-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SoWotXsAkQFd13M4tUM1mCFPURtbkVxpPa/KZv0GBxLRZALn0zAZU9Ic/fX02tXM 2Hpq1WgpfF9+0RBJQoMCOg== 0001047469-99-003575.txt : 19990208 0001047469-99-003575.hdr.sgml : 19990208 ACCESSION NUMBER: 0001047469-99-003575 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 51 FILED AS OF DATE: 19990205 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETOBJECTS INC CENTRAL INDEX KEY: 0001009386 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 943233791 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-71893 FILM NUMBER: 99522746 BUSINESS ADDRESS: STREET 1: 301 GALVESTON DRIVE CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 6504823200 S-1 1 S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ NETOBJECTS, INC. (Exact name of Registrant as specified in its charter) DELAWARE 7372 94-3233791 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Incorporation or Classification Code Number) Identification organization) No.)
301 GALVESTON DRIVE REDWOOD CITY, CALIFORNIA 94063 (650) 482-3200 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ------------------ SAMIR ARORA, CHIEF EXECUTIVE OFFICER 301 GALVESTON DRIVE REDWOOD CITY, CALIFORNIA 94063 (650) 482-3200 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------ COPIES TO: ALAN B. KALIN JOHN W. WHITE LAURA T. PUCKETT CRAVATH, SWAINE & MOORE MARK F. HOFFMAN WORLDWIDE PLAZA GRAHAM & JAMES LLP 825 EIGHTH AVENUE 600 HANSEN WAY NEW YORK, NEW YORK 10019-7475 PALO ALTO, CALIFORNIA 94304-1043 ------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. ------------------ If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: / / CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AMOUNT OF TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE Common stock, par value $0.01 per share............. $70,000,000 $19,460
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o). THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION FEBRUARY 5, 1999 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. Shares [LOGO] Common Stock --------- This is the initial public offering of NetObjects, Inc., and we are offering shares of our common stock. No public market currently exists for our shares. We anticipate that the initial public offering price will be between $ and $ per share. We have applied to list the common stock on the Nasdaq National Market under the symbol "NETO." INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
PER SHARE TOTAL ----------- -------------- Public offering price(1)............................................ $ $ Underwriting discounts.............................................. $ $ Proceeds to NetObjects.............................................. $ $
(1) In connection with the offering, the underwriters have reserved up to shares of our common stock for sale at the initial public offering price to employees and friends of NetObjects. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. NetObjects has granted the underwriters the right to purchase up to additional shares of common stock at the initial public offering price to cover over-allotments. BT ALEX. BROWN BANCBOSTON ROBERTSON STEPHENS PIPER JAFFRAY INC. , 1999 DESCRIPTION OF ARTWORK OUTSIDE PORTION OF GATEFOLD: GRAPHIC DEPICTING: e-publishing, e-applications, and e-commerce, with arrows pointing to e-business INTRODUCTORY TEXT: The web is changing the world. It's changing the way companies communicate, do business, and grow. To reap the benefits of improved efficiency, businesses need a presence on the web. They need an e-business site. One that builds relationships with employees, partners and customers. One that lets companies implement e-publishing, e-applications and e-commerce. NetObjects software, professional services and online resources make it possible for businesses, large or small, to easily build e-business sites or intranets that let them leverage the power of the web. HEADLINE COPY: Software Professional Services Online Resources GRAPHICS OF PRODUCTS, PROFESSIONAL SERVICES and ONLINE RESOURCES: (1) two overlapping product boxes: NetObjects Fusion 4.0 for Windows and NetObjects Authoring Server 3.0 (2) photo of service people (3) graphic showing overlapping screen shots of four web sites (left to right): NetObjects corporate site, eFuse.com, eSiteStore.com, and eScriptZone.com TEXT AT BOTTOM: When it comes to evaluating NetObjects applications, the industry experts have spoken. GRAPHICS OF LOGOS: (1) NetObjects corporate logo (2) Internet World logo (3) Cross Roads award logo (4) PC Magazine award logo (5) JavaWorld award logo (6) Web Developer award logo (7) CNet logo (8) IDEA logo (9) InfoWorld logo (10) IBM e-business logo LEFT-HAND PAGE OF GATEFOLD: TITLE: Their success is our success INTRODUCTORY TEXT: More than 300,000 copies of NetObjects Fusion have been delivered to date, and more than 1 million web pages or web sites have been built using NetObjects Fusion. In addition, over 500 businesses worldwide have deployed NetObjects Authoring Server. Take a look at how some of our customers are using NetObjects applications to build web sites that sell products, provide virtual tours, build online catalogs, auction collectible goods, and more. NINE GRAPHICS DEPICTING SCREEN SHOTS OF CUSTOMER WEB SITES CAPTIONS (ONE FOR EACH SCREEN SHOT, LEFT TO RIGHT, TOP TO BOTTOM): (1) www.justforfeet.com (2) www.collectit.net (3) www.cellone-sf.com (4) www.shell-lubricants.com (5) www.northstarnursery.com (6) www.leasesource.com (7) www.christmas.com (8) www.krause.com (9) www.realty.com RIGHT-HAND PAGE OF GATEFOLD: TITLE: Strategic relationships we can count on INTRO PARAGRAPH: We have aligned with industry leaders through a host of partnership agreements that supplement our core strengths. Equity, technology, co-marketing and distribution partners extend our reach, enhance our products, complement our sales and distribution efforts and allow us to continue our leadership in web business solutions. TWELVE CORPORATE LOGOS (LEFT TO RIGHT, TOP TO BOTTOM): (1) IBM (2) Lotus (3) Novell (4) Mitsubishi (5) PeopleSoft Global Alliance Program (6) Allaire (7) CompuServe (8) Compaq (9) SmartAge (10) Zip2 PROSPECTUS SUMMARY YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION REGARDING NETOBJECTS AND THE COMMON STOCK BEING SOLD IN THE OFFERING, AS WELL AS OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THE OUTCOME OF THE EVENTS DESCRIBED IN THESE FORWARD-LOOKING STATEMENTS IS SUBJECT TO RISKS AND ACTUAL RESULTS COULD DIFFER MATERIALLY. THE SECTIONS ENTITLED "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS, CONTAIN A DISCUSSION OF SOME OF THE FACTORS THAT COULD CONTRIBUTE TO THESE DIFFERENCES. The terms "NetObjects," "we," "us," and "our" refer to NetObjects, Inc. and our subsidiary, NetObjects Ltd. NETOBJECTS We are a leading provider of e-business software and solutions that enable small to medium-sized companies and large-scale enterprises to build, deploy and maintain web sites on the Internet and corporate intranets. Our e-business solutions address the growing challenges faced by businesses in capturing the explosive growth of the Internet as an online business medium by helping them build web sites that can publish content, conduct electronic commerce and run web applications. In 1996, we pioneered the web site building product category with the introduction of our award-winning flagship product, NetObjects Fusion. Since 1996, we have released enhanced versions of NetObjects Fusion, and we have introduced other products, including NetObjects Authoring Server, a scalable client-server application for large-scale enterprises and corporate departments, which facilitates controlled, collaborative building of intranet sites. We have also built popular online resources, including eFuse.com, launched in December 1998, that target communities of business users and provide sources of information, products and services for building business web sites. In addition, in October 1998 we began offering professional services to our business customers. By offering these services, we believe that we can better serve their web site planning, building and maintenance needs. We have established a premier Internet brand and estimate that over 300,000 copies of NetObjects Fusion have been delivered to date, and more than 1,000,000 web pages or web sites have been built using NetObjects Fusion. Our flagship product, NetObjects Fusion, is an easy-to-use desktop software application for building business web sites that support rich content, e-commerce functionality and database interaction. NetObjects Fusion provides an intuitive, visual interface that helps automate and integrates many site building functions, including site layout and design, page building and content management. NetObjects Fusion's open architecture supports a wide range of platforms, including web browsers, databases and web servers. Examples of NetObjects Fusion customers include small to medium-sized companies, such as Christmas.com (Christmas Information Services), LeaseSource.com (LeaseSource Online) and Realty.com (HTTP Development, Inc.), as well as large-scale enterprises, such as DaimlerChrysler AG and Blue Cross Blue Shield. Our second product offering, NetObjects Authoring Server, is a scalable client-server application targeted at large-scale enterprises and corporate departments developing web sites involving multiple builders and content contributors. NetObjects Authoring Server offers the same features and open architecture as NetObjects Fusion while providing a scalable, controlled, collaborative environment for multiple concurrent users. Examples of NetObjects Authoring Server customers include NationsBank Corporation, Cellular One (Bay Area), The Boeing Company, VLSI Technology, Inc. and Bayer AG. We maintain several web sites providing information, products and services to business web site builders. NetObjects.com offers information, products, solutions and support for our customers. Our recently introduced eFuse.com site is the first online resource to provide integrated content, products and solutions for small