansions of space in its "as-is" condition comparable to the Expansion Space in the Applicable Submarket for the Expansion Term, as determined by the method set forth in Section 5.4.3. To the extent the Expansion Space is located in the Building, Tenant's Share shall be adjusted to reflect the addition of the Expansion Space, and Additional Rent shall be payable with respect to the Expansion Space.
(iii) Base Rent and Additional Rent for the Expansion Space shall be payable at the same times and in the same manner as is provided for in this Lease, commencing immediately on the Expansion Lease Commencement Date and throughout the Expansion Term. The Operating Expense Base Year and Real Estate Tax Base Year for the Expansion Space shall be as set forth in the Landlord Expansion Notice.
(iv) The Extension Option provided under Section 5.4 shall apply to the Expansion Space, and the Expansion Lease shall include any extension options, expansion options, or cancellation options contained in this Lease, provided that the terms of this Lease and the Expansion Lease shall be co-terminous.
5.5.2. Grant of Expansion Right. Subject to all terms, conditions and limitations set forth in this Section 5.5, Tenant is granted a one-time right to lease the Expansion Space, if and as Tenant delivers the Tenant Expansion Notice during the Expansion Option Period (such right, Tenant's " Expansion Right "), exercisable as and in the manner described in Section 5.5.3. Notwithstanding any provision of this Section 5.5 to the contrary, Tenant's Expansion Right shall not apply, and may not be exercised by Tenant, after the expiration of the Expansion Option Period, or at any time during which an Event of Default is continuing hereunder, or this Lease is otherwise not in full force and effect. Without limitation, if an Event of Default is continuing at a time when Tenant delivers a Tenant Expansion Notice, or when Landlord delivers a Landlord Expansion Notice, or upon the Expansion Lease Commencement Date, then, at Landlord's option, this Expansion Right (including any prior attempted exercise hereof) shall be deemed null and void, ab initio, as to the Expansion Space, and Landlord shall be under no obligation to lease such Expansion Space to Tenant.
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5.5.3. Manner of Exercise. Unless Landlord receives the Tenant Expansion Notice within the period specified in Section 5.5.1.A., Tenant's Expansion Right shall expire and cease to be of any force or effect. If Tenant delivers a Tenant Expansion Notice to Landlord within the period specified in Section 5.5.1.A., Landlord shall promptly prepare and deliver to Tenant a Landlord Notice and an Expansion Lease, and Tenant shall execute and deliver such Expansion Lease to Landlord within fifteen (15) business days after such Expansion Lease is delivered to Tenant. Notwithstanding the provisions of this Section 5.5.3, this Section 5.5 is intended to be, and is, self-operative, and if Tenant fails to execute and return to Landlord the Expansion Lease within thirty (30) days after its receipt thereof, then Landlord may enforce the terms of the Expansion Lease, which shall be deemed accepted and executed by Tenant under this Section 5.5 and by Tenant's delivery of the Exercise Notice.
5.5.4. Limitations. Notwithstanding any provision of this Section 5.5 to the contrary, Tenant's Expansion Right shall be personal to Tenant, and not apply in favor of nor be assignable to (nor exercisable by) any assignee of this Lease or sublessee of all or any portion of the Premises, unless to a Tenant Affiliate.
5.6. Right of First Offer .
5.6.1. Defined Terms. The following capitalized terms shall have the meanings indicated:
A " Offer Exercise Notice " means a written notice from Tenant to Landlord, delivered not later than ten (10) business days after the date of Tenant's receipt or deemed receipt of an Offer Notice, irrevocably exercising Tenant's Right of First Offer to lease all (but not less than all) of the Offer Space described in such Offer Notice, on the Offer Terms.
B " Offer Lease " means a lease whereby Landlord leases the Offer Space to Tenant in accordance with the Offer Terms, whether in the form of an amendment to this Lease or a separate lease.
C " Offer Lease Commencement Date " means, for each Offer Space that is subject to an Offer Lease, the date upon which Landlord delivers possession of such Offer Space to Tenant. Landlord shall deliver the Offer Space free of all occupants and broom clean, but otherwise in its then "as-is, where-is" condition.
D " Offer Notice " means a notice from Landlord to Tenant that a specific Offer Space in the Building is anticipated to become available for lease, setting forth (i) the location, configuration and " Premises Rentable Area " of the applicable Offer Space, (ii) the date upon which Landlord anticipates being able to deliver possession of such Offer Space. to Tenant in the condition contemplated in the Offer Terms, and (iii) the proposed business terms of the Offer Lease (including rent, additional rent, term, extension terms, construction allowance, lease concessions, etc., as applicable), which shall be the terms under which Landlord intends, in good faith, to offer such Offer Space for lease to the market (based on Landlord's good faith estimate of a fair market lease transaction at such time for comparable space in the Applicable Submarket).
E " Option Period " means the Initial Terns of the Lease.
F " Offer Space " means the two suites located in the southeast corner of the Building, containing 16,221 rentable square feet and 32,665 rentable square feet, currently demised to MCK Communications, Inc., and described as Offer Space A and Offer Space B, respectively, on Exhibit I attached hereto. As used herein, the term " Offer Space " shall mean Offer Space A and/of Offer Space B, as the context may require.
G " Offer Terms " means the legal and business terms applicable to an Offer Space, which shall be substantially identical to the legal and business terms of this Lease, as if the
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applicable Offer Space were made a part of the Premises hereunder as of the Offer Lease Commencement Date, subject to the following modifications or clarifications:
(i) The Term of the Offer Lease (the " ROFO Term ") shall commence upon the Offer Lease Commencement Date, and shall expire on the Lease Expiration Date under this Lease.
(ii) The Base Rent (and any escalation thereof) payable for the Offer Space during the ROFO Term shall be an annual base rental rate equal to the FMR for lease expansions of space in its "as-is" condition comparable to the applicable Offer Space in the Applicable Submarket for the ROFO Term, as determined by the method set forth in Section 5.4.3. Tenant's Share shall be adjusted to reflect the addition of the Offer Space, and Additional Rent shall be payable with respect to the Offer Space.
(iii) Base Rent and Additional Rent for the Offer Space shall be payable at the same times and in the same manner as is provided for in this Lease, commencing immediately on the Offer Lease Commencement Date and throughout the ROFO Term. The Operating Expense Base Year and Real Estate Tax Base Year for the Offer Space shall be as set forth in the Offer Notice.
(iv) The Extension Option provided under Section 5.4 shall apply to the Offer Space, and the Offer Lease shall include any extension options, expansion options, or cancellation options contained in this Lease, provided that the terms of this Lease and the Offer Lease shall be co-terminous.
5.6.2. Grant of Right of First Offer. Subject to all terms, conditions and limitations set forth in this Section 5.6, Tenant is granted a one-time right of first offer to lease with respect to each Offer Space, if and as such space(s) become available for lease during the Option Period, in accordance with the Offer Terms (such right, Tenant's " Right of First Offer "), exercisable as and in the manner described in Section 5.6.3. Notwithstanding any provision of this Section 5.6 to the contrary, Tenant's Right of First Offer shall not apply, and may not be exercised by Tenant, after the expiration of the Option Period, or at any time during which an Event of Default is continuing hereunder, or this Lease is otherwise not in full force and effect. Without limitation, if an Event of Default is continuing at a time when Landlord would otherwise be obligated to deliver an Offer Notice to Tenant with regard to a specific Offer Space, or when Tenant delivers an Exercise Notice in respect of such Offer Space, or upon the Offer Lease Commencement Date applicable to such Offer Space, then, at Landlord's option, this Right of First Offer (including any prior attempted exercise hereof) shall be deemed null and void, ab initio, solely as to such Offer Space, and Landlord thereupon may lease such Offer Space to any third party upon any terms acceptable to Landlord, free from Tenant's Right of First Offer (and/or any Offer Lease previously executed with respect thereto).
5.6.3. Manner of Exercise. Within a reasonable time period after Landlord becomes aware of the date upon which an Offer Space is anticipated to become available for lease, but not more than eighteen (18) months prior to such date, Landlord shall deliver an Offer Notice to Tenant with respect thereto. Unless Landlord receives an Exercise Notice within the "period specified " in Section 5:6.1.A., Tenant's' Right of First Offer shall expire and cease to be of any force or effect as to the Offer Space described in such Offer Notice (but such Right of First Offer shall continue to apply to all other Offer Space as to which an Offer Notice has not yet been delivered by Landlord). If Tenant delivers an Exercise Notice to Landlord within the period specified in Section 5.6.1.A., Landlord shall promptly prepare and deliver to Tenant an Offer Lease, and Tenant shall execute and deliver such Offer Lease to Landlord within ten business days after such Offer Lease is delivered to Tenant. Notwithstanding the provisions of this Section 5.6.3, this Section 5.6 is intended to be, and is, self-operative, and if Tenant fails to execute and return to
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Landlord the Offer Lease within twenty-one (21) days after its receipt thereof, then Landlord may enforce the terms of the Offer Lease, which shall be deemed accepted and executed by Tenant under this Section 5.6 and by Tenant's delivery of the Exercise Notice.
5.6.4. Limitations. Notwithstanding any provision of this Section 5.6 to the contrary, Tenant's Right of First Offer, and the other rights and procedures established by this Section 5.6, shall (a) be subject and subordinate to (i) all expansion rights (whether designated as specific expansion options, rights of first offer, or rights of first refusal) granted to other tenants and/or subtenants of the Building as of the date hereof, to the extent then in effect, or (ii) Landlord's approval, in its sole discretion, of any request by the then-existing tenant or subtenant of the Offer Space to remain in the Offer Space, whether or not such tenant or subtenant has any extension options with respect thereto ("Superior Rights"), and (b) be personal to Tenant, and not apply in favor of nor be assignable to (nor exercisable by) any assignee of this Lease or sublessee of all or any portion of the Premises, unless to a Tenant Affiliate. Landlord shall deliver an Offer Notice to Tenant after it has been finally determined that any other tenant or subtenant with Superior Rights as to the Applicable Offer Space has waived or exercised such Superior Rights.
6. DEFAULT AND REMEDIES
6.1. Definition of Event of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Lease:
6.1.1. If Tenant shall default in the payment of any Rent when due and such default shall continue for five (5) days after written notice thereof from Landlord.
6.1.2. If Tenant shall, whether by action or inaction, be in default of any of its obligations under this Lease (other than a default in the payment of Rent) for thirty (30) days after written notice thereof from Landlord (or such shorter period for completing a cure of such default as may be required by applicable Laws or by virtue of an Emergency). The foregoing notwithstanding, if (a) such default cannot reasonably be cured within such thirty (30) day period despite Tenant's due diligence, (b) the continuance of the cure period beyond thirty (30) days after Landlord's default notice will not (i) subject Landlord or any mortgagee of Landlord to prosecution for a crime or any other civil or criminal fine or charge, or otherwise violate applicable Laws, (ii) subject the Property, or any part thereof, to being condemned or vacated, (iii) subject the Property, or any part thereof, to any lien or encumbrance, or (iv) result in the foreclosure of any mortgage or deed of trust on the Property, (c) an Emergency is not applicable, and (d) Tenant advises Landlord in writing within the initial thirty (30) day period of Tenant's intention.to take all steps necessary to cure such default (including a reasonable description of the steps Tenant intends-to take), and duly commences and thereafter diligently and continuously prosecutes to completion all steps necessary to cure such default, then such thirty (30) day cure period shall be extended for a reasonable period of time as necessary under the circumstances for Tenant to cure such default.(but in no event shall the cure period be extended beyond one hundred twenty (120) days after the date of Landlord's default notice to Tenant).
6.1.3. If Tenant shall assign this Lease or sublet the Premises or any portion thereof in violation of the requirements of Section 5.1 of this Lease.
6.1.4. If Tenant shall abandon the Premises (and the fact that any of Tenant's property remains in the Premises shall not be evidence that Tenant has not abandoned the Premises).
6.1.5. If Tenant or any guarantor of this Lease shall (i) make an assignment for the benefit of creditors, (ii) acquiesce in a petition in any court in any bankruptcy, reorganization, composition, extension or insolvency proceedings, (iii) seek, consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or of any guarantor of this Lease or of all or any part of Tenant's or such guarantor's property, (iv) file a petition seeking an order for
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relief under the Title 11 of the United States Code, as now or hereafter amended or supplemented (the " Bankruptcy Code "), or by filing any petition under any other present or future federal, state or other statute or law for the same "or similar relief, or (v) fail to win the dismissal, discontinuation or vacating of any involuntary bankruptcy proceeding filed under the Bankruptcy Code, or under any other present or future federal, state or other statute or law for the same or similar relief, within ninety (90) days after such proceeding is initiated.
6.1.6. If Tenant breaches or fails to perform an obligation under this Lease which, under any applicable provision of this Lease, is deemed to constitute an " Event of Default " without written notice or opportunity to cure.
6.1.7. If Tenant breaches or fails to perform an obligation under this Lease which, under any applicable provision of this Lease, is deemed to constitute an " Event of Default " upon the expiration of a cure period that is different than that set forth in Section 6.1.1 or 6.1.2, above, as applicable.
6.1.8. Any lien has been filed against the Property, or any portion thereof, as a result of Tenant's acts, omissions or breach of this Lease, and Tenant fails, within thirty (30) days after the lien is filed, either (1) to cause said lien to be removed from the Property, and/or (2) to furnish a bond sufficient to remove the lien or cause a title insurance endorsement to be issued with respect to such lien, which endorsement shall be satisfactory, in form and substance to Landlord, in Landlord's sole and absolute discretion.
6.2. Remedies .
6.2.1. Generally. Upon the occurrence of an Event of Default, Landlord shall have the following remedies, in addition to any and all other rights and remedies provided by law or otherwise provided in this Lease, any one or more of which Landlord may resort to cumulatively, consecutively, or in the alternative:
A Landlord may continue this Lease in full force and effect, and collect Rent when due.
B Landlord may terminate this Lease upon written notice to Tenant to such effect, in* which event this Lease (and all of Tenant's rights hereunder) shall immediately terminate, but such termination shall not affect those obligations of Tenant which are intended by their terms to survive the expiration or termination of this Lease, nor Tenant's obligation to pay damages as set forth in Section 6.3, below. This Lease may also be terminated by a judgment specifically providing for termination.
C Landlord may terminate Tenant's right of possession without terminating this Lease upon written notice to Tenant to such effect, in which event Tenant's right of possession of the Premises shall immediately terminate, but this Lease shall continue subject to the effect of this Section 6.2 and Section 6.3, below.
D Landlord may, but shall not be obligated to, perform any defaulted obligation of Tenant, and to recover from Tenant, as Additional Rent, the reasonable and actual costs incurred by Landlord in performing such obligation. Notwithstanding the foregoing, or any other notice and cure period set forth herein, Landlord may exercise its rights under this Section 6.2.1.D without prior notice or upon shorter notice than otherwise required hereunder (and as may be reasonable under the circumstances) in the event of any one or more of the following circumstances is present: (i) there exists a reasonable risk of prosecution of Landlord unless such obligation is performed sooner than the stated cure period; (ii) there exists an Emergency arising out of the defaulted obligation; and/or (iii) the Tenant has failed to obtain insurance required by this Lease, or such insurance -has been canceled by the insurer without being timely replaced by Tenant, as required herein.
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E Landlord shall have the right to recover damages from Tenant, as more fully set forth in Section 6.3, below.
Upon any termination of this Lease or of Tenant's right of possession, Landlord, at its sole election, may (i) re-enter and take possession of the Premises and all the remaining improvements or property, (ii) eject Tenant or any of the Tenant's subtenants, assignees or other person or persons claiming any right under or through Tenant, (iii) remove all property from the Premises and either store the same in a public warehouse or elsewhere at Tenant's expense, and/or (iv) deem such property to be abandoned by Tenant, and, in such event, Landlord may dispose of such property at Tenant's expense, free from any claim by Tenant or anyone claiming by, through or under Tenant. Landlord may, but shall not be obligated, to relet the Premises after recovering possession of the Premises. It shall not constitute a constructive or other termination of this Lease or Tenant's right to possession if Landlord (a) exercises its right to repair or maintain the Premises, (b) performs any unperformed obligations of Tenant, (c) stores or removes Tenant's property from the Premises after Tenant's dispossession, (d) attempts to relet, or, in fact, does relet, the Premises or (e) seeks the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this Lease.
6.2.2. Additional Remedies for Default of Environmental Covenants. In the event of any breach of Tenant's environmental covenants herein, including any Discharge of Hazardous Substances for which Tenant is responsible under the this Lease and any failure of Tenant to comply with any of its obligations provided for in Section 2.5 of this Lease, in addition to any other remedies provided for herein or under applicable Environmental Laws, Landlord, at its sole option, may perform the actions required by applicable Environmental Laws, in which event Tenant shall reimburse Landlord for all costs and expenses (including fines and penalties resulting from Tenant's failure to perform) incurred by Landlord in performing such actions. Tenant does hereby expressly grant to Landlord and Landlord's Agents a right of access to the Premises, and a license to remove therefrom any and all Hazardous Substances and otherwise comply with all applicable Environmental Laws, acting either in its own name or in the name of the Tenant pursuant to the provisions of this Lease. The foregoing rights of Landlord shall include the right (but not the obligation) of Landlord to perform any remediation work required to be performed by Tenant under Section 2.5 on Tenant's behalf and at Tenant's sole cost and expense, and Tenant shall promptly reimburse Landlord for any and all reasonable costs associated with said work if undertaken by Landlord.
6.2.3. Equitable Remedies. In the event of any breach or threatened breach of this Lease by Tenant, Landlord shall also have the right to injunction, or other appropriate equitable relief.
6.2.4. Waivers. Tenant, on its own behalf and on behalf of all persons claiming through or under Tenant, including all creditors, does hereby specifically waive and surrender any and all rights and privileges, so far as is permitted by law, which Tenant and all such persons.might otherwise have under any present or future Law: (a) to the service of any notice to quit or of Landlord's intention to re-enter or to institute legal proceedings, except the foregoing shall not waive any notices required under Section 6.1, above; (b) to redeem, re-enter or repossess the Premises after Tenant's right of possession has been terminated by Landlord; (c) to restore the operation of this Lease, with respect to any dispossession of Tenant by judgment or warrant of any court or judge, or any re-entry by Landlord, or any expiration or termination of this Lease, whether such dispossession, re-entry, expiration or termination shall be by operation of law or pursuant to the provisions of this Lease; or (d) to the benefit of any law which exempts property from liability for debt or for distress for rent.
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6.3. Damages.
6.3.1. Generally.
A Upon any termination of this Lease or Tenant's right of possession, or any reentry by Landlord under the provisions of Section 6.2, or under any summary dispossess or other proceeding or action or any provision of law by reason of any Event of Default by Tenant, then in addition to the aggregate amount of Rent which Tenant has failed to pay under this Lease through the date of termination or re-entry (as the case may be) and any other damages recoverable by Landlord under applicable state law or this Lease, Tenant shall pay to Landlord as damages, at Landlord's election, either:
(i) a lump sum which shall be immediately due and payable by Tenant and which, at the time of termination of this Lease or any such reentry by Landlord, as the case may be, represents the excess of (a) the aggregate amount of the Base Rent and Additional Rent which would have been payable by Tenant (conclusively presuming that the average monthly Additional Rent is the same as was payable for the twelve (12) calendar months prior to such termination or reentry, or if less than twelve (12) calendar months have elapsed since the Rent Commencement Date, then all of the calendar months preceding such termination or reentry) for the period commencing with such termination or reentry, as the case may be, and ending with the Lease Expiration Date stated in Section 1.24, over (b) the aggregate amount of Rent that Tenant proves should reasonably have been received by Landlord for the same period (taking into account an appropriate vacancy period to seek and obtain a replacement tenant and fit the Premises out for such tenant's occupancy, during which Landlord cannot reasonably be expected to receive rent), which excess amount shall be discounted to present value using a discount rate equal to the average yield to maturity of United States treasury instruments having a maturity comparable to time period between the date of such termination or reentry and the Lease Expiration Date stated in Section 1.24, above; or
(ii) sums equal to the Base Rent and Additional Rent provided for in this Lease which would have been payable by Tenant had this Lease not been terminated, or Landlord had not so reentered, payable upon the due dates specified herein for such payments following such termination or reentry until the Lease Expiration Date stated in Section 1.24, above.