and medium-sized businesses to help plan, produce, publish and promote their web sites. eScriptZone.com provides articles, tutorials, software and an online community of forums and newsgroups for webmasters and corporate web applications builders. eSiteStore.com is our online retail store that provides a one-stop shopping destination for businesses to purchase our software, third-party software and components and also offers online services to customers. As part of our strategy to provide complete e-business solutions, we have formed technology relationships with other Internet companies. Many of these companies have built products with extensions for NetObjects Fusion and NetObjects Authoring Server, such as Allaire Cold Fusion, iCat Commerce Online, Lotus Domino, Beatnik audio software and IBM HotMedia. In addition, we have built extensions for the Microsoft ASP Site Server. These extensions provide us with broader platform connectivity and interoperability and position our products as the open platforms of choice for web site building. We also provide integrated web solutions with key online service providers such as CompuServe, SmartAge, T-Online and Zip2 for hosting and promoting e-business sites. To support our product sales, we have product bundling agreements that provide greater brand recognition and awareness, such as the bundling of NetObjects Fusion with Lotus Designer for Domino, IBM WebSphere Studio and Novell Netware for Small Business. In addition, our strategic relationship with International Business Machines Corporation, or IBM, has provided us with sales and marketing benefits, including access to IBM and Lotus sales and distribution channels, co-marketing and co-promotion benefits and credibility in the marketplace. We have experienced rapid growth since the launch of the first commercial version of NetObjects Fusion in October 1996. Our total revenues have grown from a base of $0 for fiscal year 1996 to $7.6 million for fiscal year 1997 and to $15.3 million for fiscal year 1998. Traffic to our online web sites has grown from approximately 800,000 visitors in 1996 to approximately 2.5 million visitors in 1998. New visitors provided approximately half of the traffic to our web site in 1998. In addition, over 500 businesses worldwide have deployed NetObjects Authoring Server, or its predecessor NetObjects Team Fusion. We incorporated in Delaware in November 1995 and have a limited operating history. Our principal executive offices are located at 301 Galveston Drive, Redwood City, CA 94063, and our telephone number is (650) 482-3200. Our web site can be found at www.netobjects.com. Information contained on our web sites does not constitute part of this prospectus. NetObjects-Registered Trademark-, NetObjects Fusion-TM-, NetObjects Authoring Server-TM-, NetObjects TeamFusion-TM-, NetObjects Fusion Enterprise Edition-TM-, NetObjects ScriptBuilder-TM-, NetObjects Fusion Personal Edition-TM-, SiteStructure Editor-TM-, PageDraw-Registered Trademark-, SiteStyles-Registered Trademark-, SiteStyles Manager-TM-, SiteProducer-TM-, StyleObject-TM-, WebDraw-TM-, PublishSet-TM-, AutoSites-TM-, The Web Needs You-TM- and BeanBuilder-TM- are our registered and unregistered trademarks, service marks and trade names. This prospectus also includes trademarks, service marks and trade names other than those identified in this paragraph, each of which is the property of its respective holder. 4 THE OFFERING Common stock offered by NetObjects.............. shares Common stock to be outstanding after the offering...................................... shares(1) Use of Proceeds................................. Repayment of $19.0 million of secured debt owed to IBM Credit Corporation, a subsidiary of IBM, debt of $3.45 million plus accrued interest that we expect to owe to IBM under notes issued prior to the closing of the offering, working capital requirements and other general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol........................................ NETO
SUMMARY FINANCIAL DATA
PERIOD FROM THREE MONTHS ENDED NOVEMBER 21, 1995 YEAR ENDED (INCEPTION) TO SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, -------------------- -------------------- 1996 1997 1998 1997 1998 ------------------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Total revenues.......................................... $ -- $ 7,567 $ 15,270 $ 2,285 $ 5,617 Cost of revenues........................................ -- 772 5,093 278 2,083 Gross profit............................................ -- 6,795 10,177 2,007 3,534 Operating loss.......................................... (6,741) (17,564) (20,970) (5,892) (4,094) Nonrecurring interest charge on beneficial conversion feature of convertible debt(2)........................ -- -- -- -- (3,792) Net loss................................................ (6,695) (17,799) (22,224) (6,067) (8,600) Basic and diluted net loss per share applicable to common stockholders(3)................................ $ (4.89) $ (10.89) $ (13.11) $ (3.72) $ (4.64) Shares used to compute basic and diluted net loss per share applicable to common stockholders(3)............ 1,370 1,634 1,695 1,633 1,854
DECEMBER 31, 1998 ------------------------- ACTUAL AS ADJUSTED(4) --------- -------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash..................................................................................... $ 1,288 Working capital (deficit)................................................................ (23,390) Total assets............................................................................. 7,502 Short-term borrowings from IBM and IBM Credit Corp....................................... (18,813) Long-term obligations, less current portion.............................................. 7,890 Accumulated deficit...................................................................... (55,318) Stockholders' deficit.................................................................... (29,177)
5 - ------------------------ (1) Excludes (i) 2,629,575 shares of common stock issuable at a weighted average exercise price of $2.38 per share upon exercise of stock options outstanding at December 31, 1998; (ii) 258,651 shares reserved for future issuance under our stock option plans; (iii) 300,000 shares reserved for issuance under our 1999 Employee Stock Purchase Plan, and assumes (a) the conversion of each outstanding share of preferred stock into one share of common stock, par value $0.01 per share, upon the effectiveness of the offering, including 1,654,041 shares of common stock issuable upon conversion of outstanding 10% Senior Subordinated Secured Convertible Promissory Notes, or convertible notes, and (b) the issuance of 3,051,803 shares of common stock, reflecting exercise of outstanding warrants to purchase convertible preferred stock at a weighted average exercise price of $4.82 per share by surrendering shares of common stock as payment of the exercise price, assuming a fair market value per share of common stock in the offering of $ . See "Management--Benefit Plans," "Certain Transactions--Sales of Common Stock and Preferred Stock" and "Description of Capital Stock." (2) Nonrecurring non-cash interest charge based on the difference between the price per share for Series F-2 preferred stock issued to Novell, Inc. and MC Silicon Valley, Inc. and for Series E-2 preferred stock issuable to IBM and another investor upon conversion of certain convertible notes in accordance with EITF Topic D-60. See note 8 of notes to consolidated financial statements. Under the terms of an April 1997 contract with IBM, we agreed that any funds provided by IBM for our operations during 1997 and 1998 through the sale of equity securities to IBM would have a per share price not higher than $6.68. In October and November 1998, we issued preferred stock to Novell, Inc. and MC Silicon Valley, Inc. at a price per share of $9.00. See "Certain Transactions--IBM Relationship." (3) Does not include the effect of outstanding shares of convertible preferred stock, shares from the assumed conversion of convertible notes and shares issuable upon the exercise of stock options and warrants that are considered anti-dilutive pursuant to Statement of Financial Accounting Standards (SFAS) No. 123. For an explanation of basic and diluted net loss per share applicable to common stockholders and the number of shares used to compute basic and diluted net loss per share applicable to common stockholders, see note 1 of notes to consolidated financial statements. (4) As adjusted to give effect to the (i) conversion of all outstanding shares of preferred stock into common stock upon the effectiveness of the offering, including 1,654,041 shares of common stock issuable upon conversion of the convertible notes; (ii) sale of shares of common stock to be sold in the offering at the initial public offering price of $ per share; (iii) application of the estimated net proceeds of the offering; (iv) issuance of 3,051,803 shares of common stock, reflecting a "cashless" exercise of outstanding Series C, Series E and Series E-2 warrants to purchase convertible preferred stock at a weighted average exercise price of $4.82 per share by surrendering shares of common stock as payment of the exercise price, assuming a fair market value per share of common stock in the offering of $ . See "Use of Proceeds," "Capitalization" and "Description of Capital Stock." 6 RELATIONSHIP WITH IBM On April 11, 1997, IBM acquired approximately 80% of our common stock (on an as-converted basis) by exchanging shares of IBM common stock for substantially all of our outstanding preferred stock. Revenues from IBM have represented a substantial percentage of our total revenues, representing approximately 36% and 50% of our total revenues in fiscal year 1998 and in the first quarter of fiscal year 1999, respectively. Almost all of our revenues from IBM in fiscal year 1998 resulted from two significant sources. The first comprised royalties paid by Lotus Development Corporation, an IBM subsidiary, to bundle NetObjects Fusion with Lotus products. The second consisted of services related to integrating our software with IBM's WebSphere software products. When IBM acquired approximately 80% of our stock, IBM did not provide us with equity financing. Subsequently, through December 31, 1998, IBM has provided us with approximately $40 million of financing through $10.5 million in nonrefundable cash prepayments against future royalties for their licensing of our products and our charges for the provision of services, $19.0 million in a secured credit facility with IBM Credit Corp., and $10.1 million in convertible debt securities and warrants to purchase convertible preferred stock. We have an option to raise an additional $3.45 million through the sale of notes and warrants to IBM which we may exercise prior to the completion of the offering. After the offering, IBM will have only limited commitments to provide additional revenues and will have no obligation to provide additional financing. IBM currently markets and sells our products primarily in bundles with IBM software products, and also individually, for which we receive royalties. Lotus also currently markets, bundles and sells our products and has created foreign language, or "localized," versions of our software, for which it pays us reduced royalties on products that it sells. IBM will retain control of NetObjects after the offering and may continue to cooperate with us in a number of areas, including product bundling and sales and marketing. The interests of IBM may conflict with our interests, and IBM is free to compete with us. IBM's controlling interest in us, our dependence on IBM and the potential conflicts of interests and potential competition associated with IBM's relationship with us represent significant risks for an investor acquiring our stock. See "Risk Factors--Dependence on IBM and Potential Conflicts," "Business--NetObjects Strategy," "--Sales, Marketing and Distribution" and "--Competition," "Certain Transactions" and "Principal Stockholders." 7 RISK FACTORS THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN OUR STOCK. WHILE WE HAVE IDENTIFIED THE FOLLOWING RISKS AND UNCERTAINTIES, THERE MAY BE ADDITIONAL RISKS AND UNCERTAINTIES OF WHICH WE ARE NOT AWARE OR WHICH WE CURRENTLY DEEM IMMATERIAL THAT COULD IMPAIR OUR OPERATIONS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE DESCRIBED ELSEWHERE IN THIS PROSPECTUS. NEITHER IBM'S OWNERSHIP OF OUR SECURITIES NOR IBM'S RELATIONSHIP AND AGREEMENTS WITH OUR COMPANY IS A RECOMMENDATION BY IBM THAT INVESTORS SHOULD ACQUIRE OR HOLD OUR STOCK. IBM WILL HAVE THE UNRESTRICTED ABILITY TO SELL ALL OR PART OF ITS STOCK IN OUR COMPANY WHEN PERMISSIBLE UNDER APPLICABLE SECURITIES LAWS AND AGREEMENTS WITH THE UNDERWRITERS. IBM HAS NO OBLIGATION TO RESELL OUR PRODUCTS BEYOND THE LIMITED AMOUNT REQUIRED BY EXISTING AGREEMENTS. AFTER THE OFFERING, IBM WILL HAVE NO OBLIGATION TO PROVIDE US WITH ADDITIONAL FINANCING. SEE "RISK FACTORS--DEPENDENCE ON IBM AND POTENTIAL CONFLICTS," "CERTAIN TRANSACTIONS," "PRINCIPAL STOCKHOLDERS" AND "SHARES ELIGIBLE FOR FUTURE SALE." HISTORY OF SUBSTANTIAL LOSSES; EXPECTATION OF FUTURE LOSSES; "GOING CONCERN" QUALIFICATION FROM AUDITORS We were incorporated in November 1995 and first recognized revenues in October 1996. You should consider our business and prospects in light of the risks and difficulties frequently encountered by early-stage companies in rapidly evolving markets, such as the market for web site building software and services. To date, most of our revenues from software licensing fees have come from sales of NetObjects Fusion. We have incurred substantial costs to develop, introduce and enhance our main products, NetObjects Fusion and NetObjects Authoring Server, to offer our online and professional services, to build brand awareness and to grow our business. As a result, we have incurred large operating losses since inception, and we expect to continue to incur substantial operating losses for the foreseeable future. As of December 31, 1998, we had an accumulated deficit of approximately $55.3 million, $42.8 million of which has been incurred since April 1997. To date, a significant portion of our total revenues has come from IBM, which agreed to advance us $10.5 million in nonrefundable cash prepayments against future royalties for their licensing of our products and our charges for the provision of services. The prepayments have been recorded as deferred revenues from IBM on our balance sheet. We are recognizing these revenues on a per unit basis and as reimbursements of services as they are provided to IBM. KPMG LLP, in their independent auditors' report, have expressed "substantial doubt" as to our ability to continue as a going concern based on significant operating losses since inception and significant debt and capital deficit as of September 30, 1998. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. Our ability to continue as a going concern is dependent upon the net proceeds from this offering. The net proceeds from the offering are estimated to be $ , after the repayment of a $19 million secured credit facility with IBM Credit Corp. and $3.45 million that we expect to owe to IBM under notes to be issued prior to the closing of the offering. This credit facility will be repaid out of the proceeds of this offering and the credit facility will terminate. We believe the net proceeds from the offering, together with other available cash resources, will be sufficient to meet our cash needs through September 30, 2000. One of the closing conditions to this 8 offering is that KPMG LLP reissue their independent auditors' report. Such report shall exclude the explanatory paragraph that states that our recurring losses and net capital deficiency raise substantial doubt about our ability to continue as a going concern. See note 1(d) of notes to consolidated financial statements. To achieve and sustain profitability, we must: - increase substantially our revenues from our two principal products, NetObjects Fusion (which in fiscal year 1998 accounted for most of our total revenues) and NetObjects Authoring Server, and our related professional services (which have generated minimal revenues to date); - continue to develop successfully new versions of our products, such as NetObjects Fusion 4.0, which was released in December 1998; - respond quickly and effectively to competitive, market and technological developments; - expand substantially our sales and marketing operations; - develop our professional services business, which we launched in October 1998; - control expenses; - continue to attract, train and retain qualified personnel in the competitive software industry; and - maintain existing relationships and establish new relationships with leading Internet hardware and software companies. There can be no assurance that we will achieve these objectives, and our failure to do so would have a material adverse effect on our business, prospects, financial condition and results of operations. DEPENDENCE ON IBM AND POTENTIAL CONFLICTS DEPENDENCE TO DATE ON IBM FOR FINANCING AND SIGNIFICANT REVENUES. Since IBM's acquisition of approximately 80% of our stock, IBM has provided us with approximately $40 million of financing through the payment, between April and December 1997, of $10.5 million of cash prepayments against future royalties for their licensing of our products and our charges for services, approximately half of which we had not recognized by the end of fiscal year 1998, $10.1 million through our sale to IBM of convertible debt securities and warrants for the purchase of convertible preferred stock and the establishment of a $19 million secured credit facility with IBM Credit Corp. that has been guaranteed by IBM. We were not in compliance with a financial covenant in the credit facility as of December 31, 1998, but on February 3, 1999, IBM Credit Corp. waived our compliance through December 31, 1998 and agreed to take no action with respect to our noncompliance through April 30, 1999. This credit facility will be repaid out of the proceeds of this offering and the credit facility will terminate. Prior to completion of the offering, we expect to exercise our option to raise up to $3.45 million from the sale of notes and warrants to IBM. Such notes, if issued, would be repaid from proceeds of the offering. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Certain Transactions-- IBM Relationship." After the offering, IBM will have no obligation to provide us with additional financing. In addition, revenues from IBM have represented a substantial portion of our total revenues-- approximately 36% and 50% of our total revenues in fiscal year 1998 and in the first quarter of fiscal year 1999, respectively. To date, substantially all of these revenues have consisted of software license fees, for which we have been recognizing revenues on a per unit sales basis, and revenues for 9 services for integrating our software with IBM's WebSphere software products, which have been recognized principally in accordance with the percentage of completion accounting method. All of IBM's payment obligations for these revenues have been offset against the $10.5 million of cash prepayments recorded as deferred revenues from IBM on our balance sheet. As of December 31, 1998, the balance of the deferred revenues from IBM was approximately $2.3 million. Such revenues, when recognized, will not result in our receipt of additional cash from IBM. Our agreement with IBM for WebSphere services ends on February 28, 1999. In addition, our product bundling arrangement with Lotus for Designer for Domino expires in June 1999. Lotus' payment obligations for Designer for Domino revenues are also offset against the $10.5 million prepayment. We believe that all of the deferred revenues from IBM at December 31, 1998 will have been recognized as software license fees and service revenues by June 30, 1999. We have no commitments from IBM to pay us software license fees or revenues from services after June 1999. Our software license fees from IBM in the remaining quarters of fiscal year 1999 are likely to decline, perhaps substantially, from the level in the first quarter of fiscal year 1999. We do not expect to receive any service revenues from IBM after February 1999. On these and other transactions with IBM, we have worked closely with IBM's representatives on our board of directors and other senior management personnel in Lotus and other IBM software organizations. Our ability to work effectively with IBM and to maintain our strategic relationship with IBM depends to a significant extent on the efforts of these individuals. If they cease to be involved in our business, we may experience difficulties in leveraging our strategic relationship with IBM. We would not have been able to obtain a $19 million loan from an independent third party without the guarantee by IBM. The financial support of IBM has allowed us to pursue a market share and brand strategy that we otherwise would not have been able to pursue. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources," "Certain Transactions" and note 1(d) of notes to consolidated financial statements. Although we have been dependent on IBM, and IBM has provided substantial support to us, IBM makes independent business and product decisions that may conflict with our business objectives. For example, under our original agreement with IBM with respect to IBM's WebSphere offerings, we were obligated to deliver modified versions of NetObjects Fusion, NetObjects ScriptBuilder and NetObjects Authoring Server. We anticipated that all three products would be bundled with IBM's WebSphere product offerings. In that event the agreement provided for IBM to pay us royalties for each of the listed products subject to a minimum royalty amount tied to the amount of services that we provided. Most of the royalties would have been due for NetObjects Authoring Server, which is our highest priced product. In October 1998, however, IBM purchased all rights to Build IT from Wallop, Inc., a software product that IBM intends to include with its WebSphere offerings for application development teams, unlike NetObjects Authoring Server, which we designed for collaborative intranet site builders and corporate desktop users. Subsequently, IBM decided not to bundle NetObjects Authoring Server with WebSphere. Because we had expected to earn most of our software license fees under the original agreement from WebSphere bundles with NetObjects Authoring Server, IBM and we agreed to modify the original agreement to add charges for our services based upon the amount of our costs and expenses, in addition to royalties for product bundles. As a result, through December 31, 1998, we have recognized services revenues from IBM totaling $4.4 million under the amended agreement and not software license fees, as was originally contemplated. CONTROL BY IBM; POTENTIAL SALE BY IBM OF ITS CONTROLLING INTEREST. Before the offering, IBM owned approximately 71% of our common stock (on an as-converted basis), and after the offering IBM will own approximately % of our common stock (on an as-converted basis) ( % if the 10 underwriters' over-allotment option is exercised in full). Under a voting agreement which takes effect upon completion of the offering, IBM has agreed to vote all of its shares of common stock to elect no more than three of the six members of our board of directors, notwithstanding its legal right to elect the entire board, as long as it owns at least a majority of our outstanding stock. The voting agreement will terminate if IBM's total fully-diluted ownership of our Company (taking into account outstanding warrants for purchase of convertible preferred stock and convertible securities held by IBM as well as outstanding shares) falls below 45% for a period of 180 consecutive days from its current ownership of % on a fully-diluted basis. Prior to the offering, IBM controlled our board of directors, but after the offering, it will not. So long as IBM owns more than 50% of our outstanding stock, however, it will be able to exercise a controlling influence over our business and affairs due to a board of directors' resolution that was passed at IBM's request. This resolution allows IBM's designees to our board of directors to control any determinations with respect to most material transactions outside the ordinary course of our business, including mergers or other business combinations, the acquisition or disposition of our assets, future issuances of our equity or debt securities and the payment of dividends. As our majority stockholder, IBM will have the power to determine matters submitted to a vote of our stockholders without the consent of other stockholders, will have the power to prevent or cause a change in control of our Company and could take other actions that might be favorable to IBM and potentially harmful to us. IBM is under no obligation to provide us with financial or other support after the offering. FREEDOM OF ACTION FOR IBM. Our restated certificate of incorporation contains provisions that expressly acknowledge IBM's "freedom of action" to conduct its business and pursue other business opportunities, even in competition with us. These provisions materially limit the liability of IBM and its affiliates, including IBM's representatives on our board of directors and Lotus, from conduct and actions taken by IBM or its affiliates, even if such conduct or actions are beneficial to IBM and harmful to us. When IBM becomes eligible to sell its stock subject to applicable securities laws, contractual arrangements with the underwriters and the terms of a registration rights agreement, if applicable, IBM will be able to transfer some or all of its stock, including to our competitors. Such a transfer could result in a transfer of IBM's controlling interest in our Company, and could have a material adverse effect on our business, prospects, financial condition and results of operations. See "Business--NetObjects Strategy--Strategic Relationships" and "--Competition," "Certain Transactions," "Principal Stockholders," "Description of Capital Stock" and "Shares Eligible for Future Sale." POTENTIAL CONFLICTS OF INTEREST; POTENTIAL AND ACTUAL COMPETITION. Because IBM is our controlling stockholder and because IBM executives are directors of our Company, conflicts of interest could arise. Under our restated certificate of incorporation, IBM has no obligation to refrain from competing with us, investing in our competitors, doing business with our customers or hiring away our key personnel. Our restated certificate of incorporation further provides that no director shall be prohibited from taking actions or from voting on any action because of any actual or apparent conflict of interest between such director and our Company, and that no action taken by our board of directors will be void or voidable, or give rise to liability for breach of fiduciary duty or otherwise, solely because a majority of the directors are affiliated with IBM, or such action is, or is deemed to be by law, beneficial to IBM. In addition, IBM is under no obligation to inform us of any corporate opportunity and is free to avail itself of any such opportunity or to transfer such opportunity to a third party. Any of these provisions of the restated certificate of incorporation could give rise to conflicts of interest, and we cannot be certain that any such conflicts would be resolved in our favor. But for these provisions, some future conduct or actions by IBM might constitute a breach of fiduciary duty to NetObjects or our other stockholders. These provisions become inapplicable when IBM's ownership of our stock on a fully-diluted basis falls to less than 10%, and may be amended only with the approval of at least 90% of our outstanding voting securities. Any of the risks 11 arising from our relationship with IBM could have a material adverse effect on our business, prospects, financial condition and results of operations. See "Business--NetObjects Strategy--Strategic Relationships" and "Certain Transactions." Although our license agreements with IBM contain certain restrictions on IBM's use and transfer of our software and intellectual property, these restrictions are subject to exceptions. Under a software license agreement with IBM, we have placed our key source code in escrow for IBM's benefit. In the event of our default under the contract, IBM will have access rights to this source code and will be free to use it to maintain our products and create derivative works for the benefit of IBM and its customers. Events of default under the agreement include a bankruptcy filing, our failure to adequately service and maintain the software licensed to IBM and its customers, and our insolvency. Furthermore, all of our licensing arrangements with IBM are non-exclusive. IBM has the right to cease promoting and distributing our software at any time. IBM may license its name, logo and technology to, or invest in, other web site building companies, and it may more actively promote the services of our competitors. For example, IBM is currently selling HomePage Builder, an IBM developed web page building software product, in Japan, and HomePage Creator, an IBM web based service that allows users to build web pages online. OBLIGATIONS OF IBM SUBSIDIARIES. As an IBM subsidiary, we are subject to IBM policies which may not apply to most small public companies, and we may incur additional expenses in complying with these policies. We also are subject to many IBM contracts with third parties. These contracts include patent cross-license agreements between IBM and other companies that provide us with immunity from suit for patent infringement claims by those companies as long as we remain an IBM subsidiary, and grant those companies freedom from our patent infringement claims against them. Contractual obligations to third parties which arise because we are an IBM subsidiary may have future adverse consequences that are currently unforeseeable. If we cease to be an IBM subsidiary, we may face material litigation risks associated with patent infringement claims that IBM's patent cross-licensees cannot currently assert against