B In addition, Tenant shall immediately become liable to Landlord for all damages proximately caused by Tenant's breach of its obligations under this Lease, including all costs Landlord incurs in reletting (or attempting to relet) the Premises or any part thereof, including, without limitation, brokers' commissions, expenses of cleaning, altering and preparing the Premises for new tenants, legal fees and all other like expenses properly chargeable against the Premises and the rental received therefrom and like costs, provided that nothing set forth in this Section 6.3.1 shall be construed to impose upon Landlord any obligation to relet the Premises or to mitigate its damages hereunder, except to the extent expressly required under applicable Law. If Landlord does elect to relet the Premises (or any portion thereof), such reletting may be for a period shorter or longer than the remaining Term, and upon such terms and conditions as Landlord deems appropriate, in its sole and absolute discretion, and Tenant shall have no interest in any sums collected by Landlord in connection with such reletting except to the extent expressly set forth herein. Upon any termination of this Lease or of Tenant's right of possession, Tenant shall immediately become liable to Landlord for all costs Landlord incurs in attempting to relet the Premises or any part thereof, including, without limitation, broker's commissions, expenses of cleaning and redecorating the Premises required by the reletting and like costs. In the event of termination
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of this Lease or repossession of the Premises after an Event of Default, and provided Tenant has cooperated with Landlord in surrendering possession of the Premises as required herein after such termination or repossession, Landlord agrees to use commercially reasonable efforts to mitigate its damages hereunder, provided that Landlord (i) shall not be obligated to show preference for reletting the Premises over any other vacant space in the Building; (ii) shall have the right to divide the Premises, or to consolidate portions of the Premises with other spaces, in order to facilitate such reletting, as Landlord deems appropriate, (iii) may relet the whole or any portion of the Premises for any period, to any tenant, and for any use and purpose, and upon such terms as it deems appropriate, and may grant any rental or other lease concessions as it reasonably deems advisable under prevailing market conditions, including free rent; and (iv) Landlord's obligation to mitigate damages shall be deemed satisfied by its providing adequate information to a commercial broker as to the availability of such space (based on a customary brokerage fee being earned by such broker), having the Premises available for inspection by prospective tenants during reasonable business hours, and by acceptance of a commercially reasonable offer for the Premises (or reasonable portion thereof) from a creditworthy person or entity based on a form of lease agreement which is substantially the same as the form utilized for other space tenants in the Building, without material change therefrom (and Landlord shall be under no obligation to accept any offer other than a commercially reasonable offer from a creditworthy person or entity at then going rental rates for the Building). If the Premises or any part thereof shall be relet in combination with any other space, then proper apportionment on a per-square foot basis shall be made of the rent received from such reletting and of the expenses of such reletting. If Landlord shall succeed in reletting the Premises during the period in which Tenant is paying monthly rent damages as described in clause 6,3.1.A.(ii), above, Landlord shall credit Tenant with the net rents collected by Landlord from such reletting, after first deducting from the gross rents, as and when collected by Landlord, (A) all expenses incurred or paid by Landlord in collecting such rents, and (B) any theretofore unrecovered costs associated with the termination of this Lease and/or Landlord's reentry into the Premises, including any theretofore unrecovered expenses of reletting and/or other damages payable hereunder. If the Premises or any portion thereof be relet by Landlord for the unexpired portion of the Term before presentation of proof of such damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall, prima facie, constitute the fair and reasonable rental value for the Premises, or part thereof, so relet for the term of the reletting. Landlord shall not be liable in any way whatsoever for its failure or refusal to relet the Premises, or if the Premises or any part are relet, for its failure to collect the rent under such reletting, and no such refusal or failure to relet or failure to collect rent shall release or affect Tenant's liability for damages or otherwise under this Lease.
C During any Unauthorized Holdover, in addition to (and not "in lieu of) any other damages that might be recoverable by Landlord under this Lease, Tenant shall pay to Landlord for the entire period of such Unauthorized Holdover an occupancy charge equal to (A) 125% of the stated monthly Base Rent for the last full month of the Term then ending for the first month (or portion thereof) of such Unauthorized Holdover, (B) 150% of the stated monthly Base Rent for the last full month of the Term then ending for the second month (or portion thereof) of such Unauthorized Holdover, and (C) 200% of the stated monthly Base Rent for the last full month of the Term then ending for each 30-day period (or portion thereof) thereafter, plus (D) 100% of the Additional Rent which would have been payable by Tenant for the last full month of the Term then ending for each such 30-day increment (or portion thereof) of such Unauthorized Holdover. Such payments shall be made within five (5) days after Landlord's demand, which may be made at any time after any such 30-day period commences.
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6.3.2. Timing of Suits. Suit or suits for recovery of such damages or any installments thereof may be brought by Landlord at any time and from time to time after they accrue, at Landlord's election, and the bringing of suit for that portion of the damages owed by Tenant to Landlord hereunder which has then accrued shall not prejudice Landlord's right to bring suit later for damages thereafter accruing; and nothing contained herein shall be construed to require Landlord to postpone suit until the Lease Expiration Date, provided Landlord may at its election bring suit for such damages after the end of the Term originally contemplated under this Lease, and Tenant agrees that, in such event, Landlord's cause of action to recover such damages shall be deemed to have accrued on the Lease Expiration Date.
6.3.3. Additional Damages. Landlord shall also have the right to recover from Tenant any other amounts necessary to compensate Landlord for all of the detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease, or which, in the ordinary course of things, would be likely to result therefrom, including such other amounts (in addition to or in lieu of any of the items of damage specified herein, but without duplication thereof) as may be permitted from time to time by applicable Laws, including all unamortized lease-up costs associated with this Lease (such as tenant improvement costs, brokerage commissions and legal expenses) to the extent not recovered by application of Section 6.3.1, above.
6.4. Landlord's Default.
6.4.1. Generally. It shall constitute a " Landlord Default " if Landlord shall fail to perform one or more of its obligations under this Lease, and such failure shall continue and not be remedied within thirty (30) days after Tenant shall have given a written notice to Landlord specifying the same provided that in case of an Emergency, and solely for purposes of Tenant's exercise of the right to perform an obligation of Landlord after a Landlord Default as set forth in Section 6.4.3, below, the foregoing cure period may be shortened as reasonably necessary. The foregoing notwithstanding, if (A) such default cannot reasonably be cured within such thirty (30) day period despite Landlord's due diligence, and (B) Landlord duly commences and thereafter diligently and continuously prosecutes to completion all steps necessary to cure such default, then such thirty (30) day cure period shall be extended for a reasonable period of time as necessary under the circumstances for Landlord to cure such default (but in no event shall the cure period be extended beyond one hundred twenty (120) days after the date of Tenant's default notice to Landlord).
6.4.2. Rights and Remedies. In the event of a Landlord Default, but not otherwise, Tenant shall be entitled to pursue all rights and remedies available at law or in equity (except as limited by this Lease), and in all events excluding consequential damages. In addition, Tenant shall not have any right to terminate this Lease in connection with a Landlord Default, except to the extent that a constructive eviction has occurred under applicable Laws. Tenant shall use commercially reasonable efforts to mitigate its damages in the event of any Landlord Default hereunder.
6.5. Intentionally Omitted.
7. LENDER PROTECTION
7.1. Subordination. This Lease (and the provisions hereof) and any extensions, renewals, replacements or modifications thereof are and shall at all times be subject and subordinate to the lien and provisions of (i) any ground lease or underlying lease now or hereafter in force against the Land or Building, and (ii) any mortgage, deed of trust and all other security documents now or hereafter securing payment of any indebtedness of Landlord with respect to the Land or Building, and to all advances made or hereafter to be made upon the security thereof and to any increases, renewals, modifications, substitutions, replacements, consolidations, restatements and extensions thereof, and/or amendments thereto. Although the foregoing subordination is self-effectuating, Tenant shall execute and return to Landlord any documentation reasonably requested by Landlord, in a form reasonably
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acceptable to Tenant and consistent with this Section 7 in order to confirm the foregoing subordination, within five (5) business days after Landlord's written request. If Tenant fails to provide Landlord with such subordination documents within five (5) business days after Landlord's written request, the same shall constitute an Event of Default by Tenant hereunder without requirement of any further notice or opportunity to cure.
7.2. Estoppel Certificates. Landlord and Tenant each shall, from time to time, within twenty (20) days of written request from the other, execute, acknowledge and deliver to the other its designee an Estoppel Certificate in the form attached hereto as Exhibit G, or on such other form as reasonably requested (an " Estoppel Certificate "). If Tenant fails to execute and deliver an Estoppel Certificate within twenty (20) days after receipt of Landlord's written request for such Estoppel Certificate, which request shall be sent to Tenant at the address set forth in Section 1.15 hereof, Tenant shall be deemed to have executed and delivered such Estoppel Certificate in the form submitted to Tenant by Landlord, without modification.
7.3. Mortgagee Protection.
7.3.1. Notices. Tenant agrees to simultaneously give General Electric Capital Corporation, Landlord's current mortgagee by registered mail, a copy of any notice of default or termination served upon the Landlord at General Electric Capital Corporation, c/o GE Capital Realty Group, Inc., 16479 Dallas Parkway, Suite 600, Addison, Texas 75001-2512, Attention: Asset Manager, with a copy to General Electric Capital Corporation, 292 Long Ridge Road, Stamford, Connecticut 06927, Attention: Kevin L. Korsh, Esq. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, then the mortgagee(s) and/or trust deed holder(s) shall have an additional sixty (60) days within which to have the right (but not the obligation) to cure such default or if such default cannot be cured within that time, then such additional time up to one hundred twenty (120) days after the date the mortgagee and/or trust deed holder receives notice of Landlord's default as may be necessary, if within such sixty (60) days any mortgagee and/or trust deed holder(s) 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 Tenant shall not have the right to pursue any claim against Landlord, such mortgagee and/or such trust deed holder(s), including any claim of lease termination due to any Landlord's default under the Lease or actual or constructive eviction, so long as such remedies are being so diligently pursued.
7.3.2. Attornment. In the event (i) any proceedings are brought for foreclosure, (ii) the exercise of the power of sale under any mortgage or deed of trust encumbering the Property, or (iii) of a termination of Landlord's interest under any ground lease or underlying lease (or the reversion of Landlord's interest) to the lessor thereunder, Tenant shall attorn to the purchaser at any such foreclosure, or to the grantee of a deed in lieu of foreclosure, or to lessor (or other party taking such reversionary interest) under such ground lease or underlying lease, and recognize such purchaser, grantee or lessor (as the case may be) (hereinafter referred to as a " Successor Landlord ") as the Landlord under this Lease, provided such Successor Landlord assumes, either expressly or by operation of law, the obligations of "Landlord" arising under this Lease after the date title to the interest being transferred is so transferred to such purchaser or grantee. Tenant agrees that no Successor Landlord shall be (i) bound by any payment of Rent for more than one (1) month in advance, (ii) bound by any amendment or modification of this Lease made without the consent of such Successor Landlord, (iii) liable for damages for any breach, act or omission of any prior landlord, (iv) bound to effect or pay for any construction for Tenant's occupancy, (v) subject to any claim of offset or defenses that Tenant may have against any prior landlord and which have accrued prior to the date that such Successor Landlord takes legal title to the Land and the Building, or (vi) liable for the return of any security deposit, unless such security deposit has been physically received by such Successor Landlord. Any such Successor Landlord shall have
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the right, at any time, to subordinate to this Lease to any instrument to which this Lease is otherwise subordinated by operation of Section 7.1, above.
7.3.3. Casualty Proceeds/Condemnation Awards. Tenant acknowledges that Landlord's right to any casualty proceeds or condemnation award may be subject to the rights of Landlord's mortgagee (if any) in and to such proceeds or award under the mortgage or deed of trust (if any) which encumbers the Property. Accordingly, Landlord's obligation to repair and restore, as set forth in Section 4.5, above, shall be subject to the requirements of Landlord's mortgagee with regard thereto, and the time within which such obligation must be satisfied shall be adjusted as reasonably necessary to reflect delays occasioned by the exercise by the mortgagee of such mortgagee's rights.
8. MISCELLANEOUS
8.1. Brokers. Landlord and Tenant each represent and warrant to the other that neither of them has dealt with any real estate broker other than the Brokers in the negotiating or making of this Lease. Landlord shall pay to the Brokers any leasing commission due to the Brokers in connection with this Lease, subject to and in accordance with the provisions of a separate written commission agreement.
8.2. Termination of 2000 Lease. By the execution hereof, Landlord and Tenant hereby acknowledge and agree that this Lease is subject to the presently existing lease dated as of April 25, 2000 between the parties hereto for the Initial Premises, as amended by First Amendment to Lease dated as of October 10, 2000 (as amended, the " 2000 Lease ") which 2000 Lease shall continue in full force and effect; provided, however, the parties agree that upon the Rent Commencement Date, the 2000 Lease shall terminate, said termination to be effective and self-operative without the execution of any further instruments on the part of either of the parties hereto, effective as of the commencement of the Term hereunder.
8.3. Notices. All notices and demands which may be required or permitted to be given to either party hereunder shall be in writing, and shall be delivered personally or sent by United States certified mail, postage prepaid, return receipt requested, or by Federal Express or other reputable overnight carrier, to such party's Notice Address. Either party may, upon ten (10) days' prior written notice to the other, substitute new persons and/or addresses to which all notices hereunder shall be directed. A Notice shall be deemed given upon the earlier of actual receipt or refusal of delivery, or five (5) days following the date actually sent as required herein.
8.4. Attorneys' Fees. In any litigation or arbitration between the parties arising out of this Lease, the non-prevailing party shall pay to the prevailing party all reasonable expenses, arbitration, and/or court costs, including attorneys' fees, costs and expenses incurred by the prevailing party in connection with such litigation or arbitration, including fees, costs and expenses associated with any appeals.
8.5. Security. Landlord may exercise such security measures as Landlord deems necessary for the Property. Tenant may install a security system within the Premises, at Tenant's sole cost and expense, but subject to Landlord's prior written approval, which shall not be unreasonably withheld; provided, however , that it shall not be unreasonable for Landlord to deny its approval to any system which is not compatible with the Building's overall security and fire safety and life safety systems, or which is not reasonably usable by any successor tenant(s) in the Premises. Any original or replacement suite keys or security keys shall be obtained by Tenant through Landlord, and the cost thereof shall be reimbursed by Tenant to Landlord after written invoice. Nothing contained in this Section 8.5 shall be construed to obligate Landlord to provide any particular form of security with respect to the Premises or the Building.
8.6. Inability to Perform; Force Majeure; Tenant Delay. The following events constitute a " Force Majeure ": war, civil unrest, acts of terrorism or bioterrorism, computer viruses, strike, labor troubles, unusually inclement weather, governmental delays, delays in adjusting any insurance claim, delays in
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settling or obtaining any condemnation award, delays in securing disbursement of insurance or condemnation proceeds from Landlord's lender (or any trustee holding such proceeds on such lender's behalf), inability to procure services or materials despite reasonable efforts, third party delays, fire or other casualty, acts of God, or any other cause(s) beyond the reasonable control of such party. Notwithstanding anything to the contrary contained in this Lease, with respect to any non-monetary obligation of a party in this Lease which must be performed within a specific time period, the time period for such performance shall be extended one (1) day for each day of delay suffered by such party as a result of the occurrence of any Force Majeure, provided, however, that (i) in no event shall any monetary obligations under this Lease be extended due to Force Majeure, (ii) in no event shall financial inability constitute a cause beyond the reasonable control of a party, and (iii) in order for any party hereto to claim the benefit of a delay due to Force Majeure, such party shall be required to use reasonable efforts to minimize the extent and duration of such delay, and to notify the other party of the existence and nature of the cause of such delay within a reasonable time after the such delay first commences. Tenant further agrees that Landlord's delay in performance of any of its obligations under this Lease shall be excused to the extent that such delay is due to any act -or omission of Tenant or Tenant's Agents.
8.7. Additional Provisions Governing Indemnification Obligations. In the event of a third party claim which is subject to indemnification pursuant to this Lease, the party indemnified (the "Indemnified Party") shall notify the party giving the indemnity (the "Indemnifying Party") in writing within ten (10) business days after receipt of such claim. The failure of such Indemnified Party to so notify such Indemnifying Party shall not, however, preclude such Indemnified Party from seeking indemnification hereunder except to the extent such failure has materially prejudiced the ability of the Indemnifying Party to defend such claim or has caused such Indemnifying Party to suffer actual loss, in which case such Indemnifying Party's obligations hereunder shall be reduced by the amount of such actual loss. The applicable Indemnifying Party shall promptly defend such claim by counsel of its own choosing and reasonably acceptable to the applicable Indemnified Party, and such Indemnified Party shall cooperate with such Indemnifying Party in the defense of such claim, including the settlement of the matter on the basis proposed by such Indemnifying Party and consented to by the Indemnified Party, which consent shall not be unreasonably withheld (provided that (i) the Indemnifying Party shall be responsible for all costs and expenses of such settlement, and (ii) in no event will the Indemnified Party be required to accept any settlement under which it is required to admit liability or to undertake non-monetary executory obligations which it does not deem reasonable or acceptable in its sole discretion). The Indemnified Party shall provide full access, at any reasonable time, to such information relating to the matter which is the subject to such indemnification as is within the possession, custody or control of the Indemnified Party, to the extent necessary for the Indemnifying Party to conduct such defense. If the Indemnifying Party, within a reasonable time after notice of a claim, fail(s) to defend an Indemnified Party, such Indemnified Party shall be entitled to undertake the defense, compromise or settlement of such claim at the expense of and for the account and risk of the Indemnifying Party.
8.8. Limitation Upon Landlord's Personal Liability.
8.8.1. No Personal Liability. Anything in this Lease to the contrary notwithstanding, neither Landlord, nor any of Landlord's shareholders, officers, directors, partners, members, employees, agents or representatives, shall have any personal liability to Tenant or any other party under this Lease. Accordingly, for the satisfaction of any claim brought by Tenant against Landlord, Tenant shall look solely to Landlord's interest in the rents, Premises and Building, and insurance proceeds and not to any other assets of Landlord, or any of Landlord's shareholders, officers, directors, partners, members, employees, agents or representatives. In furtherance of the foregoing, if Landlord fails to perform any provision of this Lease which is Landlord's obligation to perform, and as a consequence of such failure, Tenant shall recover a money judgment against Landlord, such judgment shall be satisfied only (i) out of the proceeds of sale received upon levy against the
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right, title and interest of Landlord in the Building, and/or (ii) to the extent not encumbered by a secured creditor, out of the rents or other incomes receivable by Landlord from the property of which the Premises are a part.
8.8.2. Transfer. In the event of any transfer(s) of Landlord's interest in the Property, including any Security Deposit then being held by Landlord, other than a transfer for security purposes only, Landlord shall be automatically released from any and all obligations and liabilities on the part of Landlord accruing from and after the date of such transfer, to the extent such obligations are assumed by the transferee either expressly or by operation of law, and Tenant agrees to attorn to the transferee as "Landlord" hereunder.
8.9. Miscellaneous Provisions.
8.9.1. No Waiver; No-Accord and Satisfaction. Failure by Landlord to assert (or waiver by Landlord of) any breach of any provision of this Lease, at any time or for any duration, shall not be deemed to be a waiver of any of Landlord's rights or remedies under this Lease, with regard to such breach or with regard to any subsequent breach of the same or any other provision of this Lease. Failure by Tenant to assert (or waiver by Tenant of) any breach of any provision of this Lease, at any time or for any duration, shall not be deemed to be a waiver of any of the Tenant's rights or remedies under this Lease, with regard to such breach or with regard to any subsequent breach of the same or any other provision of this Lease. Any waiver by Landlord or Tenant of any provisions of this Lease must be in a writing signed by such parties. In addition, Landlord's acceptance of any payment from Tenant after a termination of this Lease due to an Event of Default by Tenant shall not have the effect of reinstating this Lease, nor estop Landlord from exercising any of the rights and remedies granted to Landlord hereunder arising out of such Event of Default. No payment by Tenant or acceptance by Landlord of a lesser amount than the Rent and other sums due hereunder shall be deemed to be other than on account of the total amount due from Tenant to Landlord, to be applied in such order as Landlord deems appropriate. In no event shall any endorsement or statement on any check or accompanying any check or payment be deemed an accord and satisfaction; and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such Rent or other sum and to pursue any other remedy provided in this Lease.
8.9.2. Authority. Landlord and Tenant each represent and warrant to the other that it has been duly authorized to execute and deliver this Lease, and that this Lease is binding upon said party.
8.9.3. Execution and Delivery. This Lease shall only become effective and binding upon full execution hereof by Landlord and Tenant, and delivery of a signed copy to Tenant.
8.9.4. Joint and Several Liability. If there shall be more than person or entity which constitute the "Tenant" hereunder, the obligations of Tenant hereunder shall be joint and several for all such persons and entities.
8.9.5. Headings. The marginal headings, Table of Contents, lease summary sheet and titles to the Sections of this Lease are for convenience only, are not a part of the Lease and shall have no effect upon the construction or interpretation of any part hereof.
8.9.6. Governing Law. This Lease shall be governed by and construed in accordance with the laws of the State in which the Premises is located (without regard to the choice of law and/or conflict of law principles applicable in such State).
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8.9.7. Successors and Assigns. The covenants and conditions herein contained, subject to the provisions as to assignment, shall inure to and bind the heirs, successors, executors, administrators and assigns of the parties hereto.
8.9.8. Recordation. Except to the extent otherwise required by law, neither Landlord nor Tenant shall record this Lease, but the parties agree to execute and record a short-form memorandum hereof, in the form attached hereto as Exhibit H.
8.9.9. Partial Invalidity. Any provision of this Lease which shall prove to be invalid, void, or illegal shall in no way affect, impair or invalidate any other provision hereof and such other provision(s) shall remain in full force and effect,
8.9.10. Entire Agreement. This Lease contains the entire agreement of the parties hereto and supersedes all other agreements or understandings between them, whether oral or otherwise, and all such other agreements are hereby merged herein.
8.9.11. Consents. If any action, inaction, activity or other right or obligation of Tenant under this Lease is subject to the prior consent or approval of Landlord, such approval may be granted or denied in Landlord's sole and absolute discretion, unless the provision in question states that Landlord's consent or approval "shall not be unreasonably withheld."
8.9.12. Saving Clause. In the event (but solely to the extent) the limitations on Landlord's liability set forth in this Lease would be held to be unenforceable or void in the absence of a modification holding the Landlord liable to Tenant or to another person for injury, loss, damage or liability arising from Landlord's omission, fault, negligence or other misconduct on or about the Premises, or other areas of the Property appurtenant thereto or used in connection therewith and not under Tenant's exclusive control, then such provision shall be deemed modified as and to the extent (but solely to the extent) necessary to render such provision enforceable under applicable law. The foregoing shall not affect the application of Section 8.8 of this Lease to limit the assets available for execution of any claim against Landlord.