us. In addition, we may be unable to assert patent claims of our own against an IBM cross-licensee, which may remain free of liability for such claims under the terms of the cross-license agreement even after we cease to be an IBM subsidiary. See "--Uncertain Protection of Intellectual Property; Risks Associated with Licensed Third-Party Technology." REVENUE DEPENDENCE ON NETOBJECTS FUSION Most of our revenues from software license fees in fiscal year 1998 were derived from versions of one of our products, NetObjects Fusion, and we expect that this single product will continue to account for the substantial majority of our total revenues in the near-term. To remain competitive, software products typically require frequent updates that add new features. There can be no assurance that we will be able to create successfully and sell updated or new versions of NetObjects Fusion. A decline in demand for, or in the average selling price of, NetObjects Fusion, whether as a result of new product introductions or price competition from competitors, technological change or otherwise, would have a material adverse effect on our business, prospects, financial condition and results of operations. INTENSE COMPETITION FROM MICROSOFT AND OTHER ESTABLISHED SOFTWARE VENDORS The market for web site building software and services for the Internet and corporate intranets is relatively new, constantly evolving and intensely competitive. We expect competition to intensify in the future. Many of our current and potential competitors have longer operating histories, greater name recognition and significantly greater financial, technical and marketing resources. Our principal competitors in web site building software include Microsoft Corporation, Adobe Systems Incorporated and Macromedia, Inc. 12 Microsoft's FrontPage, a web site building software product, has a dominant market share. Microsoft has announced but not shipped FrontPage 2000, which may become one of the products in at least one version of Microsoft's Office product suite that dominates the market for desktop business application software. We believe that NetObjects Fusion and NetObjects Authoring Server contain features that differentiate them from the announced description of FrontPage 2000, but widespread distribution of Office with FrontPage 2000 and the vast number of computer users familiar with Microsoft desktop application software products, give Microsoft a substantial competitive advantage over us. In addition, Microsoft, and other competitors who bundle their software products as a suite, may offer their suites at prices that may force us to reduce the prices for our products, which are not sold in comparable suites, to keep them competitive. In connection with its recent acquisition of GoLive, Inc., Adobe acquired a web site building software product for Macintosh, which increases the competitiveness of the market for Macintosh web site building products. Our current Macintosh product, NetObjects Fusion 3.0, may become less competitive over time. Alternatives to using web site building software include products from third-party web site builders, in-house resources and online web site building resources, such as GeoCities, some of which also provide web site hosting and other services. Competitive factors in our market include: - the manner in which the software is distributed with other products; - quality and reliability; - features for creating, editing and developing web sites; - ease of use and interactive user features; - scalability and cost per user; and - compatibility with the user's existing computer systems. To expand our user base and further enhance the user's experience, we must continue to innovate and improve the performance of our products. In addition, we may need to change our pricing, license terms, services and marketing practices. For example, during the three months ended September 30, 1997, we reduced the price of NetObjects Fusion from $495 to $295, which resulted in a decline in total revenues from the third to the fourth quarters in fiscal 1997. Continued price concessions or the emergence of other pricing or distribution strategies by competitors could have a material adverse effect on our business, prospects, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Competition." UNCERTAINTY OF FUTURE REVENUES; PROBABLE FLUCTUATIONS IN QUARTERLY OPERATING RESULTS The success of our business and our revenue growth to date have depended on our ability to create web site building software that appeals to our customers, to update our main product, NetObjects Fusion, with new features and to release and deliver new versions of NetObjects Fusion on time. We need to develop new products in addition to NetObjects Fusion and to ship the new products on time. Failure to do so will materially affect the amount and timing of future revenues. Our quarterly operating results also may fluctuate significantly in the future due to a variety of other factors, many of which are outside our control. Principal factors include: - the expiration of commitments from IBM for software license fees in June 1999 and service revenues in February 1999; - the timing of the introduction or enhancement of our products and services which can cause customers to avoid purchasing our existing products, cause us to issue rebates and discounted upgrade offers and cause an increase in product returns by channel distributors; 13 - our ability to continue to develop derivative products, such as new versions of NetObjects Fusion for Macintosh; - a longer sales cycle for products for large-scale enterprise customers and for NetObjects Authoring Server; - vendors' introductions of other types of software products (for example, Microsoft's introduction of Windows 98, which adversely impacted our sales temporarily); - the amount and timing of operating costs and capital expenditures related to expansion of our business, operations and infrastructure; - price reductions by us or our competitors or changes in how their products and services are priced; - the mix of distribution channels through which our products are licensed and sold; and - the promptness with which sales data, used for recognizing product royalties, are reported to us from third parties. Because our business is evolving rapidly and we have a very limited operating history, we have little experience in forecasting our revenues. Our expense levels are based in part on our expectations of future revenues, and to a large extent such expenses are fixed, particularly in the short-term. We cannot be certain that our revenue expectations will be accurate or that we will be able to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. As a result, we believe that period-to-period comparisons of our financial results are not necessarily meaningful, and you should not rely upon them as an indication of our future performance. The $10.5 million of cash prepayments under our license agreement with IBM have provided some revenue certainty for us since April 1997. We expect to have recognized all of the prepayments as revenues by June 30, 1999. Thereafter, our revenues from IBM, if any, are likely to become more variable. See "--Dependence on IBM and Potential Conflicts--Dependence to Date on IBM for Financing and Significant Revenues." In addition, factors such as seasonal demand for our products and services (for example, annual reductions in sales in Europe in July and August), costs of litigation and intellectual property protection, technical difficulties with respect to the use of our products, general economic conditions and economic conditions specifically related to use of the Internet as a business medium could influence our quarterly operating results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Results of Operations." ADEQUACY OF ALLOWANCES FOR PRODUCT RETURNS AND PRICE PROTECTIONS At the time of sale of our software products, we have historically recorded significant allowances for product returns. The factors that influence our decision on the size of the allowances include the timing of new product and product upgrade introductions, release of new products or product upgrades by competitors and sales data that we obtain from our distributors. We have stock-balancing programs for our software products that under certain circumstances allow for the return of software by resellers. We also provide for price protection for our software for some of our direct and indirect channel resellers that, under certain conditions, allows the reseller a price reduction from us if we reduce our price to similar channel resellers. Moreover, the risk of product returns may increase as new versions of our software become more popular or market factors force us to make changes in our distribution system. We attempt to monitor and manage the volume of our sales to retailers and distributors and their inventories as substantial overstocking in the distribution channel can result in high returns. Our allowance for returns is based on estimated future returns of products, taking into account promotional activities, the timing 14 of new product introductions, distributor and retailer inventories of our products and other factors and that our current allowance will be sufficient to meet return and price protection requirements for current in-channel inventory. In August 1997, our price reduction for NetObjects Fusion triggered price protection obligations resulting in the need to record an additional allowance in the three months ended September 30, 1997. There can be no assurance that actual returns or price protection will not exceed our estimates, and our estimation policy may cause significant quarterly fluctuations. See "--Uncertainty of Future Revenues; Probable Fluctuations in Quarterly Operating Results" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." DEPENDENCE ON MARKET ACCEPTANCE AND GROWTH OF NETOBJECTS AUTHORING SERVER AND PROFESSIONAL SERVICES We formally announced and shipped NetObjects Authoring Server in September 1998 as a successor to our original TeamFusion product released in December 1997. We expect that our financial performance will depend significantly on the successful marketing, development and customer acceptance of NetObjects Authoring Server and the related solutions that we plan to develop. The success of NetObjects Authoring Server will depend on the rapid emergence of a market for large-scale enterprise web site and intranet building products and services. This market may fail to develop if information services departments of large-scale enterprises choose to create and maintain their web and intranet sites internally or use third-party professional developers to create and maintain their sites. We cannot be certain that NetObjects Authoring Server will meet customer performance needs or that it will be free of significant software defects or bugs. In addition, because of higher pricing and different marketing and distribution characteristics, such as direct selling, we expect NetObjects Authoring Server to have a longer sales cycle than NetObjects Fusion, with related increased selling costs and risks to our operating results. There are no product bundles of NetObjects Authoring Server with IBM or Lotus, although IBM does offer NetObjects Authoring Server through its "Passport Advantage" program. See "--Dependence on IBM and Potential Conflicts" and "Business--Sales, Marketing and Distribution." If NetObjects Authoring Server does not meet customer needs or expectations, for whatever reason, upgrades or enhancements could be costly and time-consuming. In October 1998, we formed a new professional services organization to assist our customers with training, consulting and implementation. We believe that product sales growth will depend on our ability to provide our customers with these services and to educate third-party resellers about how to use our products. We currently outsource most of our professional services, but we plan to increase the number of our services personnel to meet the needs of our customers. We cannot be certain that our services business will generate significant revenues or achieve profitability. Competition for qualified services personnel is intense, and we cannot be certain that we can attract or retain a sufficient number of highly qualified services personnel to meet our business needs. Since inception, we have invested, and we continue to invest, resources on our online services, which we believe support and add to market acceptance of our products. Continued market acceptance of our online services is a significant factor in further developing market acceptance of our products and services and of our brand. The failure of the market to accept our online services could adversely affect our business, prospects, financial condition and results of operations. NEED TO EXPAND DISTRIBUTION CHANNELS, SALES FORCE AND PRODUCT BUNDLING ARRANGEMENTS While we derive some of our revenues from direct sales, most of our revenues are derived from the indirect sale of our products through third-party distributors and resellers. There can be no assurance that third parties will be willing or able to carry our products in the future. If third parties were to reduce or cease carrying our products, our direct sales would be insufficient to support our operating expense base. 15 We sell our products worldwide, principally in North America, through multiple distribution channels, including traditional software distributors, hardware and software original equipment manufacturers, or "OEMs", international distributors, value-added resellers, or VARs, retail dealers and direct marketers. Accordingly, we are dependent on the continued viability and financial stability of these third parties. We cannot be certain that we will be able to attract additional third parties that will be able to market our products effectively or that such third parties will devote significant resources to marketing and supporting our products. We are obligated to accept the return of products purchased by our distributors in some cases where they may have purchased excess product. To increase market penetration of our products and promote sales of NetObjects Authoring Server, we will need to increase the size of our sales force, especially direct sales personnel. To date, our sales force has primarily been dedicated to supporting our indirect distribution channel. As of December 31, 1998, we had 24 employees in our sales organization. There is intense competition for sales personnel in software sales, and we may not be successful in attracting, integrating, motivating and retaining new sales personnel. Moreover, even if we were able to recruit a sufficient number of sales personnel, there will be a delay between the time we hire new employees and the time at which they become effective, because they will need to acquire familiarity with our products, customers and markets. We believe that products that are not sold in a "suite" containing software products or components that perform different functions are less likely to be commercially successful. For example, NetObjects Fusion 4.0 includes software products or components from different vendors such as Allaire Corporation, IBM, iCat, Lotus and NetStudio. These arrangements sometimes entail additional royalty and marketing expenses, as well as potentially increasing the risk that our products may not always operate as desired. We cannot be assured of obtaining suitable arrangements to bundle the products or components of third parties with our products. IBM also bundles our products with some of its software products, such as the bundling of NetObjects Fusion, NetObjects ScriptBuilder and NetObjects BeanBuilder with WebSphere Studio and NetObjects Fusion with Lotus Designer for Domino. NetObjects Fusion is also bundled with Novell's NetWare for Small Business. Both IBM and Novell are investors in our Company. We cannot be assured that other third parties will bundle our products with their products. Failure to maintain and expand our distribution channels, recruit, train or retain sales personnel or conclude suitable software product bundling arrangements could have a material adverse effect on our business, prospects, financial condition and results of operations. POTENTIAL PRODUCT DEFECTS AND PRODUCT LIABILITY We frequently release new products and new versions of existing products. For example, we released NetObjects Fusion 4.0 in December 1998. Our software products are complex and may contain undetected errors or result in system failures. Despite extensive testing, errors could occur in any of our current or future product offerings after commencement of commercial shipments. Any such errors could result in loss of or delay in revenues, loss of market share, failure to achieve market acceptance, diversion of development resources, injury to our reputation or damage to our efforts to build brand awareness, any of which could have a material adverse effect on our business, prospects, financial condition and results of operations. Errors also might result in potential liability to our customers and to their customers. The applications developed using our products can be critical to the operations of our customers' businesses and provide benefits that may be difficult to quantify. Any failure in a customer's application could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Our license agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims 16 through contractual limitations of warranties and remedies. We also maintain general liability insurance, including coverage for errors and omissions. We cannot be certain that the contractual limitations of liability will be enforceable, or that our insurance coverage will continue to be available on reasonable terms or will be available in amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims that exceed available insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, prospects, financial condition and results of operations. See "Business--Sales, Marketing and Distribution." RAPID TECHNOLOGICAL CHANGES; DEVELOPMENT OF NEW PRODUCTS The market for our products is marked by rapid technological change, frequent new product introductions and enhancements, uncertain product life cycles, changes in customer demands and evolving industry standards. New products based on new technologies or new industry standards can render existing products obsolete and unmarketable. To succeed, we will need to enhance our current products and develop new products on a timely basis to keep pace with technological developments and to satisfy the increasingly sophisticated requirements of our customers. Our product and software development efforts inherently are difficult to manage and keep on schedule. On occasion, we have experienced development delays and related cost overruns, and we cannot be certain that we will not encounter such problems in the future. Any delays in developing and releasing enhanced or new products could have a material adverse effect on our business, prospects, financial condition and results of operations. In addition, we cannot be certain that we will successfully develop and market new products or product enhancements that respond to technological change, evolving industry standards or customer requirements, or that any such product innovations will achieve the market penetration or price stability necessary for profitability. DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL We depend on the continued service of our key personnel, and we expect that we will need to hire additional personnel in all areas. The competition for personnel throughout our industry is intense, particularly in the San Francisco Bay Area, where our headquarters are located. We have experienced difficulties in attracting new personnel, and all of our personnel, including our management, may terminate their employment at any time for any reason. Currently, we are dependent upon the services of Samir Arora, our President, Chief Executive Officer, Chairman of the Board and one of our founders. We also depend upon the services of Michael J. Shannahan, our Senior Vice President, Finance and Chief Financial Officer. The loss of either individual's services would materially impede the operation and growth of our business at this time. We do not maintain key person life insurance for any of our personnel. Furthermore, our failure to attract new personnel or retain and motivate our current personnel could have a material adverse effect on our business, prospects, financial condition and results of operations. See "Business--Employees" and "Management." CERTAIN ANTI-TAKEOVER PROVISIONS IBM will own approximately % of our outstanding stock immediately following the offering (based upon the number of shares outstanding at December 31, 1998). That ownership interest and certain provisions of our restated certificate of incorporation, bylaws, other agreements and Delaware law could make it more difficult for a third party to acquire us, even if a change in control would be beneficial to our stockholders. See "Certain Transactions" and "Description of Capital Stock." 