8.9.13. Reservation. Provided Landlord continues to provide to Tenant throughout the Term hereof the required Parking Allocation, nothing set forth in this Lease shall be deemed or construed to restrict Landlord from making any modifications to, or to reconfigure, any of the parking and/or Common Areas serving the Property, and Landlord expressly reserves the right to make any modifications or reconfigurations to such areas as Landlord may deem appropriate, including but not limited to, the addition or deletion of temporary and/or permanent improvements therein, and/or the conversion of areas now dedicated for the non- exclusive common use of tenants (including Tenant) to the exclusive use of one (1) or more tenants or licensees within the Building
8.9.14. Certain Terminology.
A The terms " including ," " includes " and terms of like import shall be interpreted to mean "including, but not limited to" and/or "includes, without limitation."
B The terms " herein ," " hereunder ," " hereinbelow ," " above " and/or "below", and any terms of like import, shall be interpreted to mean this Lease as a whole, and not merely the Section, paragraph or subparagraph within which such term is set forth.
C The term " Landlord's Agents ," shall mean Landlord's agents, employees, contractors and subcontractors.
D The term " Tenant's Agents " shall mean Tenant's agents, employees, contractors, subcontractors, assignees, sublessees, licensees and, while within the Premises, invitees and business visitors.
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E As used in all provisions of this Lease (i) where Tenant is agreeing to assume responsibility for certain conduct, actions and/or omissions of "Tenant," the term "Tenant" shall be construed to mean Tenant and Tenant's Agents, and (ii) where Landlord is agreeing to assume responsibility for certain conduct, actions and/or omissions of "Landlord," the term "Landlord" shall be construed to mean Landlord and Landlord's Agents.
8.9.15. Deed of Lease. To the extent required under applicable Law to make this Lease legally effective, this Lease shall constitute a deed of lease.
8.9.16. Declaration of Lease Commencement. Landlord and Tenant hereby agree to execute a Declaration, in the form attached hereto as Exhibit B, to confirm the Rent Commencement Date and the Lease Expiration Date. Failure to execute said Declaration shall not affect the Rent Commencement Date or the Lease Expiration Date.
8.9.17. Survival. All provisions of this Lease which (i) contemplate that the parties will take an action or pay a sum of money within a time frame that may elapse after the expiration or earlier termination of the Term, (ii) provide indemnity against Claims arising out of acts or omissions occurring during the Term even if such Claims are not asserted or resolved until after the expiration or earlier termination of the Term, and/or (iii) impose liability for damages due to acts, omissions or Events of Default occurring during the Term even if such damages are not asserted or incurred until after the expiration or earlier termination of the Term, shall, to the extent the obligation created under the applicable provision is not fully satisfied as of the date of expiration or earlier termination of the Lease, survive such expiration or termination (and shall not be merged therein).
8.10. WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE OTHER ARISING OUT OF THIS LEASE, OR THE USE AND OCCUPANCY OF THE PREMISES. TENANT HEREBY WAIVES THE RIGHT TO INTERPOSE ANY NON-MANDATORY COUNTERCLAIM IN ANY SUMMARY PROCEEDING BROUGHT BY LANDLORD AFTER AN EVENT OF DEFAULT, PROVIDED THAT (1) TENANT WILL NOT BE DEEMED TO HAVE WAIVED THE RIGHT TO ASSERT ANY SUCH NON-MANDATORY COUNTERCLAIM AS A DIRECT CLAIM AGAINST LANDLORD IN A SEPARATE ACTION AGAINST LANDLORD, AND (2) TENANT SHALL NOT SEEK TO CONSOLIDATE SUCH SEPARATE PROCEEDING WITH ANY SUCH SUMMARY PROCEEDING BROUGHT BY LANDLORD AGAINST TENANT.
9. EXHIBITS TO LEASE.
The following additional schedules are attached hereto and made a part of this Lease:
EXHIBIT A-1 | Location and Dimensions of Premises | |
EXHIBIT A-2 | Legal Description of Land | |
EXHIBIT B | Declaration of Lease Commencement | |
EXHIBIT C | Work Agreement | |
EXHIBIT D | Rules and Regulations | |
EXHIBIT E | Building Specifications | |
EXHIBIT F | Intentionally Omitted | |
EXHIBIT G | Form of Estoppel Certificate | |
EXHIBIT H | Form of Notice of Lease | |
EXHIBIT I | Plan of Offer Space |
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.
LANDLORD: | |||
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WELLSFORD/WHITEHALL HOLDINGS, L.L.C., a Delaware limited liability company |
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By: |
/s/ RICHARD R. PREVIDI Name: Richard R. Previdi Authorized Signatory |
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TENANT: |
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TECHTARGET.COM, INC., a Delaware corporation |
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By: |
/s/ ERIC SOCKOL Name: Eric Sockol Title: President/Vice President |
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By: |
/s/ ERIC SOCKOL Name: Eric Sockol Title: Treasurer/Assistant Treasurer |
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EXHIBIT A-1
Location and Configuration of the Premises
[See attached]
A-1
EXHIBIT A-2
Legal Description of the Land
That certain parcel of land situate in Needham in the County of Norfolk and in the Commonwealth of Massachusetts, bounded and described as follows:
Said parcel is shown as lot numbered 3 upon plan numbered 29185A, which is filed in Norfolk Registry District with Certificate No. 72051, Sheet 1, Book 361, the same being compiled from a plan drawn by Cheney Engineering Co. dated March 16, 1959, October 27, 1959, July 1962 and additional data on file in the Land Registration office, all as modified and approved by the Land Court. (Excepting fee in Kendrick Street.)
Also another certain parcel of land situate in said Needham, described as follows:
Said parcel is shown as lot numbered 20 upon plan numbered 24606A, which is filed in Norfolk Registry District with Certificate No. 56443, Sheet 5, Book 283, the same being compiled from a plan drawn by William S. Crocker, Civil Engineer dated September 11, 1953, November 30, 1953, September 25, 1953, October 28, 1953, February 2, 1954, February 8, 1954, March 30, 1954, November 29, 1954 and September 1, 1955 and additional data on file in the Land Registration office, all as modified and approved by the Land Court. (Excepting fee in Kendrick Street.)
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EXHIBIT B
Declaration of Lease Commencement
Attached to and made part of the Lease dated the day of , 200 , entered into by and between Wellsford/Whitehall Holdings, L.L.C., as Landlord, and TechTarget.com, Inc., as Tenant (the "Lease").
Landlord and Tenant do hereby declare that the Rent Commencement Date (as defined in the Lease) is hereby established to be and that the Lease Expiration Date (as defined in the Lease) is hereby established to be . The Lease is in full force and effect as of the date hereof.
EXECUTED as of the day of , 200 .
LANDLORD: | |||
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WELLSFORD/WHITEHALL HOLDINGS, L.L.C., a Delaware limited liability company |
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By: |
/s/ RICHARD R. PREVIDI Name: Richard R. Previdi Authorized Signatory |
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TENANT: |
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TECHTARGET.COM, INC., a Delaware corporation |
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By: |
/s/ ERIC SOCKOL Name: Eric Sockol Title: President/Vice President |
B-1
1. DEFINED TERMS.
The terminology herein shall have the same meaning ascribed to such terminology within the Lease. In addition, the following terms shall have the following meanings:
" Building Permit Date " shall mean the date upon which a building permit for the TI Work is first issued by the applicable governmental authority to Tenant (and/or any contractor, architect or permit expediter processing such building permit on Tenant's behalf).
" Change Order " shall have the meaning set forth in Section 4, below.
" Construction Documents " shall mean the construction drawings for the TI Work, as approved (and/or deemed approved) by Landlord and Tenant, as the same may be modified (i) by Change Orders, and/or (ii) to meet the requirements of a reviewing governmental authority and comply with Laws as part of the process of obtaining the issuance of building permits or other approvals for the TI Work, provided any material modifications to the approved Construction Documents required by a reviewing governmental authority for the issuance of a building or other permit required to perform the TI Work shall be subject to Landlord's reasonable approval.
" Construction Document Approval " shall mean Landlord's final written approval of the Construction Documents pursuant to Paragraph 1(b) below.
" Costs " shall mean all hard and soft costs associated with the design, review, permitting, supervision, construction and contracting of the TI Work and all change orders.
" Improvement Allowance " shall mean an amount equal to $247,120, based on a rate of $20 per rentable square foot of the Additional Premises.
" Landlord Delay(s) " shall mean actual delay in the performance of the TI Work which Tenant can demonstrate is attributable to (i) the actions, omissions or interference of Landlord or Landlord's Agents with respect to any aspect of the performance of the TI Work, (ii) any delay by Landlord in the review and approval of any Construction Documents submitted to it for review and/or approval beyond the time periods provided for herein which causes actual delay in the issuance of a building permit to Tenant, and (iii) any delay in the completion of Base Building Work not caused by Tenant Delay. In calculating the duration of any Landlord Delay, such duration shall be based upon the actual number of days of delay in the completion of the TI Work attributable to the causes described in clauses (i) and (ii), above.
" Premises Delivery Date " shall mean the date upon which Landlord tenders possession of the Additional Premises to Tenant such that Tenant can commence the TI Work promptly upon taking possession.
" Space Plan " shall mean the Space Plan to be approved by the parties in their reasonable discretion. Tenant agrees to deliver the Space Plan to Landlord for approval, which approval shall not be unreasonably withheld or delayed, as soon as practicable but in no event later than thirty (30) days after the Lease execution.
" Substantial Completion of the TI Work " and phrases of a similar nature shall mean that the TI Work shall have been completed in accordance with the Construction Documents, other than (A) items that require an unusually long lead time for procurement and/or installation, and (B) "punch list" items and other minor defects which will not unreasonably interfere with Tenant's ability to lawfully occupy the Premises or prevent the issuance of an final inspection approvals and an occupancy permit or its equivalent. Tenant shall be responsible for obtaining all governmental
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inspection and other approvals with regard to the TI Work and/or which are necessary to permit Tenant to install its furniture, fixtures and equipment in, and to occupy, the Premises lawfully.
" Tenant's Contractor " means the general contractor selected by Tenant to perform the TI Work, which general contractor shall be subject to Landlord's prior-approval, not to be unreasonably withheld.
" Tenant's Representative " shall mean , or any other representative appointed by Tenant of which Landlord is notified. Tenant's Representative shall have the power to bind Tenant with respect to all matters arising under this Exhibit C . In addition, and notwithstanding Section 8.3 of the Lease to the contrary, Tenant agrees that notices or transmittals given by Landlord to Tenant's Representative pursuant to this Exhibit C shall be deemed duly delivered to Tenant for all purposes of the Lease (effective as of the earlier to occur of actual receipt or refusal of such delivery by Tenant's Representative).
" TI Work " shall mean all work shown on the Construction Documents.
2. PREPARATION OF PLANS AND SPECIFICATIONS.
(a) On or before thirty (30) days from the execution hereof, Tenant shall cause construction drawings for the TI Work (" Construction Drawings ") consistent with the Space Plan to be completed. Tenant agrees that it shall engage BER, Inc. as its MEP engineer for the TI Work .
(b) Within ten (10) business days after receipt of any Construction Drawings, Landlord shall return such Construction Drawings to Tenant with its objections, suggested modifications and/or approval (which suggested objections and suggested modifications are herein referred as " Landlord Modifications "). Unless Tenant has an objection to any Landlord Modifications, said Construction Drawings shall thereafter be revised by Tenant to reflect the applicable changes. If, upon receipt of any Landlord Modifications, Tenant wishes to take exception thereto, Tenant may do so within five (5) business days after Tenant's receipt of such Landlord Modifications. In such event, Tenant shall deliver revised Construction Drawings to Landlord prior to the expiration of such five (5) Business Day period reflecting all matters with which Tenant was in agreement, and identifying all matters with which Tenant was not in agreement with reasonable specificity. Landlord shall grant its approval or disapproval thereto, and/or state any further objections or proposed modifications, within ten (10) business days after receipt thereof. After the first submission and resubmission, Landlord and Tenant agree (i) to restrict further objections or disputes to matters which have not previously been agreed upon or accepted by the other party, (ii) to deliver revised submissions or objections within a ten (10) Business Day period, and (iii) to confer regularly in a good faith effort to resolve all matters in dispute expeditiously. The parties shall, in all events, attempt to reach final agreement on the Construction Drawings as soon as possible. Each party agrees that its failure to respond to a submission or resubmission within the above-referenced time frames shall constitute such party's acceptance of the submission or resubmission in question, or, to the extent applicable, a delay caused by the delinquent party.
(c) Within five (5) days after Construction Document Approval and after consultation with Landlord, Tenant shall submit an application for, and diligently pursue, issuance of a building permit (and any other approvals required) for the TI Work. Tenant shall provide Landlord with copies of all written comments, responses, approvals, disapprovals and/or other correspondence received from all applicable governmental authorities in connection with such application, and shall otherwise keep Landlord informed regarding the processing of Tenant's building permit application. In the event Tenant is unable to obtain the building permit within thirty (30) days after application therefor, Tenant shall authorize Landlord to diligently pursue the issuance of the building permit at Tenant's sole and reasonable cost and expense, which Landlord shall use diligent efforts to obtain within ninety (90) days after such Tenant authorization.
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3. DELIVERY OF POSSESSION.
The parties acknowledge that Tenant is currently in possession of the Initial Premises and as of the date hereof, Tenant accepts the Initial Premises in their "as is, where is" condition. Landlord shall tender possession of the Additional Premises to Tenant on the Premises Delivery Date. Within two (2) business days after Landlord tenders possession of the Additional Premises to Tenant, Tenant and a representative of Landlord shall jointly inspect the Additional Premises, and Tenant shall be deemed to have accepted possession of the Additional Premises (in their condition as of the Premises Delivery Date) effective upon the earlier of (i) the date of such joint inspection, or (ii) the second (2nd) business day after Landlord tenders possession of the Additional Premises to Tenant. In no event shall Tenant's failure or refusal to attend such joint inspection, or to accept tender of possession of the Additional Premises, affect the Premises Delivery Date, or Tenant's deemed acceptance of the Additional Premises.
4. PERFORMANCE OF TI WORK.
(a) Promptly after the Premises Delivery Date and subject to Tenant receiving a building permit for the TI Work, Tenant shall commence, and use reasonable speed and diligence to perform, the TI Work, in order to achieve Substantial Completion of the TI Work as soon as is reasonably practicable. Except as provided herein, no deviation from the Construction Documents shall be made by Tenant except by written Change Order approved by Landlord, which approval shall not be unreasonably withheld or delayed. Tenant shall be responsible for all Costs of the TI Work. Within sixty (60) days of Substantial Completion of the TI Work, Tenant shall provide Landlord with an auto-CAD file of as-built plans and specifications of the TI Work.
(b) The performance of TI Work by Tenant or under Tenant's supervision shall be governed by all covenants and agreements set forth in Section 4.2 of the Lease with regard to Alterations, as if such provisions were fully restated herein and expressly made applicable to the performance of TI Work. Without limitation, Tenant will enter into one or more construction contracts for the performance of the TI Work by the Tenant's Contractor, and will deliver a true, correct and complete copy of such construction contract(s), with any dollar amounts redacted if Tenant so desires, to Landlord promptly after execution.
(c) Landlord will have the right to inspect the performance of the TI Work by Tenant's Contractor and any subcontractor(s), and Tenant agrees to cooperate with Landlord to facilitate such inspections, including, without limitation, notifying Landlord prior to any and all government inspections of the TI Work so that Landlord's construction manager can be present for such inspections. Landlord shall use reasonable and diligent efforts not to interfere unreasonably with the performance of the TI Work during the course of any inspections by Landlord pursuant to this subparagraph.
(d) All TI Work shall be warranted to be free from defects in design and workmanship for a period of not less than one (1) year from Substantial Completion of the TI Work.
(e) Landlord shall be notified not less than three (3) business days in advance of, and shall have the right to participate in, any inspection of the TI Work by Tenant or its architect in which a punch list for such work is intended to be prepared, and shall further have the right to require the inclusion of any bona fide punch list items on such punch list.
(f) Tenant shall have no right to enter the Additional Premises prior to the Premises Delivery Date. However, in the event Landlord consents in its discretion to any such entry, such entry shall be subject to all of the terms and conditions of the Lease, except for the obligation to pay Rent (which will not be applicable until the. Rent Commencement Date, as provided in the Lease). Tenant shall bear the full risk of loss for any materials, equipment or other property which are brought into the
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Building or the Premises (including the Initial Premises) as part of the TI Work (which shall be stored or installed in the Premises at Tenant's sole risk). Tenant shall notify Landlord at least three (3) business days prior to the date upon which Tenant requests to enter the Additional Premises for the purpose of performing any measurements or other preconstruction activities prior to the Premises Delivery Date. Landlord shall use reasonable efforts to accommodate Tenant for such limited entries.
5. PAYMENT OF COSTS; IMPROVEMENT ALLOWANCE.
(a) Tenant shall be responsible for the payment of all Costs for the TI Work. Failure by Tenant to pay the costs associated with the TI Work on a timely basis so as to avoid the assertion of any statutory and/or common law lien against the Premises, Buildings or Property shall constitute an Event of Default by Tenant for all purposes of the Lease. Subject to the provisions of Section 6.1.8 but without limiting Landlord's rights and remedies due to such Event of Default by Tenant, if Tenant fails to pay such Costs on or before five (5) days after receipt of Landlord's notice of the non-payment thereof, Landlord shall have the right (but not the obligation) to pay such costs to the extent unpaid, and bill Tenant for (or deduct from the Improvement Allowance) any amount so paid by Landlord.
(b) Landlord agrees to fund the Improvement Allowance as its total financial obligation with respect to the TI Work. Costs to be applied against the Improvement Allowance. shall include architectural and engineering fees and expenses, permit and inspection fees, and costs of labor and materials. The Improvement Allowance shall be paid to Tenant within thirty (30) days following Landlord's receipt of all of the following items:
(i) a payment request seeking the Improvement Allowance, with supporting invoices which document that the Costs are equal to or greater than the Improvement Allowance;
(ii) a certificate of Tenant's architect to Landlord and any other party reasonably designated by Landlord (such as Landlord's mortgagee, if any) certifying as to Costs and to the Substantial Completion of the TI Work in accordance with the Construction Documents, subject to any punch list items to be completed;
(iii) a copy of the temporary or final certificate of use and occupancy (or its equivalent) issued to Tenant by the applicable governmental authority with respect to the entire Premises;
(iv) a copy of complete as-built plans and specifications for the TI Work;
(v) Lien Releases for the TI Work.
Upon receipt and approval of all such items, Landlord shall be obligated to disburse the Improvement Allowance to Tenant. Any unused portion of the Improvement Allowance shall be credited to Tenant and applied against the next ensuing installments of Base Rent.
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SCHEDULE C-1
Tenant's Space Plan
[to be delivered post-Lease execution]
C-5
EXHIBIT D
Rules and Regulations
117 Kendrick Street, Needham, MA.
1. The sidewalks, halls, passages, exits, entrances, elevators and stairways of the Building shall not be obstructed by Tenant or used by Tenant for any purpose other than for ingress to and egress from the Premises. The halls, passages, exits, entrances, elevators, and stairways are not for the general public, and Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interests of the building and its Tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom any Tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities.
2. No sign, placard, picture, name, advertisement or notice, visible from the exterior of the Premises shall be inscribed, painted, affixed or otherwise displayed by any Tenant on any part of the Building without the prior written consent of Landlord.
3. Tenant shall not allow a fire or bankruptcy sale or any auction to be held on the Premises or allow the Premises to be used for the storage of merchandise held for sale to the general public.
4. Tenant shall not allow the Premises to be used for lodging, however, cooking shall be permitted by Tenant on the Premises.
5. Tenant shall not employ any person or persons other than the janitor of Landlord for the purpose of cleaning the Premises, unless otherwise agreed to by Landlord in writing or as specifically provided in the Lease. Except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be permitted to enter the Building for the purpose of cleaning the same. Tenant shall not cause any unnecessary labor by reason of Tenant's, its agents', employees' or contractors' carelessness or indifference in the preservation of good order and cleanliness of the Building.
6. Tenant shall not alter any lock or install a new or additional -lock or any bolt on any door of the Premises without in each case promptly furnishing Landlord with a key for any such lock. Tenant, upon the termination of its tenancy, shall deliver to Landlord all keys and key cards to doors in the Building which shall have been furnished to the Tenant.
7. Tenant shall not use, permit or keep in the Premises or the Building any kerosene, gasoline or inflammable or combustible fluid or material other than limited quantities thereof reasonably necessary for the operation and maintenance of office equipment, or, without Landlord's prior written approval, use any method of heating or air conditioning other than that supplied by Landlord. Tenant shall not use or keep or permit to be used or kept any foul obnoxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or to other occupants of the Building by reason of noise, odors, or vibrations, or interfere in any way with other Tenants or those having business therein.
8. Landlord shall have the right, exercisable on not less than five (5) business days' notice to Tenant, without liability to any tenant, to change the name and street address of the Building, and Landlord shall reimburse Tenant for the cost to replace its existing stock of business cards and stationery provided that same include the name or street address of the Building.
9. In the case of bona fide invasion, mob, riot, public excitement or other circumstances rendering such action advisable in Landlord's opinion, Landlord reserves the right to prevent access to the Building during the continuance of the same by such action as Landlord may deem appropriate, including closing doors.
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10. Tenant shall ensure the doors of the Premises are closed and locked and that all water faucets, water apparatus and utilities are shut off before Tenant or Tenant's employees leave the Premises, so as to prevent waste or damage.
11. The toilet rooms, toilets, urinals, wash basins and other apparatus shall not be used for any purpose other than that for which they were constructed, no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule by Tenant shall be borne by Tenant.