17 UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY; RISKS ASSOCIATED WITH LICENSED THIRD-PARTY TECHNOLOGY Trademarks and other proprietary rights are important to our success and our competitive position. We seek to protect our trademarks and other proprietary rights, but our actions may be inadequate to prevent misappropriation or infringement of our technology, trademarks and other proprietary rights or to prevent others from claiming violations of their trademarks and other proprietary rights. Although we have obtained federal registration of the trademark "NetObjects Fusion-Registered Trademark-" we know that other businesses use the word "Fusion" in their marks alone or in combination with other words. We do not believe that we will be able to prevent others from using the word "Fusion" for competing goods and services. For example, Allaire markets its application development and server software for web development including applications for e-commerce under the federally registered trademark "Cold Fusion." Under an agreement with Allaire Corporation, we have agreed that neither company will identify its products and services with the single word "Fusion," unless otherwise agreed as in the case of our co-bundled product "Fusion2Fusion." Business customers may confuse our products and services with similarly named brands, which could dilute our brand names or limit our ability to build market share. To license many of our products, we rely in part on "shrinkwrap" and "clickwrap" licenses that are not signed by the end user and, therefore may be unenforceable under the laws of certain jurisdictions. In addition, we may license content from third parties. We could become subject to infringement actions based upon such licenses, and we could be required to obtain licenses from other third parties to continue offering our products. We cannot be certain that we will be able to avoid significant expenditures to protect our intellectual property rights, to defend against third-party infringement or other claims or to license content from third parties alleging that our products infringe their intellectual property rights. Any such expenditures could have a material adverse effect on our business, prospects, financial condition and results of operations. As a subsidiary of IBM, we benefit from patent cross-license agreements between IBM and other companies. When IBM no longer owns more than 50% of our outstanding stock, however, we will lose the benefits of such agreements and may become subject to patent infringement claims from which we now are protected by IBM's cross-license agreements. See "--Dependence on IBM and Potential Conflicts" and "Business--Intellectual Property." INTERNATIONAL OPERATIONS International sales represented approximately 15% and 16% of our total revenues in fiscal 1997 and 1998, respectively. We intend to expand the scope of our international operations and currently have a subsidiary in the United Kingdom. Our continued growth and profitability will require continued expansion of our international operations, particularly in Europe, and in Japan, where Mitsubishi Corporation acts as our exclusive master distributor and Lotus is a reseller of NetObjects Fusion. Our international operations are, and any expanded international operations will be, subject to a variety of risks associated with conducting business internationally that could materially adversely affect our business, including the following: - difficulties in staffing and managing international operations; - lower gross margins than in the United States; - slower adoption of the Internet; - longer payment cycles; 18 - fluctuations in currency exchange rates; - seasonal reductions in business activity during the summer months in Europe and certain other parts of the world; - recessionary environments in foreign economies; and - increases in tariffs, duties, price controls or other restrictions on foreign currencies or trade barriers imposed by foreign countries. Furthermore, the laws of foreign countries may provide little or no protection of our intellectual property rights. See "--Uncertain Protection of Intellectual Property; Risks Associated with Licensed Third-Party Technology." FAILURE TO MANAGE RAPID GROWTH We have expanded our operations rapidly since inception, and we intend to continue to expand in the foreseeable future. This rapid growth places a significant demand on our managerial and operational resources. To manage growth effectively, we must: - implement and improve our operational systems, procedures and controls on a timely basis; - expand, train and manage our workforce and, in particular, our sales and marketing and support organizations in light of our recent decision to offer online and professional services; - implement and manage new distribution channels to penetrate different and broader markets, including the market for intranet software products; and - manage an increasing number of complex relationships with customers, co-marketers and other third parties. We cannot be certain that our systems, procedures or controls will be adequate to support our current or future operations or that our management will be able to manage the expansion and still achieve the rapid execution necessary to exploit fully the market for our products and services. Failure to manage our growth effectively could have a material adverse effect on our business, prospects, financial condition and results of operations. See "--Dependence on Key Personnel; Need for Additional Personnel." DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET AND INTRANETS Our products and services enable our customers to build and maintain commercial web sites and web applications. Sales of our products and services depend in large part on the emergence of the Internet as a viable commercial marketplace with a strong and reliable infrastructure and on the growth of corporate intranets. Critical issues concerning use of the Internet and intranets, including security, reliability, cost, ease of use and quality of service, remain unresolved and may inhibit the growth of, and the degree to which business is conducted over, the Internet and intranets. Failure of the Internet and intranets to develop into viable commercial mediums would have a material adverse effect on our business, prospects, financial condition and results of operations. See "Business--Industry Overview." YEAR 2000 READINESS Many existing software programs are coded to accept only two digit entries in their date fields. As a result, these programs are unable to distinguish whether "00" means the year 1900 or the year 2000, which could result in system failures or miscalculations causing disruptions to operations. Although we believe that our products are Year 2000 ready, because NetObjects Fusion and NetObjects Authoring Server may interact with external databases for purposes of data storage, the 19 ability of applications integrated with a web site built using NetObjects Fusion or NetObjects Authoring Server to comply with Year 2000 requirements is largely dependent on whether any such databases underlying the application are Year 2000 ready. If NetObjects Fusion or NetObjects Authoring Server is connected to a database that is not Year 2000 ready, a web application created or developed for a web site built using NetObjects Fusion or NetObjects Authoring Server could work incorrectly. Furthermore, the purchasing patterns of customers or potential customers may be affected by Year 2000 issues as businesses expend significant resources to correct their current systems for Year 2000 compliance. These expenditures may result in reduced funds available for web site building activities, which could have a material adverse effect on our business, prospects, financial condition and results of operations. Year 2000 complications may disrupt the operations, viability or commercial acceptance of the Internet, which could have a material adverse effect on our business, prospects, financial condition and results of operations. We have received verbal confirmations, and are in the process of obtaining written certifications, from vendors that software we have purchased for our internal financial systems is Year 2000 ready. To date, we have not incurred significant costs to comply with Year 2000 requirements, and, based upon our preliminary analysis, we do not believe we will incur significant costs in the foreseeable future. There can be no assurance, however, that Year 2000 errors or defects will not be discovered in our internal software systems. If such errors or defects were discovered, the costs of making such systems Year 2000 ready could have a material adverse effect on our business, prospects, financial condition and results of operations. We rely on third-party vendors that may not be Year 2000 compliant for certain equipment and services. In addition, many of our distributors are dependent on commercially available operating systems that may be impacted by Year 2000 complications. To date, we have not completed our Year 2000 review of our vendors or distributors. Failure of systems