12. Except with the prior written consent of Landlord, Tenant shall not sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises, nor shall the Premises be used for manufacturing of any kind, or any business or activity other than that specifically provided for in the Lease.
13. Hand trucks shall not be used in any space or public halls of the Building, either by Tenant or any other occupant of the Building, except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve, No other vehicles of any kind shall be brought by Tenant into the building or kept in or about the Premises.
14. Tenant agrees to coordinate all moving activity of office equipment and furniture in and out of the Building with Landlord or Landlord's agent, and to use the services of an insured professional moving company.
15. Tenant shall store its trash and garbage within the Premises. No material shall be placed in the trash boxes, receptacles or common areas if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the locality in which the Premises is located, without being in violation of any law or ordinance governing such disposal. All garbage and refuse disposal shall be made only through entryways and elevators provided for such purposes and at such times as Landlord shall designate.
16. Tenant agrees not to allow or keep any animals or pets of any kind on the Premises, except those seeing-eye dogs which are for the direct purpose of aiding and assisting the visually impaired.
17. The requirements of the Tenant will be attended to only upon application by telephone or in person at the office of Landlord or Landlord's agent. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord.
18. Smoking is not allowed in the Building, and shall be permitted outside the Building only within designated smoking areas.
19. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of premises in the Building, provided that, in the event of any irreconcilable conflict between theses Rules and Regulations and the express terms of any Lease to which they are attached, the terms of such Lease shall be controlling.
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BUILDING SERVICES
117 Kendrick Street
Needham, MA 02492
Normal Business Hours :
From 7:00 A.M. to 7:00 P.M. on weekdays, and from 8 a.m. to 1 p.m. on Saturday; excluding Holidays.
Holidays :
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Thanksgiving Day, and Christmas Day. All other Holidays will be determined based on the Tenants working in the building.
Basic Building Services :
1. During Normal Business Hours and from 8:00 A.M. 1:00 P.M. on Saturday, electricity to the Premises for the operation of heating, ventilation and air-conditioning ("HVAC") service in accordance with the specifications set forth in Schedule E-1 . Landlord shall not be required to supply electrical service for equipment that consumes more than 7 watts per square foot.
2. At all times, electricity to the Premises for lighting and for the operation of normal and customary office machines.
3. Hot and cold water to common area restrooms.
4. Elevator service (with at least one elevator subject to call at all times).
5. Janitorial Services, consisting of toilet cleaning and restroom supply, common area and in-suite janitorial services, and window washing on weekdays (excluding Holidays) in accordance with the specifications set forth in Schedule E-2.
6. 24 hours per day/7 days per week access to the Building via key card system.
Additional HVAC Service :
If requested by Tenant, Landlord shall furnish HVAC service at times other than Normal Business Hours at the cost of such service as established from time to time by Landlord, and shall be paid by Tenant as additional rent as provided in Section 2, above. Tenant must notify Landlord (through the individual or calling procedure established by Landlord's property manager to serve such function) no later than 1:00 p.m. on a business day for after-hours HVAC service that day, and no later than 1:00 p.m. on Friday or the day before a holiday for after-hours HVAC service for the following weekend or holiday.
E-1
SCHEDULE E-1
HVAC Performance Specifications
HVAC Service:
The HVAC System serving the Premises shall have the capability to provide a thermal environment to satisfy the following conditions:
Cooling Season: Maintain room conditions of 76 F. dry bulb and 55% relative humidity when the coincident outside conditions do not exceed 91 F. dry bulb and 73 F. wet bulb.
Heating Season: Maintain room conditions of 72 F. dry bulb when the outside air temperature is not less than 9 F. dry bulb.
The above conditions shall be maintained, based on the following:
(a) Lighting and equipment heat load of 7 watts/square foot of occupied space.
(b) People load of one person per 150 square feet
(c) 20 CFM fresh air per person.
All other specifications for the base building HVAC Systems, electrical systems and other Building Systems are as set forth in the Approved Base Building Plans.
E-2
SCHEDULE E-2
Janitorial Specifications
I. LANDLORD JANITORIAL SPECIFICATION:
The foregoing janitorial services are to be construed to apply to the facilities described solely to the extent located within the Common Areas of the Building, and not within the Premises:
GENERALLY
DAILY :
WEEKLY
ANNUALLY
Strip and refinish all resilient tile floors, applying two (2) coats of metal interlock floor finish. (Regardless of whose approval or direction, no materials will be applied that would cause a hazardous situation or slippage.)
LAVATORIES:
DAILY:
WINDOWS:
Clean exterior surfaces of all windows semi-annually.
E-3
Form of Guaranty
GUARANTY
United Communications Group Limited Partnership, a Maryland limited partnership (hereinafter called " Guarantor "), having an office at 11300 Rockville Pike, Suite 1100, Rockville, Maryland 20852-3030, Attention: Todd Foreman, has requested Wellsford/Whitehall Holdings, L.L.C., a Delaware limited liability company (hereinafter called "Landlord"), having an office at c/o Archon Atlantic, Stony Brook Office Park, 130 Turner Street, Building 1, Waltham, Massachusetts 02453 to enter into that certain lease (hereinafter called "the Lease") dated October , 2003 between Landlord and TeehTarget.com, Inc., a Delaware corporation (hereinafter called "Tenant"), having an office at 117 Kendrick Street, Needham, Massachusetts 02494, covering certain space in Needham, Massachusetts, and in order to induce Landlord to enter into the Lease and in consideration of Landlord's entering into the Lease, Guarantor hereby guarantees, unconditionally and absolutely, to Landlord, its successors and assigns (without requiring any notice of nonpayment, nonkeeping, nonperformance or nonobservance or proof of notice or demand whereby to charge Guarantor, all of which Guarantor hereby expressly waives), the full and faithful keeping, performance and observance of all the covenants, agreements, terms, provisions and conditions of the Lease provided to be kept, performed and observed by Tenant (expressly including, without being limited to, the payment as and when due of the fixed rent, additional rent, charges and damages payable by Tenant under the Lease) and the payment of any and all other damages for which Tenant shall be liable by reason of any act or omission contrary to any of said covenants, agreements, terms, provisions or conditions, such payment and performance to be made or performed by Guarantor forthwith upon a default by Tenant which continues beyond any applicable notice and cure periods provided in the Lease.
As a further inducement to Landlord to enter into the Lease and in consideration thereof, Guarantor represents and warrants that:
(a) Guarantor is under common ownership and control with Tenant, and
(b) this Guaranty has been duly authorized by all necessary corporate action on Guarantor's part, has been duly executed and delivered by a duly authorized officer, and constitutes Guarantor's valid and legally binding agreement in accordance with its terms.
As a further inducement to Landlord to enter into the Lease and in consideration thereof, Guarantor hereby expressly covenants and acknowledges as follows:
(1) The obligations hereunder of Guarantor shall not be terminated or affected in any way or manner whatsoever by reason of Landlord's resort, or Landlord's omission to resort, to any summary or other proceedings, actions or remedies for the enforcement of any of Landlord's rights under the Lease or with respect to the premises thereby demised or by reason of any extensions of time or indulgences granted by Landlord, or by reason of the assignment or surrender of all or any part of the Lease or the term and estate thereby granted or all or any part of the premises demised thereby except to the extent that Tenant is released in writing by Landlord from any obligation in connection with any such assignment or surrender or except to the extent specifically provided for in the Lease. The liability of Guarantor is coextensive with that of Tenant and also joint and several, and action or suit may be brought against Guarantor and carried to final judgment and/or completion and recover had, either with or without making Tenant a party thereto. Insofar as the payment by Tenant of any sums of money to Landlord is involved, this Guaranty is guaranty of payment and not of collection and shall remain in full force and effect until payment in full to Landlord of all sums payable under the Lease. Guarantor waives any right to require that any action be brought against Tenant or to require that resort be had to any security or to any other credit in favor of Tenant.
F-1
(2) If the Lease shall be renewed, or its term extended, for any period beyond the date specified in the Lease for the expiration of said term, or if additional space shall be included in, or substituted for all or any part of, the premises demised by the Lease, or if the Lease be modified by agreement between Landlord and Tenant in any other similar or dissimilar respect, and provided Guarantor has previously consented thereto in writing, the obligations hereunder of Guarantor shall extend and apply with respect to the full and faithful keeping, performance and observance of all of the covenants, agreements, terms, provisions and conditions which under such renewal of the Lease or extension of its term and/or with respect to any such additional space, or which under any supplemental indenture or new lease or modification agreement, entered into for the purpose of expressing or confirming any such renewal, extension, inclusion, substitution or modification, are to be kept, performed and observed by Tenant (expressly including, without being limited to, the payment as and when due of fixed rent, additional rent, charges and damages provided for thereunder) and the payment of any and all other damages for which Tenant shall be liable by reason of any act or omission contrary to any of said covenants, agreements, terms, provisions or conditions.
(3) Neither the giving nor the withholding by Landlord of any consent or approval provided for in the Lease shall affect in any way the obligations hereunder of Guarantor; provided that Landlord shall not be in default under the Lease for such giving or withholding of consent.
(4) Neither Guarantor's obligation to make payment in accordance with the terms of this Guaranty nor any remedy for the enforcement thereof shall be impaired, modified, changed, stayed, released or limited in any manner whatsoever by any impairment, modification, change, release, limitation or stay of the liability of Tenant or its estate in bankruptcy or any remedy for the enforcement thereof, resulting from the operation "of any present or future provision of the Bankruptcy Code of the United States or other statute or from the decision of any court interpreting any of the same, and Guarantor shall be obligated under this Guaranty as if no such impairment,, stay, modification, change, release or limitation had occurred.
(5) This Guaranty, and all of the terms hereof, shall be binding on Guarantor and the successors, assigns, and legal representatives of Guarantor.
(6) Guarantor hereby waives the right to trial by jury in any action or proceeding that may hereafter be instituted by Landlord against Guarantor in respect of this Guaranty.
(7) The Lease and this Guaranty shall be interpreted under the laws of the Commonwealth of Massachusetts.
(8) If Landlord prevails in any proceeding with respect to the enforcement of this Guaranty, Guarantor will pay upon demand to Landlord all Landlord's expenses, including, but not limited to, reasonable attorneys' fees, in enforcing this Guaranty.
(9) Guarantor's obligations under this Guaranty shall expire on July 31, 2006.
Dated: October , 2003
United Communications Limited Partnership
By: UCG, Inc., its General Partner | Attest: | |||
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EXHIBIT G
Form of Estoppel Certificate
TENANT'S ESTOPPEL CERTIFICATE
PROPERTY: | ||||
LEASED PREMISES: |
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LANDLORD: |
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LEASE DATED: |
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(" Lease ") |
The undersigned tenant (" Tenant "), in recognition that (together with its successors and assigns,["Purchaser")] ["Lender")] [intends to purchase] [is providing financing for] the Property, hereby certifies to Landlord and [Purchaser] [Lender] that:
1. Tenant has accepted possession of the Premises pursuant to the Lease. A true and accurate copy of the Lease is attached hereto. The Term commenced on . The expiration date of the Term, excluding any unexercised renewals and extensions, is . Tenant has not assigned its rights under the Lease or sublet any portion of the leased premises [except as follows: ]. The Lease is dated and has not been amended except as follows: [List the dates of any amendments or modifications of the Lease. ]
2. Any improvements required by the terms of the Lease to be made by Landlord have been completed to the satisfaction of Tenant in all respects, and Landlord has fulfilled all of its duties under the Lease, including without limitation satisfaction of any tenant improvement allowance obligations thereunder.
3. Except as disclosed in Paragraph I above, the Lease has not been assigned, modified, supplemented or amended in any way. The Lease constitutes the entire agreement between the parties and there are no other agreements or understandings between Landlord and Tenant concerning the Premises. The undersigned does not have (a) any option or preferential right to (i) purchase all or any part of the Premises or the building of which the Premises are a part, (ii) lease additional space within the Building, (iii) cancel or terminate the Lease prior to the scheduled expiration date except for rights of termination arising under the provisions of Exhibit C of the Lease or under the casualty and condemnation provisions of the Lease, to the extent applicable, or (iv) surrender space back to Landlord, [except as follows: ] or (b) any right, title or interest with respect to the Premises or such building other than as Lessee under the Lease.
4. The Lease is valid and in full force and effect, and to the best of Tenant's knowledge, neither Landlord nor Tenant is in default thereunder. Tenant has no defense, setoff or counterclaim against Landlord arising out of the Lease or against the payment of rent or other charges under the Lease or in any way relating thereto, or arising out of any other transaction between Tenant and Landlord, and no event has occurred and no condition exists, which with the giving of notice or the passage of time, or both, will constitute a default under the Lease. Tenant is current in the payment of any taxes, utilities, common area maintenance or other charges to be paid by Tenant.
5. There are no actions, whether voluntary or involuntary, pending against Tenant under any insolvency, bankruptcy or other debtor relief laws of the United States of America or of the State of .
6. The Monthly Base Rent presently payable under the Lease is $ . Landlord is holding a Security Deposit in an amount equal to $ .
G-1
7. No rent or other sum payable under the Lease has been paid more than one month in advance. Tenant is not entitled to any credit against any rent or other charges under the Lease, or any other rent concession under the Lease, including without limitation any such remaining credit (i.e., not previously applied against rent prior to the date hereof), whether arising from any unused tenant improvement allowance or otherwise, except as follows (f applicable, explain basis for credit and amount of remaining credit) : .
8. [IF GIVEN TO A LENDER: Tenant acknowledges that: the Lease will be assigned to [LENDER'S NAME] as lender, and Tenant has received no notice of a prior assignment, hypothecation or pledge of the Lease or the rents;]
9. [IF GIVEN TO A LENDER: All notices and other communications from Tenant to Lender shall be in writing and shall be delivered or mailed by registered mail, postage paid, return receipt requested, addressed to:
[INSERT LENDER NAME AND NOTICE ADDRESS]
or at such other address as Lender or its successors, assigns or transferees shall furnish to Tenant in writing.]
Date: , 20 .
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[Guarantor's Acknowledgment Continues on the Following Page]
G-2
GUARANTOR'S ACKNOWLEDGMENT
The undersigned (a) has guaranteed the obligations of the Tenant under the Lease referred to above, (b) consents to the matters set forth above and agrees to be bound thereby, and (c) acknowledges that the guaranty executed by the undersigned is in full force and effect and will not be supplemented, modified, amended or terminated without the prior written consent of the Lender.
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G-3
EXHIBIT H
Form of Notice of Lease
Pursuant to Massachusetts General Laws Chapter 183, Section 4, as amended, and Chapter 185, Section 71, as amended, notice is hereby given of the following lease (the "Lease"):
Landlord: | WellsfordfWhitehall Holdings, L.L.C., a Delaware limited liability company | |
Tenant: |
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TechTarget.com, Inc., a Delaware corporation |
Date of Execution: |
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As of , 2003 |
Description of Premises: |
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Approximately 42,330 rentable square feet located in the northeast quadrant of the building commonly known as and located at 117 Kendrick Street, Needham, Massachusetts. |
Term of Lease: |
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The Term of the Lease shall commence on the date of final execution of the Lease and shall expire on December 31, 2009. |
Option to Extend: |
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Tenant has an option to extend the Term of the Lease for one (1) period of sixty (60) months, subject to the terms and conditions more particularly set forth in Section 5.4 of the Lease. |
[Signatures commence on the following page]
H-1
This instrument is executed as a notice of the aforesaid Lease and is not intended, nor shall it be deemed to vary or govern the interpretation of the terms and conditions thereof.
LANDLORD: | |||
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WELLSFORD/WHITEHALL HOLDINGS, L.L.C., a Delaware limited liability company |
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By: |
Richard R. Previdi, Authorized Signatory |
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TENANT: |
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TECHTARGET.COM, INC., a Delaware corporation |
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Name: Title: |
H-2
STATE OF
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Then personally appeared the above-named Richard R. Previdi, Authorized Signatory of Wellsford/Whitehall Holdings, L.L.C., known to me to be the person who executed the foregoing instrument and acknowledged the same to be the free act and deed of said Wellsford/Whitehall Holdings, L.L.C., before me,
Notary Public Print Name: My commission expires: |
STATE OF
Then personally appeared the above-named , of TechTarget.com, Inc., known to me to be the person who executed the foregoing instrument and acknowledged the same to be the free act and deed of said TechTarget.com, Inc., before me,
Notary Public Print Name: My commission expires: |
H-3
[See attached.]
I-1
NOTICE OF LEASE
Pursuant to Massachusetts General Laws Chapter 183, Section 4, as amended, and Chapter 185, Section 71, as amended, notice is hereby given of the following lease (the "Lease"):
Landlord: | Wellsford/Whitehall Holdings, L.L.C., a Delaware limited liability company | |
Tenant: |
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TechTarget.com, Inc., a Delaware corporation |
Date of Execution: |
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As of Nov 25th, 2003 |
Description of Premises: |
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Approximately 42,330 rentable square feet located in the northeast quadrant of the building commonly known as and located at 117 Kendrick Street, Needham, Massachusetts. |
Term of Lease: |
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The Term of the Lease shall commence on the date of final execution of the Lease and shall expire on December 31, 2009. |
Option to Extend: |
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Tenant has an option to extend the Term of the Lease for one (1) period of sixty (60) months, subject to the terms and conditions more particularly set forth in Section 5.4 of the Lease. |
[Signatures commence on the following page.]
I-2
This instrument is executed as a notice of the aforesaid Lease and is not intended, nor shall it be deemed to vary or govern the interpretation of the terms and conditions thereof.
LANDLORD: | |||
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WELLSFORD/WHITEHALL HOLDINGS, L.L.C., a Delaware limited liability company |
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By: |
/s/ RICHARD R. PREVIDI Richard R. Previdi, Authorized Signatory |
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TENANT: |
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TECHTARGET.COM, INC., a Delaware corporation |
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/s/ ERIC SOCKOL Name: Title: |
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STATE OF NEW JERSEY
County of Morris, ss. | , 2003 |
Then personally appeared the above-named Richard R. Previdi, Authorized Signatory of Wellsford/Whitehall Holdings, L.L.C., known to me to be the person who executed the foregoing instrument and acknowledged the same to be the free act and deed of said Wellsford/Whitehall Holdings, L.L.C., before me,
/s/
ROBERT A. LICHT
Robert A. Licht Notary Public, State of New Jersey No. 2066313 Qualified in the County of Bergen Commission Expires October 4, 2004 |
STATE OF MASSACHUSETTS
, ss. | November 05, 2003 |
Then personally appeared the above-named Eric Sockol, President of TechTarget.com, Inc., known to me to be the person who executed the foregoing instrument and acknowledged the same to be the free act and deed of said TechTarget.com, Inc., before me,
/s/
JESSICA L. SANDNER
Notary Public Print Name: Jessica L. Sandner My commission expires: September 25, 2009 |
I-4
Exhibit 10.13
This First Amendment to Lease dated as of the 27th day of July, 2004 by and between Wellsford/Whitehall Holdings, L.L.C., a Delaware limited liability company ("Landlord"), and TechTarget.com, Inc., a Delaware corporation ("Tenant").
WHEREAS, Landlord and Tenant are parties to that certain Lease dated as of November 25, 2003 (the "Lease") with respect to space in the building known and numbered as Cutler Lake Corporate Center, 117 Kendrick Street, Needham, Massachusetts (the "Building"), which space consists of approximately 42.330 rentable square feet, as more particularly described therein (the "Premises");
WHEREAS, simultaneously with the execution and delivery of the Lease, United Communications Group Limited Partnership, a Maryland limited partnership (the "Guarantor") executed a Guaranty for the benefit of Landlord, pursuant to which Guarantor guaranteed, unconditionally and absolutely, to Landlord for the period commencing upon the Lease Commencement Date and terminating on July 31, 2006 (said period being hereinafter referred to as the "Guaranty Period"), the full and faithful keeping, performance and observance of all the covenants, agreements, terms, provisions and conditions of the Lease provided to be kept, performed and observed by Tenant (expressly including, without being limited to, the payment as and when due of the Base Rent, Additional Rent, charges and damages payable by Tenant under the Lease) and the payment of any and all other damages for which Tenant shall be liable by reason of any act or omission contrary to any of said covenants, agreements, terms, provisions or conditions (the "Guaranty"); and
WHEREAS, Tenant and Guarantor have requested that Landlord release and terminate the Guaranty; and
WHEREAS, Landlord has agreed to release and terminate the Guaranty, subject to the terms and conditions contained herein;
NOW THEREFORE, in consideration of the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Landlord hereby releases and terminates the Guaranty as of the date hereof.
2. In consideration of Landlord releasing and terminating the Guaranty as of the date hereof, Tenant agrees that if there is a material adverse change in Tenant's financial condition during the Guaranty Period, Tenant shall deposit with Landlord promptly after demand therefor but in no event later than ten (10) business days after such demand a security deposit in an amount equal to two (2) months of the then current Monthly Base Rent (the "Security Deposit"). The Security Deposit shall constitute security for payment of Base Rent and additional rent and for the performance of any and all other covenants, agreements and obligations of Tenant under this Lease. If Tenant defaults (and such default continues beyond any applicable notice and cure periods) with respect to any covenant or condition of this Lease, including but not limited to the payment of Base Rent, additional rent or any other payment due under this Lease, and the obligation of Tenant to maintain the Premises and deliver possession thereof back to Landlord at the expiration or earlier termination of the Lease Term in the condition required herein, then Landlord may (without any waiver of Tenant's default being deemed to have occurred) apply all or any part of the Security Deposit to the payment of any sum in default, or any other sum which Landlord may be required or deem necessary to spend or incur by reason of Tenant's default, or to satisfy in part or in whole any damages suffered by Landlord as a result of Tenant's default. In the event of such application, Tenant shall promptly deposit with Landlord such additional amounts necessary to restore the Security Deposit to the full amount set forth above.
3. For purposes of this First Amendment, a "material adverse change in Tenant's financial condition" shall mean that, in any of the four (4) fiscal quarters immediately preceding Landlord's review of Tenant's financial condition: (a) Tenant's has failed to achieve positive net cash flow from operations of at least One Million Six Hundred Thousand Dollars ($1,600,000), or (b) the amount of Tenant's cash and cash equivalents as shown on the cash flow financial statement falls below Thirty-Five Million Dollars ($35,000,000).
4. The parties agree to amend the first sentence of Section 2.8.1 of the Lease to read in its entirety as follows: "Within ten (10) days after Landlord's written request, which request may only be made upon a default by Tenant or the refinancing or proposed sale of the Building and otherwise may not be made more than once during any fiscal year, Tenant shall deliver to Landlord, Tenant's unaudited quarterly financial statement for its most recent fiscal quarter and Tenant's audited annual financial statement for its most recent fiscal year."
5. All capitalized terms used herein, and not otherwise defined herein, shall have the meaning ascribed thereto in the Lease.
6. Except as expressly amended herein, all other terms of the Lease remain unchanged and the Lease is in all respects, confirmed, ratified and approved and on the date of this First Amendment, subject to the terms hereof, in full force and effect.
[Signatures appear on the following page.]
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this First Amendment to Lease under seal in one or more counterparts as of the day and year first above written.
LANDLORD: | |||
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Wellsford/Whitehall Holdings, L.L.C., a Delaware limited liability company |
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By: |
/s/ THOMAS D. FERGUSON Name: Thomas D. Ferguson Authorized Signatory |
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TENANT: |
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TechTarget.com, Inc., a Delaware corporation |
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/s/ ERIC SOCKOL Eric Sockol Title: CFO |
Exhibit 10.14
This Second Amendment to Lease, dated as of the day of December, 2004, is by and between Wellsford/Whitehall Holdings, L.L.C., a Delaware limited liability company (" Landlord "), and TechTarget, Inc. (formerly known as TechTarget.com, Inc.), a Delaware corporation (" Tenant ").
RECITALS
WHEREAS, Landlord and Tenant are parties to that certain Lease dated as of November 25, 2003, as amended by that certain First Amendment to Lease dated as of July 27, 2004 (as so amended, the " Lease ") with respect to space in the building known and numbered as Cutler Lake Corporate Center, 117 Kendrick Street, Needham, Massachusetts (the " Building "), which space consists of approximately 42,330 rentable square feet, as more particularly described therein (the " Original Premises ");
WHEREAS, Landlord and Tenant wish to amend the Lease to (i) expand the Original Premises to contain certain space consisting of approximately 17,743 rentable square feet in the Building in the location shown on the floor plan attached hereto as Exhibit A (the " Expansion Premises "), and (ii) amend certain other terms of the Lease;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, Landlord and Tenant agree as follows:
PREMISES RENTABLE AREA | 60,073 rentable square feet, consisting of 42,330 rentable square feet of the Original Premises and 17,743 rentable square feet of the Expansion Premises. | |
ORIGINAL PREMISES: |
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The portion of the Building consisting of 42,330 rentable square feet in the location shown on Exhibit A-1 to the Lease. |
EXPANSION PREMISES: |
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The portion of the Building consisting of 17,743 rentable square feet in the location shown on Exhibit A to the Second Amendment to Lease. |
PREMISES: |
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The Original Premises and the Expansion Premises. |
TENANT'S SHARE: |
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20% with respect to the Original Premises and 8.39% with respect to the Expansion Premises, each calculated based on a fraction, the numerator of which is the applicable Premises Rentable Area and the denominator of which is the Building Rentable Area. Tenant's Share shall be adjusted for changes in the Premises Rentable Area and/or the Building Rentable Area. |
OPERATING EXPENSE BASE YEAR: |
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For the Original Premises: the calendar year ending December 31, 2004; For the Expansion Premises: the calendar year ending December 31, 2005. |
REAL ESTATE TAX BASE YEAR: |
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For the Original Premises: the twelve month period ending on June 30, 2004; For the Expansion Premises: the twelve month period ending on June 30, 2005. |
TERM
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ANNUAL
RENT |
MONTHLY
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PER RENTABLE
SQUARE FOOT |
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From April 1, 2005 through March 31, 2007 | $ | 372,603.00 | $ | 31,050.25 | $ | 21.00 | |||
From April 1, 2007 through March 31, 2008 | $ | 390,346.00 | $ | 32,528.83 | $ | 22.00 | |||
From April 1, 2008 through March 31, 2010 | $ | 425,832.00 | $ | 35,486.00 | $ | 24.00 |
5. Landlord's Work.
(a) On or prior to January 1, 2005, Landlord shall, at Landlord's sole cost and expense, remove all existing furniture systems from the Expansion Premises and demolish portions of the Expansion Premises in accordance with a demolition plan prepared by Tenant and approved by Landlord in its reasonable discretion. Landlord further agrees to use good faith commercially reasonable efforts to set aside for reuse by Tenant certain building materials identified by Tenant prior to demolition, it being understood and agreed, however, that Landlord's failure to do so shall not constitute a default hereunder and shall not entitle Tenant to any rights or remedies at law or in equity. Landlord further agrees to construct the demising walls in accordance with the space plan previously approved by Landlord, provided, however, that Tenant shall pay to Landlord within ten (10) days after demand therefor one-half (1/2) of all costs incurred by Landlord in constructing said demising walls.
(b) Tenant acknowledges that the entrance to the Expansion Premises currently serves the Expansion Premises and the adjacent vacant space referred to in Section 7 below as the "First Refusal Space". In the event that Tenant does not elect to lease the First Refusal Space pursuant to Section 7 below, prior to a third party occupying and using the First Refusal Space for the conduct of business, Landlord shall cause a separate entryway to be created to serve the First Refusal Space.
6. Tenant Improvements.
(a) Tenant is currently preparing, at its sole cost and expense, plans and specifications for the improvements Tenant desires to make to the Expansion Premises (the " Plans "). The Plans shall be submitted to Landlord for its approval, which approval shall not be unreasonably withheld and shall be granted or rejected within ten (10) days after Landlord's receipt of-the Plans. The Plans shall be stamped by a Massachusetts registered architect, and shall comply with all applicable laws, ordinances and regulations (including, without limitation, the applicable requirements of the Americans with Disabilities Act of 1990, as amended from time to time, and the regulations promulgated thereunder) and the requirements of the Lease regarding Alterations and shall be in a form satisfactory to appropriate governmental authorities responsible for issuing permits, approvals and licenses required for construction. Landlord's approval of any of the Plans shall not impose upon Landlord any responsibility or liability whatsoever to Tenant. Promptly after approval of the Plans, Tenant shall commence and exercise all reasonable efforts to complete the work specified therein (" Tenant's Work "). All of Tenant's Work shall be completed in accordance with the approved Plans and the requirements for Alterations set forth in the Lease. Copies of all permits and approvals required for Tenant's Work shall be furnished to Landlord promptly upon receipt thereof Tenant's Work shall be performed by a
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general contractor first approved by Landlord, which approval shall not be unreasonably withheld or delayed, under a written construction contract. The approval by Landlord of Tenant's general contractor shall not impose upon Landlord any responsibility or liability whatsoever to Tenant as a result of, or arising out of, the defaults or other acts or omissions of the general contractor. A copy of all required bonds and certificates of insurance required by the Lease shall be furnished to Landlord prior to commencement of construction and installation of Tenant's Work. Within forty-five (45) days after completion of any Tenant's Work, Tenant shall provide to Landlord "as-built" plans of the Tenant's Work. Tenant shall provide Landlord with copies of the certificate of occupancy for any Tenant's Work that requires a certificate of occupancy reasonably promptly after completion of such Tenant's Work.
(b) Landlord shall reimburse Tenant for the hard and soft costs incurred by Tenant with respect to the design of the Plans and the performance of Tenant's Work (the " Cost of Tenant's Work ") up to $487,932.50 (" Landlord's Contribution "). If the Cost of Tenant's Work exceeds Landlord's Contribution, Tenant shall be entirely responsible for any excess. Landlord's Contribution shall be payable by Landlord to Tenant (or, at Landlord's election, directly to Tenant's contractor) upon written requisition to Landlord in monthly installments, as provided below, according to reasonable construction disbursement procedures and as Tenant's Work progresses. In any case, prior to payment of any such installment Tenant shall deliver to Landlord a written request, which request shall be given no more frequently than once every thirty (30) days, for such disbursement, which shall be accompanied by: (i) invoices for Tenant's Work covered by such request for disbursement; (ii) copies of partial lien waivers or final lien waivers for such disbursement (in the case of a final installment); and (iii) a certificate signed by the Tenant's architect certifying that Tenant's Work represented by the aforementioned invoices has been completed substantially in accordance with the Plans. Landlord shall pay each required installment within thirty (30) days of receiving the materials enumerated in the previous sentence. Each installment by Landlord will be in the amount of Landlord's pro-rata share based on the ratio of Landlord's Contribution to the total Cost of Tenant's Work, less the retainage, if any, in the contract with respect to such Work, but in no event shall Landlord be required to pay more than Landlord's Contribution. Any retainage amounts held by Landlord shall be paid upon completion of Tenant's Work and Tenant's satisfaction of the final installment conditions set forth in this Section 6. If the Cost of Tenant's Work shall be less than Landlord's Contribution, the difference shall be applied against the next ensuing installment of all Rent due to Landlord from Tenant.
7. Right of First Refusal.
(a) Tenant shall have a "Right of First Refusal" during the Term of the Lease to lease the space consisting of 14,741 rentable square feet as shown on Exhibit B (the " First Refusal Space ") attached hereto and made a part hereof. Landlord will notify Tenant when Landlord has received a bona fide letter of intent or term sheet (the " Third Party LOI ") from a prospective tenant with respect to the First Refusal Space. Landlord's notice shall specify the date of availability and all other material terms and conditions which will apply to such First Refusal Space as contained in the Third Party LOI. Tenant will notify Landlord within two (2) business days of Landlord's notice if Tenant wishes to lease such first Refusal Space from Landlord on the terms and conditions so specified. If Tenant notifies Landlord that it wishes to lease the First Refusal Space, Landlord and Tenant shall execute an amendment of the Lease within an additional fifteen (15) business days incorporating such terms and conditions from the Third Party LOI into the Lease. If Tenant fails to notify Landlord within said two (2) business day period that Tenant intends to lease such First Refusal Space, or Tenant fails to execute an amendment to this Lease within said fifteen (15) business day period (either period, " Tenant's Exercise Period "), Landlord shall be entitled to lease the First Refusal Space to the third party which received the Third Party LOI on such terms and conditions not materially different than those contained in the Third Party LOI. If, however, (i) Landlord fails to enter into a lease with such third party for the First Refusal Space on such terms and conditions not materially different than those
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contained in the Third Party LOI within sixty (60) days after the expiration of Tenant's Exercise Period, or (ii) Landlord shall determine that it wishes to pursue business terms which are "materially different" from those set forth in the Third Party LOI, then Tenant's Right of First Refusal as to such First Refusal Space shall thereupon be reinstituted for an additional period of two (2) days after Landlord either (1) notifies Tenant that the conditions described in clause (i) above have occurred, or (2) provides Tenant with a new or revised Third Party LOI proposing the different business terms contemplated under clause (ii) above. For purposes of this Section, the term "materially different" means and refers solely to: (a) a "net effective rent" (calculated as a function of the base rental rate, the length of the fixed initial term, the base year, additional rent provisions, the proposed tenant improvement allowance and all other monetary concessions and/or free rent) which is less than 97.5% of the net effective rent described in the original Third Party LOI.
(b) If Tenant shall elect to Lease the First Refusal Space in accordance with the provisions of this Section 7, Landlord shall, prior to delivery of the First Refusal Space, modify the entryway to the Premises in accordance with plans prepared by Landlord based upon information supplied by Tenant.
(c) Notwithstanding any contrary provision of this Section 7 or any other provision of the Lease, any Right of First Refusal and any exercise by Tenant of any Right of First Refusal shall be void and of no effect unless on the date Tenant notifies Landlord that it is exercising the Right of First Refusal and on the commencement date of the lease agreement for such First Refusal Space (i) this Lease is in full force and effect and (ii) no Event of Default on the part of Tenant has occurred under the Lease which remains continuing and uncured, and (iii) the Tenant named herein is occupying the entire Premises for the conduct of business
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of the parties hereto and their respective successors and assigns, subject to the provisions of the lease regarding assignment and subletting.
[Signatures appear on the following page.]
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IN WITNESS WHEREOF, Landlord and Tenant have duly executed this First Amendment to Lease under seal in one or more counterparts as of the day and year first above written.
LANDLORD: | ||||||
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Wellsford/Whitehall Holdings, L.L.C. , a Delaware limited liability |
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By: |
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/s/ SIGNATURE ILLEGIBLE |
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Name: | ||||||
Authorized Signatory | ||||||
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TENANT: |
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TechTarget.com, Inc. a Delaware limited liability |
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By: |
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/s/ ERIC SOCKOL |
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Name: | Eric Sockol | |||||
Title: | CFO |
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EXHIBIT A
EXPANSION PREMISES
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Exhibit 10.15
This amendment (the "Third Amendment") is made as of September 21, 2006 by and between Intercontinental Fund III 117 Kendrick Street, LLC, a Massachusetts limited liability company with a principal place of business at 1270 Soldiers Field Road, Boston, MA 02135 (the `Landlord") and TechTarget.com, Inc., a Delaware corporation with a mailing address at 117 Kendrick Street, Needham, MA (the "Tenant").
RECITALS:
WHEREAS, the Landlord and Tenant are parties to that certain lease agreement, the original of which is dated November 25, 2003 (the "Lease") between Wellsford/Whitehall Holdings, L.L.C as predecessor in interest to Landlord and Tenant as amended by First Amendment to Lease dated July 17, 2004 as further amended by Second Amendment to Lease dated as of December 2004 for premises consisting of approximately 60,073 +/- rentable square feet (the " Existing Premises ") which Existing Premises consists of 42,330 +/-rentable square feet known as the Original Premises and 17,743 +/- rentable square feet known as the Expansion Premises, which Existing Premises is in the building located at 117 Kendrick Street, Needham, MA (the "Building") and is shown on Exhibit A attached hereto and incorporated herein by reference, which Lease is incorporated herein by reference.
WHEREAS, the Landlord and Tenant wish to expand the Premises to include not only the Existing Premises but also certain additional space consisting of approximately 14,533 +/- rsf of space (the "Additional Expansion Premises"), which Additional Expansion Premises are shown on the floor plan attached hereto as Exhibit B, based on the terms and conditions stated herein; and
NOW THEREFORE, in consideration of the promises contained herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the Landlord and Tenant agree as follows:
time, and the regulations promulgated thereunder) and the requirements of the Lease regarding Alterations and shall be in a form satisfactory to appropriate governmental authorities responsible for the issuance of permits, approvals and licenses required for construction. Landlord's approval of the Plans shall not impose upon Landlord any responsibility or liability whatsoever to Tenant. Promptly after approval of the Plans, Tenant shall commence and exercise all reasonable efforts to complete the work specified therein ("Tenant's Work"). All of the Tenant's Work shall be completed in accordance with the approved Plans and the requirements for Alterations set forth in the Lease. Copies of all permits and approvals required for Tenant's Work shall be furnished to Landlord promptly upon receipt thereof. Tenant's Work shall be performed by a general contractor first approved by Landlord, which approval shall not be unreasonably withheld or delayed, under a written construction contract. The approval by Landlord of Tenant's general contractor shall not impose upon Landlord any responsibility or liability whatsoever to Tenant as a result of or arising out of the defaults or other acts or omissions of the general contractor. A copy of all required bonds and certificates of insurance required by the Lease shall be furnished to Landlord prior to the commencement of construction and installation of Tenant's Work. Within forty-five (45) days after completion of any Tenant's Work Tenant shall provide to Landlord "as built" plans of the Tenant's Work. Tenant shall provide Landlord with copies of the certificate of occupancy for any Tenant's Work that requires a certificate of occupancy reasonable promptly after completion of such Tenant's Work. Tenant shall be entirely responsible for all costs and expenses associated with Tenant's Work.
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Premises Rentable Area: | 74,606, consisting of 42,330 rentable square feet of the Original Premises, 17,743 rentable square feet of the Expansion Premises and 14,533 rentable square feet of the Additional Expansion Premises. | |
Original Premises: |
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The portion of the Building consisting of 42,330 rentable square feet in the location shown on Exhibit A-1 to the Lease. |
Expansion Premises: |
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The portion of the Building consisting of 17,743 rentable square feet in the location shown on Exhibit B , to the Second Amendment to Lease. |
Additional Expansion Premises: |
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The portion of the Building consisting of 14,533 rentable square feet in the location shown on Exhibit B attached hereto. |
Premises: |
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The Original Premises, the Expansion Premises and the Additional Expansion Premises. |
Tenant's Share: |
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20% with respect to the Original Premises, 8.39% with respect to the Expansion Premises and 6.86% with respect to the Additional Expansion Premises |
Operating Expense Base Year: |
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For the Original Premises: the calendar year ending December 31, 2004; For the Expansion Premises: the calendar year ending December 31, 2005; For the Additional Expansion Premises: the calendar year ending December 31, 2007. |
Real Estate Tax Base Year: |
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For the Original Premises: the twelve month period year ending June 30, 2004; For the Expansion Premises: the twelve month period ending June 30, 2005; For the Additional Expansion Premises: the twelve month period ending June 30, 2007. |
Period
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Basic Rent/
Square Foot |
Annual
Base Rent |
Monthly
Base Rent |
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Month 1-12 of Term with respect To Additional Expansion Premises | $ | 26.50 | $ | 385,124.50 | $ | 32,093.71 | |||
Month 13-24 of Term with respect To Additional Expansion Premises |
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$ |
27.50 |
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$ |
399,657.50 |
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$ |
33,304.79 |
Month 25-32 of Term with respect To Additional Expansion Premises |
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$ |
28.50 |
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$ |
414,190.50 |
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$ |
34,515.88 |
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assignments, sublettings, liens and encumbrances; (b) the Lease is in full force and effect; (c) Tenant is presently in possession of the Premises and is paying the rentals and any other charges or sums due under the Lease; (d) the Lease has not been modified, supplemented or amended in any way, except as may be indicated in the recitals set forth above; and (e) to the best of Tenant's knowledge as of the date of this First Amendment, Tenant is not aware of any actionable defenses, claims or set-offs under the Lease against rents or charges due or to become due thereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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WITNESS our hands and seal this 21st day of September, 2006.
LANDLORD: Intercontinental Fund III
117 Kendrick Street, LLC |
TENANT: TechTarget, Inc. | ||||
By: Intercontinental Real Estate Investment Fund III, LLC, its Manager |
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By: Intercontinental Real Estate Corporation Its Manager |
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By: |
/s/ PETER PALANDJIAN Name: Peter Paladjian Title: President and Treasurer |
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By: |
/s/ ERIC SOCKOL Name: Eric Sockol Title: CFO |
[COUNTERPART SIGNATURE PAGE TO THIRD AMENDMENT TO LEASE]
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EXHIBIT A
Existing Premises
(attached hereto consisting of one (1) page)
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EXHIBIT B
Additional Expansion Premises
(attached hereto consisting of one (1) page)
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EXHIBIT C
Plans and Specifications
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Tenant, having at all times faithfully performed all of the terms and conditions of this Lease, having cured all defaults hereunder of which Tenant has received written notice, and having not been in default beyond expiration of applicable grace, notice, and cure periods in the six (6) months immediately preceding the date on which it must exercise this option to extend shall have the option to extend this lease for one 5 year term (being the "Extended Term"), upon the same terms and conditions of this lease, except that Base Rent for the Extended Term shall be at the Market Rent. Tenant shall have no further options to extend after this option has been exercised or waived. Tenant shall notify Landlord, in writing, of it exercise of this option at least twelve (12) months prior to the Expiration Date.
If this lease is extended, all referenced to "Term" herein shall refer to the Term as extended unless specifically designated otherwise.
Market Rent shall be determined in accordance with the procedure set forth hereinafter.
The parties shall have thirty (30) days after Landlord receives Tenant's extension option notice in accordance herewith in which to agree on the Market Rent for the Extended Term. If the parties agree on the Market Rent during such (30) day period, Landlord and Tenant shall execute an amendment to this Lease setting forth the Market Rent for the extended Term.
If the parties are unable to agree on the Market Rent within the thirty (30) day period, then, within ten (10) days after the expiration of that period, each party, at its cost and by giving notice to the other party, shall appoint a qualified M.A.I. real estate appraiser with at least five years full time commercial appraisal experience in the Boston metropolitan area to appraise and set the Market Rent for the Premises. If a party does not appoint such an appraiser, the single appraiser appoint shall be the sole appraiser and shall set the Market Rent for the Premises. The two appraisers appointed by the parties as stated in this paragraph shall meet promptly and attempt to establish the Market rent for the Premises. If they are unable to agree within thirty (30) days after the second appraiser has been appointed, they shall attempt to select a third appraiser meeting the qualifications stated in this paragraph within ten (10) days after the last day the two appraisers are given to set the Market Rent. If they are unable to agree on the third appraiser, either of the parties of this lease, by giving ten (10) days notice to the other party, can appeal to the then president of the Greater Boston Real Estate Board, for the selection of a third appraiser who meets the qualifications stated in this paragraph. Each of the parties shall bear one-half ( 1 / 2 ) of the cost of appointing the third appraiser and of paying the third appraiser's fee. The third appraiser, however selected, shall be a person who has not previously acted in any capacity for either party.
Within thirty (30) days after the selection of the third appraiser, a majority of the appraisers shall set the Market Rent for the Premises. If a majority of the appraisers are unable to set the Market Rent within the stipulated period of time, the three appraisals shall be added together and their total divided by three; the resulting quotient shall be the Market Rent for the Premises.
If, however, the low appraisal and/or high appraisal are ore than ten percent (10%) lower and/or higher than the middle appraisal, the low appraisal and/or high appraisal shall be disregarded. If only one appraisal is disregarded, the remaining two appraisals shall be added together and their total divided by two; the resulting quotient shall be the Market Rent for the Premises. If both the low appraisal and the high appraisal are disregarded the middle appraisal shall be the Market Rent of the Premises.
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Exhibit 10.16
AGREEMENT dated as of August 30, 2006 and between TECHTARGET, INC., a Delaware corporation with its principal place of business at 117 Kendrick Street, Needham MA 02494 (the " Borrower ") and CITIZENS BANK OF MASSACHUSETTS, a Massachusetts bank having its principal place of business at 28 State Street, Boston, Massachusetts 02109 (the " Bank ").
WHEREAS, the Borrower desires to obtain a $10,000,000 Term Loan and a $20,000,000 Credit Line; and
WHEREAS, the Bank is willing to provide such credit facility, but only upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Definitions. In addition to the terms defined above or elsewhere defined in this Agreement, as used in this Agreement, the following terms shall have the following respective meanings (such meanings, as well as the meanings of other terms defined elsewhere in this Agreement, to be equally applicable to both the singular and plural forms of the terms defined, where the context permits):
" Advances " shall mean cash loans or advances outstanding under the Credit Line.
" Applicable LIBOR Margin " means one and 50/100 percent (1.50%) per annum.
" Applicable Prime Rate Margin " means one (1%) percent, applied as a reduction to the Prime Rate as provided in Section 2.4 below.
" Business Day " means:
" Capital Expenditures " means expenditures incurred for the acquisition of capital assets or otherwise required under GAAP to be capitalized, including but not limited to capital leases. Capital Expenditures shall not include any Qualified Acquisitions.
" Capital Transactions " means sales or other disposition of those items of property, plant or equipment which are properly classified as non-current or capital in accordance with GAAP.
" Collateral " shall mean all collateral at any time granted to Bank under the Security Agreements or under the Pledge Agreement(s) or cash collateral provided under Section 2.2 .
" Conditions of Lending " shall have the meaning set forth in Section 10 below.
" Credit Line " shall mean a revolving line of credit in the maximum amount of $20,000,000 established under this Agreement.
" Debt Service Coverage Ratio" A ratio, the numerator of which shall be EBITDA minus (a) Capital Expenditures, (b) cash taxes, (c) dividends and stockholder distributions and the denominator of which shall be, for the same measurement period, the sum of (x) interest expense accrued, (y) letter of credit
fees and (z) principal payments to Bank or any other lender in respect of borrowed money scheduled to be paid during the six months immediately preceding the test date.
" Default " shall mean an event or occurrence which, with the giving of notice or lapse of time or both, would constitute an Event of Default.
" EBITDA" shall mean the sum of revenues from operations of the specified entity less all costs and expenses other than interest, taxes, non-cash compensation expense and depreciation and amortization and excluding any Capital Transactions from revenues and expenses, all as determined in accordance with GAAP. EBITDA from businesses acquired by Borrower shall be included in the calculation of EBITDA of Borrower on an actual and reported basis, and not pro-forma.
" Event of Default " shall have the meaning set forth in Section 13 hereof.
" Financial Statements " shall mean the balance sheet(s), income statement(s) and statement(s) of cash flow for the Borrower identified on Schedule 11.7 .
" Foreign Subsidiaries " shall mean all Subsidiaries formed in a jurisdiction other than the United States and which neither are (a) qualified as foreign entities with any jurisdiction within the United States and (b) are not conducting business within the United States.
" GAAP " shall mean generally accepted accounting principles which are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and/or its predecessors as in effect from time to time.
" Government Agency " shall mean the United States Government or any department, agency or instrumentality thereof and any State or Municipal Agency.
" Guarantors shall mean all Subsidiaries required to issue Guaranties pursuant to Section 12A.10 below.
" Hedging Contracts " means interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, or any other agreements or arrangements entered into between the Borrower and the Bank and designed to protect the Borrower against fluctuations in interest rates or currency exchange rates.
" Hedging Obligations" means, with respect to the Borrower, all liabilities of the Borrower to the Bank under Hedging Contracts.
" Interest Payment Date " means (a) relative to any LIBOR Rate Loan, having an Interest Period of three months or less, the last Business Day of such Interest Period, and as to any LIBOR Rate Loan having an Interest Period longer than three months, each Business Day which is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period and (b) relative to any Prime Rate Loan, is the last day of any calendar month.
" Interest Period " shall have the meaning set forth in Section 2.4 below .
" Interest Rate Options " shall mean the selection by Borrower of LIBOR Rate Loan or a Prime Rate Loan as set forth in Section 2.4.4 and Section 2.4.5 .
" Letters of Credit " shall mean all commercial and standby letters of credit, which the Bank shall issue following the Borrower's application therefor, and the payment of all applicable fees in connection therewith.
" Letter of Credit Line Expiration Date " shall mean ten (10) business days prior to the Maturity Date of the Credit Line.
" LIBOR Rate " means relative to any Interest Period for LIBOR Rate Loans, the offered rate for deposits of U.S. Dollars in an amount approximately equal to the amount of the requested LIBOR
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Rate Loan for a term coextensive with the designated Interest Period which the British Bankers' Association fixes as its LIBOR rate as of 11:00 a.m. London time on the day which is two London Banking Days prior to the beginning of such Interest Period.
" LIBOR Rate Loan " means any Loan the rate of interest applicable to which is based upon the LIBOR Rate.
" LIBOR Lending Rate " means, relative to any LIBOR Rate Loan to be made, continued or maintained as, or converted into, a LIBOR Rate Loan for any Interest Period, a rate per annum determined pursuant to the following formula:
LIBOR Lending Rate | = |
LIBOR Rate
(1.00 LIBOR Reserve Percentage) |
" LIBOR-Reference Banks Loan " means any Loan the rate of interest applicable to which is based upon the LIBOR-Reference Banks Rate.
" LIBOR-Reference Banks Lending Rate " means, relative to a LIBOR-Reference Banks Rate Loan for any Interest Period, a rate per annum determined pursuant to the following formula:
LIBOR-Reference Banks Lending Rate |
LIBOR-Reference Banks Rate
(1.00 LIBOR Reserve Percentage) |
" LIBOR-Reference Banks Rate " means relative to any Interest Period for LIBOR-Reference Banks Loans, the rate for which deposits in U.S. Dollars are offered by the Reference Banks to prime banks in the London interbank market in an amount approximately equal to the amount requested LIBOR-Reference Banks Loan at approximately 11:00 a.m., London time on the day that is two London Banking Days prior to the beginning of such Interest Period. The Bank will request the principal London office of each of the Reference Banks to provide a quotation of its rate. If at least two such quotations are provided, the rate for such date will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for such date will be the arithmetic mean of the rates quoted by major banks in New York City selected by the Bank, at approximately 11:00 a.m. New York City time for loans in U.S. Dollars to leading European banks for such Interest Period and in an amount approximately equal to the amount requested LIBOR-Reference Banks Loan.
" LIBOR Reserve Percentage " means, relative to any day of any Interest Period for LIBOR Rate Loans, the maximum aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) under any regulations of the Board of Governors of the Federal Reserve System (the "Board") or other governmental authority having jurisdiction with respect thereto as issued from time to time and then applicable to assets or liabilities consisting of "Eurocurrency Liabilities", as currently defined in Regulation D of the Board, having a term approximately equal or comparable to such Interest Period.
" Loan Documents " shall mean this Agreement, the Notes, the Security Agreement, the Pledge Agreement, the Perfection Certificate, and each Guaranty executed by a Guarantor, and any all other documents, instruments, and agreements executed in connection with this Agreement.
" Loans " shall mean, collectively, amounts advanced pursuant to the Credit Line, the Term Loan and amounts advanced pursuant to Letters of Credit.
" London Banking Day" means a day on which dealings in US dollar deposits are transacted in the London interbank market.
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" Maturity Date " means, in respect to the Term Note, December 30, 2009, and in respect to the Credit Line, August 30, 2011.
" Maximum Commitment " shall mean $20,000,000.
" Notes " means the Revolving Note and the Term Note.
" Obligations " shall mean all obligations of the Borrower to the Bank, whether such obligations are now existing or hereafter arising, direct or indirect, primary or secondary, including but not limited to the Notes, Letters of Credit, all outstanding amounts advanced by the Bank under any Letters of Credit and all other obligations under this Agreement and the other Loan Documents. Obligations include all Hedging Obligations, all obligations of the Borrower arising under any ACH Contract and any commodity or equity swap, foreign exchange transactions, currency swap, cross currency rate swap, currency option, or similar transactions now or hereafter entered into between the Borrower and the Bank. "ACH Contract" means all obligations of the Borrower to the Bank under any Automated Clearing House ("ACH") Agreements relating to the processing of ACH transactions, together with all fees, expenses, charges and other amounts owing by or chargeable to the Borrower under the ACH Agreements and all liabilities to the Lender to repay overdrafts and other amounts due to the Lender under any existing or future agreements relating to cash management services.
" Perfection Certificate " shall mean the Certificate of Borrower dated this date delivered to Bank by the Borrower in connection with the making by the Bank of the Loans.
" Permitted Encumbrance(s) " shall have the meaning set forth in Section 12B.2 .
" Pledge Agreement " means the Pledge Agreements of even date from Borrower to the Bank by which outstanding ownership interests of TechTarget Securities Corporation and Tech Target Limited are pledged to the Bank. Pledge Agreement shall also include all Pledge Agreements hereafter entered into between Borrower or any of its Subsidiaries and the Bank pursuant to Section 12A.10 below.
" Prime Rate" means the rate of interest announced by Bank in Boston, Massachusetts from time to time as its "Prime Rate." The Borrower acknowledges that the Bank may make loans to its customers above, at or below the Prime Rate. Interest accruing by reference to the Prime Rate shall be calculated on the basis of actual days elapsed and a 360-day year.
" Prime Rate Loan " means any Loan for the period(s) when the rate of interest applicable to such Loan is calculated by reference to the Prime Rate.
" Qualified Acquisition " shall mean a non-hostile (pursuant to an agreement with the target) acquisition of stock or assets in substantially the same or complementary to the line of business of the Borrower at a time when no Default or Event of Default has occurred and is continuing, including but not limited to financial covenants on both an actual basis and calculated on a pro-forma combined or consolidated basis with the Borrower immediately following, such acquisition. No single Qualified Acquisition may exceed $10,000,000 in total aggregate consideration (including but not limited to deferred and contingent payments and indebtedness assumed) ("Total Purchase Consideration") and Total Purchase Consideration for all Qualified Acquisitions during any one fiscal year may not exceed $25,000,000. To the extent the EBITDA of an Acquisition is negative for the Acquisition Test Period, in order to constitute a Qualified Acquisition, such negative EBITDA must be less than (a) $1,000,000 for the Acquisition Test Period, and (b) collectively, all Acquisitions with negative EBITDA may not have combined negative EBITDA of more than $2,000,000 for the Acquisition Test Period for the respective Acquisitions. "Acquisition Test Period" means the twelve (12) full calendar months immediately preceding the date of the respective Acquisition.
" Reference Banks " means four major banks in the London interbank market as selected by the Bank.
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" Revolving Loans " shall mean, at any time, the aggregate of the Advances outstanding under the Revolving Note.
" Revolving Note " shall mean the promissory note described in Section 2.1.2 hereof.
" Security Agreements " shall mean the Security Agreement of Borrower dated as of the date hereof and executed by Borrower for the benefit of Bank, as it may be amended from time to time. Security Agreements shall also include all Security Agreements hereafter entered into between Borrower or any of its Subsidiaries and the Bank pursuant to Section 12A.10 below.
" State or Municipal Agency " shall mean a State or municipality or any subdivision of either, or any department, agency or instrumentality thereof.
" Subordinated Debt " shall mean indebtedness to a third party which has been subordinated to the Borrower's indebtedness to the Bank by an agreement satisfactory to the Bank in form and substance.
" Subsidiary" shall mean any of Bitpipe, Inc., BTPE Acquisition Corporation, TechTarget Securities Corporation, The Middleware Company and any other entities of which more than 51% of the voting securities shall be owned directly or indirectly by Borrower, and including any such entity now existing or hereafter formed or acquired.
" Term Loan " and " Term Note " shall have the meaning set forth in Section 2.3 below.
All accounting terms not specifically defined in this Agreement shall be construed in accordance with GAAP, and all financial data submitted pursuant to this Agreement and all financial records kept by the Borrower shall be prepared (except as hereinafter expressly provided) and kept in accordance with such principles.
2. The Loans.
2.1. Revolving Loans.
2.1.1 Subject to the terms and conditions of this Agreement, including but not limited to the Conditions of Lending, the Bank shall make Advances to the Borrower and/or provide Letters of Credit under the Credit Line up to a maximum principal amount outstanding including the amount of the Letters of Credit of not more than the Maximum Commitment. All Advances and all Obligations in respect of Letters of Credit are secured by the Collateral and are guaranteed pursuant to the Guarantees, which are in turn secured by Security Agreements or Pledge Agreements.
2.1.2 All Advances and Letters of Credit issued under the Credit Line shall be evidenced by the promissory note from the Borrower to the Bank of even date herewith (the " Revolving Note ") in the principal amount of the Maximum Commitment. Within the Credit Line, the Borrower may borrow, repay, and reborrow (without penalty or premium), subject to the limitations and conditions set forth in this Agreement. Unless earlier payment is required by the Bank pursuant to Section 13 below upon an Event of Default, all principal and any unpaid interest under the Revolving Loans will be due and payable on August 30, 2011.
2.1.3 To the extent that the sum of the aggregate principal amount of the Advances outstanding plus Letters of Credit outstanding exceeds the Maximum Commitment at any time, such excess shall be due and payable immediately upon demand from the Bank.
2.1.4 Each Advance under the Credit Line shall be in an amount of not less than $250,000 . The Borrower will give the Bank written, telecopied or telephonic notice specifying the amount and date of each borrowing hereunder; provided , however , that notice given by telephone hereunder shall be followed by prompt written confirmation thereof by the Borrower. Provided that all conditions, including the Conditions of Lending, set forth in this Agreement have been satisfied
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with respect to such requested Advance, an Advance will be made on the same Business Day as notice is received if notice is received before 1:00 p.m. Boston time, and if received thereafter, the Advance will be made on the next Business Day.
2.2 Letters of Credit. Subject to the terms and conditions of this Agreement including but not limited to the Conditions of Lending set forth in Section 10 below and within the Credit Line, on application by the Borrower, the Bank shall issue for the benefit of the Borrower commercial or standby Letters of Credit in the aggregate amount outstanding at any time not more than $5,000,000 and expiring no later than the Letter of Credit Line Expiration Date. The Borrower's obligations to the Bank under the Letters of Credit shall be deemed to be obligations to the Bank and shall be secured pursuant to the Borrower's Security Agreement and guaranteed by the Guarantors and secured by the Security Agreements of the respective Guarantors. Amounts drawn on a Letter of Credit shall be deemed to be an Advance to the Borrower for purposes of this Agreement and evidenced by the Revolving Note . Fees for Letters of Credit will be one and one-half (1.5%) percent per annum of the issuance amount, payable annually in advance. The then applicable other fees of the Bank applicable to letters of credit issued by the Bank shall also apply, including but not limited to, issuance, transfer, negotiation, correspondent and draw fees and any other fees specified under the terms of the application for said Letter of Credit. Fees shall be payable as specified by the Bank. If the Credit Line is terminated for any reason while a Letter of Credit is outstanding, so long as such Letter of Credit is outstanding, the Borrower shall pledge to the Bank additional collateral consisting of cash deposited with the Bank in an aggregate amount of not less than 100% of the aggregate outstanding amount of each such Letter of Credit.
2.3 Term Loan. Subject to the terms and conditions of this Agreement, including but not limited to the Conditions of Lending, the Bank shall make a term loan to the Borrower of $10,000,000 (the "Term Loan"). Amounts outstanding under the Term Loan are secured by the Collateral and are guaranteed pursuant to the Guarantees, which are in turn secured by Security Agreements or Pledge Agreements. The Term Loan shall be evidenced by the promissory note from the Borrower to the Bank of even date herewith (the " Term Note ") in the principal amount of $10,000,000. Unless earlier payment is required by the Bank pursuant to Section 13 below upon an Event of Default, principal under the Term Note shall be payable by thirty-nine consecutive monthly installments of $250,000 each, plus interest, the first such installment to be due on the 30 th day of September, 2006, plus interest, with a final payment of the entire unpaid principal balance due on December 30, 2009.
2.4 Interest Generally. Interest on the outstanding principal amount of any Loan when classified: (i) as a LIBOR Rate Loan, shall accrue during each Interest Period at a rate equal to the sum of the LIBOR Lending Rate for such Interest Period plus the Applicable LIBOR Margin and be payable on each Interest Payment Date, (ii) as a LIBOR-Reference Banks Rate Loan, shall accrue during each Interest Period at a rate equal to the sum of the LIBOR-Reference Banks Lending Rate for such Interest Period plus the Applicable LIBOR Margin and be payable on each Interest Payment Date, and (iii) as a Prime Rate Loan, shall accrue during each Interest Period at a rate equal to the Prime Rate minus the Applicable Prime Rate Margin and be payable on each Interest Payment Date.
2.4.1 Interest Period Applicable to the Term Note. For purposes of this Agreement in respect to borrowings under the Term Note, and for purposes of the Term Note, the term "Interest Period" shall mean initially, the period beginning on (and including) the Funding Date and ending on (but excluding) August 31, 2006 (the "Stub Period"); and
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provided, however , that
2.4.2 Interest Period Applicable to the Revolving Note. For purposes of this Agreement in respect to borrowings under the Revolving Note, and for purposes of the Revolving Note, the term "Interest Period" shall mean
provided, however , that
2.4.3. Special Provisions Regarding Repayment of Term Loan; Automatic Rollover of LIBOR Rate Loan if Part of Term Loan. During the period(s) a Loan is classified as a LIBOR Rate Loan, it shall mature and become payable in full on the last day of each Interest Period. Upon maturity the Loan shall automatically be continued as a LIBOR Rate Loan with an equal Interest Period in an amount equal to the expiring LIBOR Rate Loan LESS the applicable Principal Repayment
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Amount, provided, however , that no portion of the outstanding principal amount of a LIBOR Rate Loan may be continued as a LIBOR Rate Loan when any Default or Event of Default has occurred and is continuing. If any Default or Event of Default has occurred and is continuing (if the Bank does not otherwise elect to exercise any right to accelerate the Loan it is granted hereunder), the maturing LIBOR Rate Loan shall automatically be continued as a Prime Rate Loan. During the period(s) that the Loan is classified as a Prime Rate Loan, the Borrower shall make regular payments of principal in amounts equal to the applicable Principal Repayment Amount on the last day of each Interest Period. Notwithstanding the foregoing, the Loan shall mature and become payable in full upon the Maturity Date.
2.4.4. Making of LIBOR Loan Elections. By delivering a borrowing request to the Bank on or before 10:00 a.m. New York time on a Business Day, the Borrower may from time to time irrevocably request, on not less than two nor more than five Business Days' notice, that a LIBOR Rate Loan be made in a minimum amount of $1,000,000 and integral multiples of $500,000 with an Interest Period of one, two, three or six months, subject in the case of the Term Loan, to Section 2.4.1 above. On the terms and subject to the conditions of this agreement, each LIBOR Rate Loan shall be made available to the Borrower no later than 11:00 a.m. New York time on the first day of the applicable Interest Period by deposit to the account of the Borrower as shall have been specified in its borrowing request.
2.4.5. Continuation and Conversion Elections. By delivering a continuation/conversion notice to the Bank on or before 10:00 a.m., New York time, on a Business Day, the Borrower may from time to time irrevocably elect, on not less than two nor more than five Business Days' notice, that all, or any portion in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 of any Prime Rate Loan or of a LIBOR Rate Loan be converted on the last day of an Interest Period into a LIBOR Rate Loan with a different Interest Period, or continued on the last day of an Interest Period as a LIBOR Rate Loan with a similar Interest Period, provided, however , that no portion of the outstanding principal amount of any LIBOR Rate Loans may be converted to, or continued as, LIBOR Rate Loans when any Default or Event of Default has occurred and is continuing, and no portion of the outstanding principal amount of any LIBOR Rate Loans may be converted to LIBOR Rate Loans of a different duration if such LIBOR Rate Loans relate to any Hedging Obligations. If any Default or Event of Default has occurred and is continuing (if the Bank does not otherwise elect to exercise any right to accelerate the Loans it is granted hereunder), or in the absence of delivery of a continuation/conversion notice with respect to any LIBOR Rate Loan at least two Business Days before the last day of the then current Interest Period with respect thereto, each maturing LIBOR Rate Loan shall automatically be continued as a Prime Rate Loan.
2.4.6 Repayments Continuations and Conversions. LIBOR Rate Loans shall mature and become payable in full on the last day of the Interest Period relating to such LIBOR Rate Loan. Prior to the termination of this Agreement, upon the maturity of a LIBOR Rate Loan under this Section 2.4.6, it may be continued for an additional Interest Period or may be converted to a Prime Rate Loan (if there exists no Default or Event of Default and the Bank does not otherwise elect to exercise any right to accelerate the Loans it is granted hereunder).
2.4.7 Voluntary Prepayment of LIBOR Rate Loans. LIBOR Rate Loans maybe prepaid upon the terms and conditions set forth herein. For LIBOR Rate Loans in connection with which the Borrower has or may incur Hedging Obligations, additional obligations may be associated with prepayment, in accordance with the terms and conditions of the applicable Hedging Contracts. The Borrower shall give the Bank, no later than 10:00 a.m., New York City time, at least four (4) Business Days notice of any proposed prepayment of any LIBOR Rate Loans, specifying the proposed date of payment of such LIBOR Rate Loans, and the principal amount to be paid. Each partial prepayment of the principal amount of LIBOR Rate Loans shall be in an integral multiple
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of $250,000 and accompanied by the payment of all charges outstanding on such LIBOR Rate Loans and of all accrued interest on the principal repaid to the date of payment. Borrower acknowledges that prepayment or acceleration of a LIBOR Rate Loan during an Interest Period shall result in the Bank incurring additional costs, expenses and/or liabilities and that it is extremely difficult and impractical to ascertain the extent of such costs, expenses and/or liabilities. Therefore, all full or partial prepayments of LIBOR Rate Loans shall be accompanied by, and the Borrower hereby promises to pay, on each date a LIBOR Rate Loan is prepaid or the date all sums payable hereunder become due and payable, by acceleration or otherwise, in addition to all other sums then owing, an amount ("LIBOR Rate Loan Prepayment Fee") determined by the Bank pursuant to the following formula:
If the result of this calculation is zero or a negative number, then there shall be no LIBOR Rate Loan Prepayment Fee. If the result of this calculation is a positive number, then the resulting percentage shall be multiplied by:
The resulting amount shall be divided by:
and multiplied by:
Said amount shall be reduced to present value calculated by using the referenced United States Treasury securities rate and the number of days remaining on the Interest Period for the LIBOR Rate Loan being prepaid. The resulting amount of these calculations shall be the LIBOR Rate Loan Prepayment Fee.
2.4.8. LIBOR Rate Lending Unlawful. If the Bank shall determine (which determination shall, upon notice thereof to the Borrower be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law, rule, regulation or guideline, (whether or not having the force of law) makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for the Bank to make, continue or maintain any LIBOR Rate Loan as, or to convert any Loan into, a LIBOR Rate Loan of a certain duration, all LIBOR Rate Loans of such type shall automatically convert into LIBOR-Reference Banks Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. For purposes of this agreement, in the event of such a conversion, all LIBOR-Reference Banks Rate Loans shall be treated (except as to interest rate) as equivalent to a LIBOR Rate Loan of similar amount and Interest Period. For greater certainty, all provisions of this agreement relating to LIBOR Rate Loans shall apply equally to LIBOR-Reference Banks Loans, including, but not limited to the manner in which LIBOR-Reference Banks Loans are requested, continued, converted, the manner in which interest accrues, is payable, principal payments are made, whether voluntary or involuntary, as well as any penalties, increased costs or taxes associated with any of the foregoing.
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2.4.9 Substitute Rate. If the Bank shall have determined that
Then, upon notice from the Bank to the Borrower, all LIBOR Rate Loans shall automatically convert to LIBOR-Reference Banks Loans.
2.4.10. Special LIBOR Indemnities. In addition to the LIBOR Rate Loan Prepayment Fee, the Borrower agrees to reimburse the Bank (without duplication) for any increase in the cost to the Bank, or reduction in the amount of any sum receivable by the Bank, in respect, or as a result of:
The Bank shall promptly notify the Borrower in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate the Bank for such increased cost or reduced amount. Such additional amounts shall be payable by the Borrower to the Bank within five days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Borrower. The Borrower understands, agrees and acknowledges the following: (i) the Bank does not have any obligation to purchase, sell and/or match funds in connection with the use of LIBOR Rate as a basis for calculating the rate of interest on a LIBOR Rate Loan, (ii) the LIBOR Rate may be used merely as a reference in determining such rate, and (iii) the Borrower has accepted the LIBOR Rate as a reasonable and fair basis for calculating such rate, the LIBOR Rate Prepayment Fee, and other funding losses incurred by the Bank. Borrower further agrees to pay the LIBOR Rate Prepayment Fee and other funding losses, if any, whether or not the Bank elects to purchase, sell and/or match funds.
2.5. Increased Costs. If on or after the date hereof the adoption of any applicable law, rule or regulation or guideline (whether or not having the force of law), or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency:
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overall net income of the Bank or franchise taxes, imposed by the jurisdiction (or any political subdivision or taxing authority thereof) under the laws of which the Bank is organized or in which the Bank's principal executive office is located); or
and the result of any of the foregoing is to increase the cost to the Bank of making or maintaining any LIBOR Rate Loan, or to reduce the amount of any sum received or receivable by the Bank under this Agreement with respect thereto, by an amount deemed by the Bank to be material, then, within 15 days after demand by the Bank, the Borrower shall pay to the Bank such additional amount or amounts as will compensate the Bank for such increased cost or reduction.
2.6. Taxes. All payments by the Borrower of principal of, and interest on, the LIBOR Rate Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by the Bank's net income or receipts (such non-excluded items being called "Taxes"). In the event that any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrower will
Moreover, if any Taxes are directly asserted against the Bank with respect to any payment received by the Bank hereunder, the Bank may pay such Taxes and the Borrower will promptly pay such additional amount (including any penalties, interest or expenses) as is necessary in order that the net amount received by the Bank after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount the Bank would have received had not such Taxes been asserted.
If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Bank the required receipts or other required documentary evidence, the Borrower shall indemnify the Bank for any incremental Taxes, interest or penalties that may become payable by the Bank as a result of any such failure.
2.7 Records. Advances under the Credit Line and repayments thereunder shall be entered on the Bank's records, provided however, that the failure to enter any such transaction, or the inaccuracy of any such entry, shall not relieve the Borrower from any obligations to the Bank, whether under the Revolving Note or otherwise.
2.8 Reports from Bank. After the end of each month, Bank will render to the Borrower a statement of the Borrower's loan account with Bank hereunder. Each statement shall be considered correct and to have been accepted by the Borrower and shall be presumed correct, in the absence of manifest error, in respect of all charges, debits and credits of any nature contained therein under this
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Agreement, and the closing balance shown therein, unless the Borrower notifies Bank in writing of any discrepancy within thirty (30) days from the date of any such statement.
2.9 Capital Requirements. If after the date hereof the Bank determines that (a) the adoption of or change in any law, rule, regulation or guideline regarding capital requirements for banks or bank holding companies, or any change in the interpretation or application thereof by any governmental authority charged with the administration thereof, or (b) compliance by the Bank or its parent bank holding company with any guideline, request or directive of any such entity regarding capital adequacy (whether or not having the force of law), has the effect of reducing the return on the Bank's or such holding company's capital as a consequence of the Bank's willingness to make Advances hereunder to a level below that which the Bank or such holding company could have achieved but for such adoption, change or compliance (taking into consideration the Bank's or such holding company's then existing policies with respect to capital adequacy and assuming the full utilization of such entity's capital) by any amount reasonably deemed by the Bank to be material, then the Bank shall promptly notify the Borrower in writing. The Borrower agrees to pay to the Bank the amount of such reduction in the return on capital, within 30 days after receipt of written notice and demand from the Bank for the payment of such reduction in return, including presentation by the Bank of a statement to the effect that the request to the Borrower for payment is consistent with requests being made by the Bank to other borrowers of the Bank with credit facilities of a similar nature to the Credit Line and of a size in the category of the Maximum Commitment, and setting forth in reasonable detail the Bank's calculation thereof, which statement shall be deemed true and correct absent objection in writing by the Borrower that error has occurred in such calculation. If such objection is made, the Bank will consider the objection and resolve any error. In determining such amount, the Bank may use any reasonable averaging and attribution methods.
2.10 Unused Line Fee. The Borrower hereby agrees to pay the Bank a fully earned and non-refundable unused line fee of thirty-seven and one half basis points (0.375%) per annum of the difference between (i) $20,000,000 and (ii) the outstanding principal amount of the sum of the Advances and Letters of Credit outstanding, which fee shall accrue and be charged to and paid by Borrower on a quarterly basis in arrears.
3. Principal Bank of Deposit and Lockbox; Minimum Deposit Balances. To enable the Bank to properly monitor the Credit Line and the financial condition of the Borrower, Borrower and each Guarantor will maintain Bank as depository for the depository accounts of Borrower and each Guarantor, as the case may be, including its operating accounts. In lieu of the Bank's customary closing fee for transactions of the nature set forth in this Agreement, Borrower agrees to maintain average monthly collected balances of not less than $10,000,000 for the months September, 2006 through and including August, 2007. To the extent average collected balances in any month are less than such $10,000,000, Borrower shall pay to the Bank within five (5) business days as after invoice, a fee equal to 0.5% of the amount of any such deficiency.
4. Availability of Funds. Except as otherwise provided in Section 2 hereof or in any disbursement letter signed by the Borrower and accepted by the Bank, proceeds of Advances and the Term Loan shall be credited by the Bank to the general deposit account of the Borrower with the Bank or shall otherwise be paid to the Borrower as the Borrower may specify in its notice of borrowing.
5. Use of Loan Proceeds. Borrower covenants that the Advances will be used exclusively by Borrower for working capital and general corporate purposes, including the repayment of its existing indebtedness to Comerica Bank, and for Qualified Acquisitions.
6. Payments to Bank. All payments of principal, interest and any other sums payable hereunder or under the Credit Line shall be made to the Bank at its principal office in immediately available funds. The Bank may charge the primary operating deposit account of Borrower at the Bank (other than payroll, escrow or trust accounts) with the amount of all payments of interest, principal, letter of
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credit fees, the Unused Line Fee under Section 2.10 and LIBOR breakage fees and will notify the Borrower of the amount so charged.
7. Expenses. In connection with the preparation, amendment or interpretation of this Agreement and other documentation relating to the Loans and the collection of the Obligations made pursuant hereto, the Borrower agrees to pay upon the signing hereof all reasonable costs and expenses (including, without limitation, reasonable legal fees) of the Bank in connection with origination of the Credit Line and the Term Loan and the original documentation hereof, and to pay within fifteen (15) days after invoicing the reasonable costs and expenses (including reasonable legal fees) of the Bank in connection with any amendment hereto or to any of the other Loan Documents or any waiver hereunder or thereunder or with interpreting, enforcing or exercising any rights or remedies under this Agreement or any of the other Loan Documents, all whether or not legal action is instituted. In addition, the Borrower shall pay any and all recording or filing fees, payable or determined to be payable in connection with the execution and delivery of this Agreement and each of the Loan Documents.
8. Additional Security. Borrower grants to the Bank a security interest in and with respect to any and all deposits or other sums at any time or times credited by or due from the Bank to the Borrower (other than payroll, escrow or trust accounts) and any and all securities, instruments or other personal property of the Borrower in the possession of the Bank (other than payroll, escrow or trust accounts), to secure the payment and performance of all Obligations. If a Default has occurred and is continuing, the Bank may apply such deposits or other sums credited by, due from or held by it, toward the satisfaction of any and all such Obligations then due and owing (by reason of their maturity, their acceleration or otherwise) whether or not other collateral or security is available to the Bank and will promptly inform the Borrower of such application of deposits or other sums. If a Default has occurred and is continuing, any and all rights to require Bank to exercise its rights or remedies with respect to any other collateral which secures the Obligations, prior to exercising its right of setoff with respect to such deposits, credits or other property of Borrower, are hereby knowingly, voluntarily and irrevocably waived.
9. Further Actions; Inspections and Audits. The Borrower will, from time to time, at the reasonable request of the Bank, execute and deliver all such further instruments and take such further action as the Bank may reasonably require to effectuate more perfectly the intent of this Agreement. The Borrower shall permit the Bank, or its representatives, at any reasonable time and from to time (but unless an Event of Default exists, following prior notice and only during normal business hours at mutually agreeable times), to perform such audits, examinations and inspections as Bank reasonably deems necessary in order to insure compliance with this Agreement. The Borrower will pay the Bank's customary charges for such audits, examinations and inspections; provided, however, that Borrower shall not be obligated to reimburse Bank for the charges of more than one (1) audit every year while no Events of Default are continuing.
10. Conditions of Lending. The obligation of the Bank to make the Term Loan, advance funds pursuant to the Credit Line or to issue Letters of Credit is subject to the following conditions precedent, which together may be called the Conditions of Lending :
10.1 That the statements, representations and warranties of the Borrower contained herein are and continue to be true in all material respects, other than representations and warranties which expressly pertain to a specific date and which are no longer true and correct due to determination of such representation and warranty as of or for another date or period; that no Default or Event of Default has occurred and is continuing; and that each request for an Advance or for issuance of a Letter of Credit shall constitute and be deemed to be a representation and warranty to the Bank as to the accuracy and completeness in all material respects of each of the foregoing set forth in this Section 10.1 as of the date of such request and that upon the request of the Bank, the Borrower shall
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deliver to the Bank a certificate, in form and substance satisfactory to Bank, certifying as to the foregoing on the date of each Advance or issuance of a Letter of Credit.
10.2 The Borrower shall have delivered to the Bank, at the time of the execution of this Agreement, a duly authorized and executed Revolving Note and Term Note.
10.3 Borrower shall have delivered to the Bank, at the time of the execution of this Agreement, a duly authorized and executed Security Agreement and a duly authorized and executed Pledge Agreement, each in form and substance satisfactory to the Bank, together with such documents as the Bank may reasonably require to perfect the security interest in any Collateral.
10.4 The Bank shall have received simultaneously with the execution hereof: (a) an opinion of counsel for Borrower, in form and substance satisfactory to the Bank and (b) certified copies of all corporate actions taken by the Borrower to authorize the execution, delivery and performance of this Agreement and the Loan Documents, and its obligations in connection herewith.
10.5 The Guarantors shall have each delivered to the Bank a Guaranty of the Obligations, each in form and substance satisfactory to the Bank, together with the Security Agreement of the respective Guarantor.
10.6 The Borrower shall have delivered to the Bank at the time of execution hereof, or at such other times as shall be reasonably requested by Bank, such other documents relating to the Credit Line as the Bank may reasonably require, all in form and substance satisfactory to the Bank.
11. Particular Representations. Borrower represents and warrants as follows, each of which warranties and representations shall be deemed repeated at the time of each Advance:
11.1 Borrower is a duly organized and validly existing corporation organized in the State of Delaware, and has been duly qualified as a foreign corporation in the Commonwealth of Massachusetts and each other jurisdiction set forth on Schedule 11.1. Borrower is not required to qualify to do business as a foreign entity in any jurisdiction other than as set forth on Schedule 11.1 inasmuch as the character of its business and the ownership of its property, as now conducted or owned, either does not require such qualification or the failure to be so qualified would not reasonably be expected to have a material adverse effect upon the financial condition of the Borrower. Except as set forth in the Perfection Certificate, Borrower has conducted its business at all times since October 21, 2003 under the name "TechTarget, Inc.," and not under any other name or tradename. Set forth in the Perfection certificate are all locations at which Borrower or any Subsidiary has conducted business and all locations of its principal place of business, executive offices and locations of its assets. No Subsidiaries of the Borrower have assets in excess of $1,000, are generating revenues or are conducting business operations other than TechTarget Securities Corporation and TechTarget Limited.
11.2 The Borrower and its Subsidiaries have all requisite corporate power and authority to conduct its business and to own its assets as such business is now conducted or proposed to be conducted.
11.3 The execution, delivery and performance by the Borrower of this Agreement, the Revolving Note, the Term Note, its Security Agreement, the Pledge Agreement and all other Loan Documents, and the execution by each Guarantor of its Guaranty and its Security Agreement are within its corporate powers, and have been duly authorized by all necessary corporate action, and do not and will not:
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other than as applicable provisions have been waived or consent given in writing by the party to be bound by the waiver or consent, any indenture, agreement, lease, instrument or other undertaking to which it is a party or by which it or its properties or assets may be bound, except for such breach, default or conflict which would not be reasonably expected to result in a material adverse effect on the Borrower.
11.4 Except as set forth in Schedule 11.4 hereto, there are no actions, suits, investigations or proceedings pending or, to the knowledge of Borrower, threatened, against Borrower, any Subsidiary or any of the assets of Borrower or any Subsidiary, by or before any court or other tribunal or any governmental or administrative authority or agency, which, if determined adversely, would, singly or in the aggregate, reasonably be expected to have a material adverse effect on the financial condition or business of Borrower and the Subsidiaries or materially and adversely affect the ability of Borrower to perform the obligations required of it under this Agreement or under the Loan Documents.
11.5 Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of any proceeds of the Advances will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock.
11.6 Borrower and each Subsidiary possesses all necessary licenses and authorizations from Government Agencies as may be necessary to conduct its business as now conducted or proposed to be conducted. To the knowledge of Borrower, neither it nor any Subsidiary is not in default under any statute or other law or under any order, regulation or ruling of any court or other tribunal or any Government Agency, the enforcement of which would reasonably be expected to have a material adverse effect upon the financial condition or business of Borrower and the Subsidiaries, nor does Borrower have knowledge that it or any Subsidiary is in default under any indenture, agreement, lease, instrument or other undertaking, which indenture, agreement, lease, instrument or undertaking is material to the business or financial affairs of the Borrower and the Subsidiaries.
11.7 Borrower represents and warrants to the Bank that the Financial Statements are complete and correct in all material respects and fairly present its financial condition as at the dates so indicated therein and in the case of statements of operations, statements of cash flow or tax returns, the results of its operations for the period ending on such dates. Borrower is not secondarily liable, whether as a guarantor, surety co-borrower, endorser or otherwise, for obligations of any person or entity except as set forth in the Financial Statements and except for endorsements of negotiable instruments in the ordinary course of Borrower's business.
11.8 All federal income tax returns, and, to the best of its knowledge, all other tax returns, required by law to be filed by Borrower or any Subsidiary through the date of this Agreement have been filed within applicable time periods or extensions therefor, and all taxes shown thereon as due and payable, including any interest or penalties thereon, have been duly paid or adequate provision for the payment thereof has been made, or to the extent disclosed to the Bank in writing, are being contested in good faith. Provision has been made for any other taxes due and payable by Borrower and any Subsidiary in amounts reasonably deemed adequate by Borrower for such purposes.
11.9 Borrower and each Subsidiary has good and marketable title to its property shown on the Financial Statements, free of liens, except liens permitted under this Agreement and except for those liens listed on Schedule 11.9 hereto.
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11.10 Neither Borrower nor any Subsidiary has incurred nor anticipates incurring, any material " accumulated funding deficiency " within the meaning of the Employee Retirement Income Security Act of l974 (" ERISA ") or any liability to the Pension Benefit Guaranty Corporation (" PBGC ") established under such Act (or any successor thereto under such Act) in connection with any employee benefit plan (or other class of benefit which the PBGC has elected to insure) established or maintained by Borrower or any Subsidiary.
11.11 This Agreement, the Revolving Note, the Term Note, the Security Agreements, the Pledge Agreement and each and all other Loan Documents executed by Borrower or any of the Guarantors constitute, or will constitute when delivered, legal, valid and binding obligations of the Borrower and the Guarantors, and subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement or priority of creditors' rights generally, now or hereafter in effect, and subject to the provision that equitable remedies shall be within the discretion of the Court having jurisdiction to exercise the same, are enforceable in accordance with their respective terms.
11.12 This Agreement and the other Loan Documents, certificates and written statements furnished by or on behalf of Borrower to the Bank in connection with or pursuant to this Agreement did not and do not contain any untrue statement of a material fact concerning Borrower or any Subsidiary when made or omitted to state a material fact necessary in order to make the statements contained herein and therein with respect to Borrower and its Subsidiaries not misleading when made. To its knowledge, there is no fact (other than facts relating to general economic conditions) which materially adversely affects the business, operations, affairs, conditions, properties or assets of Borrower and its Subsidiaries which has not been set forth in a document, certificate or written statement furnished to the Bank by or on behalf of Borrower prior to or on the date of delivery hereof.
12. Particular Covenants.
A. Affirmative Covenants. So long as this Agreement shall be in effect and until payment in full of all Obligations, the Borrower agrees as follows as to itself and each Subsidiary:
12A.1 Borrower and each Subsidiary will operate its business in the usual course, will maintain its legal existence as a corporation and will maintain its foreign qualification, if any, and good standing in each jurisdiction in which it is required to do so unless failure to maintain such qualification or good standing would not have a material adverse effect upon the financial condition of Borrower or such Subsidiary.
12A.2 Borrower and each Subsidiary will maintain proper records and accounts.
12A.3 Borrower will furnish to the Bank reports as follows, each such report to be in form consolidated with all Subsidiaries and on a consolidating basis for Borrower and for all Subsidiaries:
(a) Monthly, within thirty (30) days after the end of each month, a management-prepared consolidated balance sheet for Borrower and the Subsidiaries and a consolidated statement of income and expense, and consolidated statement of cash flow for the month then ended and year to date and with consolidating data for Borrower and each Subsidiary, (with such detail as the Bank may reasonably require) together with a Covenant Compliance Certificate in the form of Exhibit 12.A.3(a) , certified to fairly present the financial condition of Borrower by its Chief Financial Officer, subject to normal year end audit adjustments and the absence of footnotes.
(b) Within one hundred thirty-five (135) days after the end of each fiscal year of Borrower, a consolidated financial statement for such year for Borrower and the Subsidiaries, consolidated statement of income and expense and a consolidated statement of cash flow, in accordance with GAAP, with an audit report thereon by an independent certified public
16
accountant selected by Borrower and reasonably satisfactory to Bank, such statements to including consolidating data in respect of Borrower and all Subsidiaries.
(c) By not later than January 30 of each year, the consolidated and consolidating budget and projections of net income of Borrower and its Subsidiaries, including assumptions, for such year, which shall be based on management's good faith estimates of their financial performance and financial condition. Such projections shall include on a monthly projected basis, a consolidated balance sheet, income statement and statement of cash flow, and consolidating statements for each Subsidiary and shall otherwise be in such form and detail as is reasonably acceptable to the Bank.
(d) promptly, notice of:
(e) Upon request of the Bank, such other or additional financial information as to Borrower or any Subsidiary as the Bank may reasonably require.
12A.4 Borrower will cause to be maintained workers' compensation insurance for personnel performing services for Borrower or any Subsidiary in such amounts as may be required by law; and at all times maintain public liability coverage in amounts, limits and types and with provisions and with insurers as may be consistent with prudent companies in similar circumstances carrying on similar businesses. Borrower shall also maintain casualty insurance coverage and other insurance coverages on the properties and business of Borrower and its Subsidiaries including the collateral described in the Security Agreements and business interruption insurance in amounts and types and with provisions as are usually carried by others in similar circumstances and engaged in similar businesses. Borrower will furnish to the Bank such written evidence of the insurance required by this subsection as the Bank may reasonably require.
12A.5 Promptly notify the Bank upon the occurrence, or if practicable, prior to the occurrence, of any change in the identity of the persons holding the positions of Chief Executive Officer, President and Chief Financial Officer in Borrower's executive management.
12A.6 Pay all principal and interest under the Revolving Note and the Term Note as and when due, and all other Obligations, as and when due.
12A.7 Except as may be being contested by Borrower or a Subsidiary in good faith and by diligent action, comply with all statutes, laws, orders, rules and regulations of all Government Agencies the noncompliance with which could have a material adverse effect upon the financial condition or business or assets of Borrower or the value of the Collateral.
12A.8 Cause the proceeds of each Advance to be used in accordance with the provisions of Section 5 of this Agreement.
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12A.9 Borrower agrees that it will comply with the following financial covenants.
12A.9.1 The Borrower shall maintain a Debt Service Coverage Ratio of not less than 1.25 to 1.0, tested monthly, on a trailing six months basis.
12A.9.2 Borrower's Liquidity shall be not less than $10,000,000 at all times. As used herein the term Liquidity shall mean cash and cash equivalents held by Borrower and the Guarantors.
12A.10 At such time as a Subsidiary possesses or acquires assets in excess of $1,000, or commences to conduct business operations, or generates revenues, Borrower shall notify the Bank and (a) if the Subsidiary is a Foreign Subsidiary, shall promptly deliver to the Bank a pledge agreement substantially in the form of the Pledge Agreement covering 66 2 / 3 % of the outstanding ownership interest of the Borrower or as to any other Subsidiary, 100% of the outstanding ownership interest in such Subsidiary, together with such deliveries as the Bank may reasonably require, to provide the Bank with a perfected senior pledge and security interest in such ownership interest and (b) if the Subsidiary is not a Foreign Subsidiary, shall promptly deliver to the Bank a guaranty by such Subsidiary of the Obligations in the form reasonably required by the Bank and a security agreement substantially in the form of the Security Agreement covering all of the business assets of such Subsidiary, together with such other documents as the Bank may reasonably require to provide the Bank with a perfected senior pledge and security interest in such assets.
12A.11 Notify the Bank not later than 30 days prior to any change in the name of the Borrower or any Subsidiary or of Borrower's principal executive offices.
B. Negative Covenants. So long as this Agreement shall be in effect, and until payment in full of all Obligations, neither the Borrower nor any Subsidiary, without the written consent of the Bank:
12B.1 Fail to pay when due any tax liabilities or fail to pay or discharge any and all material taxes, assessments and governmental charges before they become payable with penalty, unless and to the extent that such items are being contested in good faith and by appropriate action.
12B.2 Pledge or otherwise encumber any of its property or securities nor permit any lien to exist on any of the assets of Borrower or any Subsidiary; excluding, however, from this covenant the following " Permitted Encumbrances ": (a) liens incurred in the ordinary course of Borrower's or the Subsidiary's existing business to secure statutory obligations, and other similar obligations not incurred in connection with the borrowing of money; (b) liens for taxes, fees, assessments or other charges or levies of Government Agencies not delinquent or being contested in good faith by appropriate proceedings; (c) liens in favor of the Bank; (d) liens existing on the date hereof, if any, and disclosed on Schedule 12B.2; (e) deposits or escrows in connection with the purchase of goods or services made in the ordinary course of business; (f) liens arising by operation of law to secure lessors under leases or rental agreements; and (g) liens in the nature of purchase money security interests securing indebtedness in connection with the acquisition of vehicles and office equipment not exceeding $1,000,000 in the aggregate at any time outstanding and provided such security interest applies only to the asset acquired in such transaction and secures no other indebtedness.
12B.3 Merge or consolidate with any person or entity unless Borrower is the survivor or successor; nor sell, lease, transfer, assign or otherwise dispose of all or substantially all of the assets of Borrower or any Subsidiary.
12B.4 Guaranty or become surety for the obligations of any person, partnership, corporation, trust or other entity except (a) in favor of the Bank or (b) endorsements of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business.
12B.5 Incur indebtedness for borrowed money from any source other than the Bank, except (a) indebtedness existing on the date hereof, if any, and disclosed on Schedule 12B.5 , and
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refinancings thereof; (b) indebtedness that is subordinated to the Obligations, which indebtedness and the terms of subordination shall be acceptable to the Bank and (c) indebtedness secured by purchase money security interests to the extent permitted by Section 12B.2 above.
12B.6 Fail to pay its trade creditors, generally, in accordance with customary payment terms, unless and to the extent payments are being contested by Borrower or such Subsidiary in good faith.
12B.7 Change its name, or conduct business under any name other than its present name, or change its jurisdiction of organization without providing the Bank with a minimum of thirty (30) days prior notice thereof.
12B.8 Fail to maintain in full force and effect all permits and licenses from Government Agencies except for those permits and licenses the failure of which to maintain would not be reasonably expected to result in a material adverse effect on Borrower or such Subsidiary.
12B.9 Fail to comply in all material respects with all laws, regulations, ordinances and requirements of all Government Agencies, the enforcement of which could have a material adverse effect upon the business, operations or financial condition of Borrower or such Subsidiary.
12B.10 Pay dividends or distributions to stockholders or otherwise make payments of cash or other property to any of Borrower's stockholders or entities affiliated with Borrower through direct or indirect ownership except compensation paid in the ordinary course of business for services rendered except that a Subsidiary may pay dividends to the Borrower.
12B.11 Incur Capital Expenditures (in the aggregate among Borrower and all Subsidiaries) in excess of $4,000,000 in the aggregate during the Borrower's fiscal years ending December 31, 2006 or December 31, 2007, or in excess of $6,000,000 in any fiscal year thereafter.
12B.12 Unless otherwise approved by the Bank prior to the acquisition, (a) acquire any business or the securities evidencing ownership in a business or (b) acquire assets of a business in a transaction outside of the ordinary course of such seller's business unless in either such instance such acquisition is a Qualified Acquisition and provided there has been compliance with the requirements of Section 12A.10 above.
12B.13 Invest or loan or permit the investment or loan of any of the assets of the Borrower or any Subsidiary in or to any person, partnership, corporation, trust or other entity other than in or to any Guarantor except that the foregoing limitation shall not apply to: (a) the purchase of certificates of deposit or other Bank obligations; (b) marketable direct obligations of the United States of America or issues unconditionally guaranteed by the United States of America or issued by any agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within one year from the date of acquisition thereof; (c) commercial paper maturing no more than 180 days from the date of issuance thereof and having at the date of issuance the highest rating attainable from either Standard & Poors Corporation or by Moody's Investors Services; (d) advances to officers and employees for reasonable expenses which are properly reimbursable by the Borrower and (e) investments in marketable debt securities maturing in more than 180 days and rated Baa3 or above by Moody's Investors Services or BBB or above by Standard & Poors Corporation. The extension of credit to customers for goods sold and delivered or services rendered is not an investment or loan for purposes of this Section 12B.13 .
12C. Waiver of Covenants. The Bank may, in its sole discretion, waive any one or more of the covenants contained in this Section 12, either in a particular instance or generally. No waiver shall be effective unless the same is set forth in a written instrument executed by a duly authorized officer of the Bank, and then only to the extent specifically set forth therein.
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13. Events of Default. The occurrence of any one or more of the following events (including the expiration of any grace period specifically provided therefor) shall constitute an Event of Default under this Agreement:
13.1 (a) Any default in any payment of interest or principal due under either Note, (b) any default in any other payment due the Bank which continues uncured for more than five (5) days after notice from the Bank, or (c) any default under Sections 12A.4, 12A.6 (after expiration of applicable cure periods under clause (b), if any), 12A.8, 12A.9, 12A.10, 12A.11, 12B.2, (other than liens or encumbrances imposed by third parties without the consent or agreement of the Borrower), 12B.3, 12B.4, 12B.5, 12B.6, 12B.7, 12B.10, 12B.11, 12B.12 or 12B.13.
13.2 Any default in the observance or performance of any covenant or agreement contained in this Agreement (other than defaults described in Section 13.1 above) and the continuance of such default unremedied for a period of thirty (30) days after written notice from the Bank.
13.3 Any representation or warranty made herein or hereafter to the Bank proving to have been false, inaccurate or incomplete in any material respect when made.
13.4 If voluntary or involuntary proceedings under the United States Bankruptcy Code, as amended from time to time (the " Bankruptcy Code "), shall be commenced by or against the Borrower or any Subsidiary or bankruptcy, receivership, insolvency, reorganization, dissolution, liquidation or other similar proceedings shall be instituted by or against the Borrower or any Subsidiary with respect to all or any part of Borrower's or any Subsidiary's property under the Bankruptcy Code or other law of the United States or of any state or other competent jurisdiction, and if such proceedings are instituted against the Borrower or any Subsidiary, if Borrower or such Subsidiary shall consent thereto or shall fail to cause the same to be discharged or vacated within ninety (90) days.
13.5 The occurrence of an " Event of Default " (or if the term "Event of Default" is not utilized therein, the occurrence of a default which default continues beyond any applicable cure periods) under the Revolving Note, the Term Note, the Security Agreements, the Pledge Agreement or under any other Loan Document.
13.6 If the Borrower or any Subsidiary shall default in the payment of any obligation, other than those relating to the Credit Line or the Term Note, for borrowed money to the Bank, or to any other person or entity, beyond any applicable grace period, or shall fail to observe or perform any provision contained in any instrument evidencing, relating to or securing any such obligation, which failure permits the holder of such obligation to declare the same due prior to its stated maturity, unless Borrower or such Subsidiary is contesting such default or failure in good faith by appropriate proceedings commenced and prosecuted with due diligence. This Section 13.6 shall apply to obligations to creditors other than the Bank only if and to the extent that such obligations which are in default exceed $100,000 in the aggregate.
Then, upon the occurrence of any such Event of Default and during the continuance thereof, (1) the Bank may notify Borrower that it declines to make further Advances to the Borrower and to issue further Letters of Credit under this Agreement, and upon the giving of such notice any obligations of the Bank to make Advances to the Borrower or to issue Letters of Credit or to provide other financial accommodations to the Borrower under any other agreement shall cease and terminate; and (2) the Notes and all other Obligations shall forthwith become due and payable without presentment, demand, protest or notice of any kind, all of which are expressly hereby waived; and (3) the Bank shall be entitled to pursue any or all remedies available under any instruments executed in connection with the Loans or Letters of Credit available under applicable law, in such order as the Bank may determine in its sole discretion.
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14. Miscellaneous.
14.1 No failure or delay by the Bank in exercising any right or remedy hereunder or under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy hereunder or thereunder. No amendment, modification, termination or waiver of any provision of this Agreement or any Loan Document shall in any event be effective unless the same shall be set forth in a writing signed by the Bank and Borrower, and then only to the extent specifically set forth therein. All of the rights and remedies of the Bank hereunder and under any Loan Document are cumulative and not exclusive of any other rights and remedies under other agreements of the Borrower with the Bank or under applicable law, and all such rights and remedies may be exercised singly or concurrently.
14.2 The Borrower agrees to indemnify and hold harmless the Bank from and against any and all costs, expenses, judgments and claims, including reasonable attorneys' fees, arising out of any suit brought against the Borrower and/or the Bank by reason of, relating to or in connection with the execution, delivery or performance of this Agreement and any other Loan Document; or by reason of, or in connection with, any credit extended under this Agreement or any other Loan Documents, except any costs, expenses, judgments and claims arising out of the Bank's gross negligence or bad faith in fact. The obligations of the Borrower under this Section shall survive payment of the Obligations.
14.3 No notice to or demand upon the Borrower in any instance, shall entitle the Borrower to any other or further notice or demand under similar or other circumstances, unless expressly required by law or this Agreement. The Bank shall be entitled to rely upon any instrument or communication in any form believed by it to be genuine and to have been signed or sent by an authorized officer or representative of the Borrower as evidenced by the most recent incumbency and authorization certificate furnished to the Bank.
14.4 All notices, demands and other communications by one party hereunder to the other shall be in writing and shall be deemed effective three days after being sent by certified or registered mail, return receipt requested, postage prepaid, or one business day after being sent by recognized overnight delivery service, or when receipt is acknowledged if sent by facsimile, telecopy or other electronic transmission device, and addressed to the other party as set forth below:
If to Borrower:
TechTarget, Inc.
117 Kendrick Street
Needham MA 02494
Attn: Eric Sockol, Chief Financial Officer
If to the Bank:
Citizens
Bank of Massachusetts
53 State Street, 8
th
Floor
Boston, MA 02109
Attn: Sharon Stone
Senior Vice President
with a copy to:
Norman
C. Spector, Esq.
Burns & Levinson LLP
125 Summer Street
Boston, MA 02110
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or to such other address of which notice is given in the same manner. The financial statements described in Section 12 may be sent to the Bank by ordinary mail or delivered to it.
14.5 Bank shall have the unrestricted right at any time or from time to time, without the Borrower's consent, to assign all or any portion of its rights and obligations hereunder to one or more banks or other financial institutions (each, an " Assignee ") and the Borrower agrees that it shall execute, or cause to be executed such other documents, including without limitation, amendments to this Agreement and to any other Loan Documents as Bank shall deem necessary to effect the foregoing. In addition, at the request of Bank and any such Assignee, the Borrower shall issue one or more new promissory notes, as applicable, to any such Assignee and, if Bank has retained any of its rights and obligations hereunder following such assignment, to Bank, which new promissory notes shall be issued in replacement of, but not in discharge of, the liability evidenced by the promissory note held by Bank prior to such assignment and shall reflect the amount of the respective commitments and loans held by such Assignee and Bank after giving effect to such assignment. Upon the execution and delivery of appropriate assignment documentation, amendments and any other documentation required by Bank in connection with such assignment, and the payment by Assignee of the purchase price agreed to by Bank, and such Assignee, such Assignee shall be a party to this Agreement and shall have all of the rights and obligations of Bank hereunder (and under any and all other guaranties, documents, instruments and agreements executed in connection herewith) to the extent that such rights and obligations have been assigned by Bank pursuant to the assignment documentation between Bank and such Assignee, and Bank shall be released from its obligations hereunder and thereunder to a corresponding extent.
14.6 Bank may at any time pledge or assign all or any portion of its rights under the Revolving Note, this Agreement, and the other Loan Documents to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or assignment or enforcement thereof shall release Bank from its obligations under the Loan Documents.
14.7 Bank shall have the unrestricted right any time and from time to time, and without the consent of or notice to the Borrower, to grant to one or more banks or other financial institutions (each, a " Participant ") participation interests in Bank's obligation to lend hereunder and/or any or all of the loans held by Bank hereunder. In the event of any such grant by Bank of a participation interest to a Participant, whether or not upon notice to the Borrower, Bank shall remain responsible for the performance of its obligations hereunder and the servicing of the Loans and the Borrower shall continue to deal solely and directly with Bank in connection with Bank's rights and obligations hereunder.
14.8 Bank may furnish any information concerning the Borrower in its possession from time to time to prospective Assignees and Participants, provided that Bank shall require any such prospective Assignee or Participant to agree in writing to maintain the confidentiality of such information. Bank will use reasonable efforts, consistent with the Bank's normal procedures, to maintain the confidentiality of information concerning the Borrower, but nothing herein contained shall prevent disclosures required by law, required by court order or subpoena, or disclosures to auditors and to regulatory authorities.
14.9 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatures.
14.10 This Agreement shall become effective when executed by the Borrower and the Bank and thereafter shall be binding upon and inure to the benefit of the Borrower and the Bank and their
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respective successors and assigns, except that the Borrower cannot assign its rights hereunder or any interest herein without the prior written consent of the Bank.
14.11 All of the covenants, representations and warranties herein shall survive the execution and delivery of this Agreement and the making of the Loans so long as any Obligations of the Borrower remain outstanding, and may be relied upon by the Bank. All covenants, representations and warranties contained in any certificate, statement, report or other document delivered by or on behalf of the Borrower as provided herein or otherwise in connection with the transactions contemplated hereby shall be deemed to have been made in this Agreement.
14.12 All Exhibits and Schedules hereto are hereby incorporated into and made a part of this Agreement.
14.13 Headings are included in this Agreement for convenience of reference only and shall not be deemed to have any legal or other significance whatsoever.
14.14 This Agreement and all other Loan Documents shall be deemed to be contracts under the laws of The Commonwealth of Massachusetts and shall for all purposes be governed by and construed in accordance with the laws of said Commonwealth, and without regard to conflict of laws principles applied by such courts.
14.15 The Borrower irrevocably submits to the non-exclusive jurisdiction of any Federal or State court sitting in Boston, Massachusetts over any situation or proceeding arising out of or relating to this Agreement. The Borrower irrevocably waives, to the fullest extent it any effectively do so under applicable law, any objection it may have or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that the same has been brought in an inconvenient forum.
14.16 THE BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR BANK TO MAKE THE LOANS CONTEMPLATED HEREUNDER. The Borrower hereby certifies that neither Bank nor any of its representatives, agents or counsel has represented, expressly or otherwise, that Bank would not, in the event of any such suit, action or proceeding, seek to enforce this waiver of right to trial by jury. The Borrower acknowledges that it has read the provisions of this Agreement and in particular, this Paragraph; has consulted legal counsel; understands the rights it is granting in this Agreement and is waiving in this Paragraph in particular; and makes the above waiver knowingly, voluntarily and intentionally.
14.17 EXCEPT AS MAY BE PROHIBITED BY LAW, EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY PROCEEDINGS ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OTHER THAN OR IN ADDITION TO, ACTUAL DAMAGES.
14.18 This Agreement and the Loan Documents contain the entire agreement between the parties and supersede any prior agreements (oral or written), and may not be amended, revised, waived, discharged, released or terminated orally but only by a written instrument or instruments executed by the party against which enforcement of the amendment, revision, waiver, discharge, release or termination is asserted.
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14.19 If any provision hereof shall be determined to be invalid or unenforceable, such determination shall not affect the validity or enforceability of any other provision hereof.
THERE IS NO FURTHER TEXT ON THIS PAGE
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14.20 This Agreement may be executed in a number of counterparts, each such counterpart being deemed an original and all such counterparts together constituting one single instrument.
EXECUTED as an agreement under seal as of the 30th day of August, 2006.
BORROWER: | ||||||
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TECHTARGET, INC. |
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By: |
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/s/ ERIC SOCKOL Name: Eric Sockol Title: Chief Financial officer |
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BANK: |
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CITIZENS BANK OF MASSACHUSETTS |
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By: |
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/s/ SHARON A. STONE Name: Sharon Stone Title: Senior Vice President |
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SCHEDULE 11.7
Financial Statements
December 31,
2005
March 31, 2006
June 30, 2006
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Borrower has good and marketable title to its property shown on its Financial Statements, free of liens.
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Exhibit 12.A.3(a)
Covenant Compliance Certificate
The undersigned, does hereby certify to Citizens Bank of Massachusetts that, to the best of the knowledge of the undersigned, after review of the Credit Facility Agreement (defined below) and appropriate inquiry, no Default or Event of Default, as each such term is defined in a Credit Facility Agreement dated August 30, 2006 (the " Credit Facility Agreement ") has occurred or is continuing.
The following calculations demonstrate compliance with Sections 12A.9.1 and 12A.9.2
Very truly yours, | ||||
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TECHTARGET, INC. |
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By |
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SCHEDULE 12B.5
PERMITTED ENCUMBRANCES
Borrower has incurred the following indebtedness:
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Exhibit 21.1
TechTaraget, Inc.
List of Subsidiaries
September 30, 2006
Subsidiary Legal Name
|
Employer
ID Number |
% Owned
|
State/Country
Incorporated |
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Bitpipe, Inc. | 04-3442108 | 100 | % | DE | ||
TechTarget Securities Corporation | 20-1921630 | 100 | % | MA | ||
TechTarget Limited | NA | 100 | % | United Kingdom |
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption "Experts" and to the use of our report dated April 12, 2006, in the Registration Statement (Form S-1) and related Prospectus of TechTarget, Inc. for the registration of shares of its common stock.
/s/ Ernst & Young LLP | ||
Boston, Massachusetts February 5, 2007 |
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EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of TechTarget, Inc. of our report dated October 1, 2004 relating to the financial statements of Bitpipe, Inc., which appears in such Registration Statement. We also consent to the reference to us under the headings "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts February 5, 2007 |