maintained by our vendors or distributors to operate properly with regard to the Year 2000 and thereafter could require us to incur significant unanticipated expenses to remedy any problems or replace affected vendors, could reduce our revenues from our indirect distribution channel and could have a material adverse effect on our business, prospects, financial condition and results of operations. RISKS ASSOCIATED WITH POTENTIAL FUTURE ACQUISITIONS In the future we may make acquisitions of, or large investments in, businesses that offer products, services and technologies that we believe would help us better provide e-business web site and intranet site building software and services to businesses. Any future acquisitions or investments would present risks commonly encountered in acquisitions of businesses, such as difficulty in combining the technology, operations or workforce of the acquired business with our own, disruption of our ongoing businesses and difficulty in realizing the anticipated financial or strategic benefits of the transaction. To make these acquisitions or large investments we might use cash, common stock or a combination of cash and common stock. If we use common stock, such acquisitions could further dilute existing stockholders. Amortization of goodwill or other intangible assets resulting from such acquisitions could materially impair our operating results and financial condition. Furthermore, there can be no assurance that we would be able to obtain acquisition financing, or that any such acquisition, if consummated, would be smoothly integrated into our business. If such acquisitions or large investments were to take place, the risks described above could have a material adverse effect on our business, prospects, financial condition and results of operations. We make no assurances that we will make any such acquisitions or large investments, however. 20 GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES We are not currently subject to direct regulation by any governmental agency, other than laws and regulations generally applicable to businesses, although certain U.S. export controls and import controls of other countries, including controls on the use of encryption technologies, may apply to our products. Due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted in the United States and abroad with particular applicability to the Internet. It is possible that governments will enact legislation that may apply to us in areas such as network security, encryption, the use of key escrow, data and privacy protection, electronic authentication or "digital" signatures, illegal and harmful content, access charges and retransmission activities. Moreover, the applicability to the Internet of existing laws governing issues such as property ownership, content, taxation, defamation and personal privacy is uncertain. The majority of such laws were adopted before the widespread use and commercialization of the Internet and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. Any such export or import restrictions, new legislation or regulation or governmental enforcement of existing regulations may limit the growth of the Internet, increase our cost of doing business or increase our legal exposure, any of which could have a material adverse effect on our business, prospects, financial condition and results of operations. SALES AND OTHER TAXES We currently do not collect sales or similar taxes with respect to the sale of products, license of technology or provision of services in states and countries other than states in which we have offices. In October 1998, the Internet Tax Freedom Act, or ITFA, was signed into law. Among other things, the IFTA imposes a three year moratorium on discriminatory taxes on electronic commerce. Nonetheless, foreign countries, or, following the moratorium, one or more states, may seek to impose sales or other tax obligations on companies that engage in online commerce within their jurisdictions. A successful assertion by one or more states or any foreign country that we should collect sales or other taxes on the sale of products, license of technology or provision of services or remit payment of sales or other taxes for prior periods, could have a material adverse effect on our business, prospects, financial condition and results of operations. NO SPECIFIC USE OF PROCEEDS We have not designated any specific use for a significant amount of net proceeds from the sale of the common stock offered under this prospectus, other than the repayment of $19 million of debt to IBM Credit Corp. and debt of approximately $3.45 million under notes that we expect to owe IBM by the completion of the offering. We intend to use the remaining net proceeds primarily for general corporate purposes, including working capital to fund anticipated operating losses and capital expenditures. Accordingly, management will have significant flexibility in applying the remaining net proceeds of the offering. The failure of management to apply such funds effectively could have a material adverse effect on our business, prospects, financial condition and results of operations. See "Use of Proceeds." NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE There has not previously been a public market for our stock. We cannot predict the extent to which investor interest in us will lead to the development of a trading market or how liquid that market might become. The initial public offering price for our stock will be determined by our negotiations with the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The stock market has experienced significant price and volume fluctuations, and the market prices of securities of technology companies, particularly Internet-related companies, have been highly volatile. Investors may not be able to resell their stock at or 21 above the initial public offering price. See "Underwriting." In the past, following periods of volatility in the public securities markets, securities class action litigation has often been instituted against companies whose stock prices exhibited significant volatility. Such litigation could result in substantial costs and a diversion of management's attention and resources. POSSIBLE ADVERSE EFFECT ON MARKET PRICE OF COMMON STOCK OF SHARES ELIGIBLE FOR FUTURE SALE AFTER THE OFFERING If our stockholders sell substantial amounts of our stock (including shares issued upon the exercise of outstanding options and warrants) in the public market following the offering, then the market price of our stock could fall. After the offering, shares of our stock will be outstanding, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options or warrants. Of those shares, the shares sold in the offering will be freely tradable except for any shares purchased by our "affiliates," as defined in Rule 144 under the Securities Act. The remaining shares are "restricted securities," as that term is defined in Rule 144, and may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act. All officers, directors and a substantial majority of our stockholders of NetObjects have agreed not to sell any shares of common stock, or any securities convertible into or exercisable or exchangeable for common stock, for 180 days after the offering without the prior written consent of BT Alex. Brown. BT Alex. Brown may, in its sole discretion, release all or any portion of the shares subject to such lock-up agreements. Following expiration of the lock-up agreements, of the restricted shares will be eligible for immediate public sale and the remaining restricted shares will be eligible for public sale subject to compliance with the holding period, volume and manner of sale restrictions of Rule 144, unless they are previously registered under the Securities Act. Following the offering, we intend to file a registration statement under the Securities Act covering shares of common stock reserved for issuance under our employee stock plans. Upon expiration of the lock-up agreements, at least shares of common stock will be subject to vested options (based on options granted and outstanding as of December 31, 1998). We expect to file that registration statement prior to expiration of the lock-up agreements, and it will become effective when we file it. Accordingly, after the lock-up agreements expire, the registered shares will, subject to Rule 144 limitations, be available for sale in the open market immediately upon exercise of the vested options. Holders of shares and certain warrants have certain demand and piggyback registration rights. The exercise of such rights could adversely affect the market price of our stock. See "Shares Eligible for Future Sale." DILUTION; ABSENCE OF DIVIDENDS The initial public offering price of our stock is substantially higher than the net tangible book value per share of our outstanding stock immediately after the offering. Therefore, if you purchase our stock in the offering, you will incur immediate dilution of approximately $ in the net tangible book value per share from the price you pay for such stock (based upon an assumed initial public offering price of $ ). See "Dilution." We have never declared or paid cash dividends on our stock and do not anticipate paying any cash dividends in the foreseeable future. See "Dividend Policy." 22 USE OF PROCEEDS The net proceeds to our Company from the sale of the shares of common stock at the initial public offering price of $ per share, after deducting the underwriting discount and estimated offering expenses, are estimated to be $ ($ if the underwriters' over-allotment option is exercised in full). The principal purposes of the offering are to repay $19 million of secured debt principal to IBM Credit Corp. that will become due and payable upon the closing of the offering, to repay debt of approximately $3.45 million that we expect to owe IBM under notes to be issued prior to the completion of the offering, to increase our working capital, to create a public market for our common stock, to increase our visibility in the marketplace and to facilitate our future access to public equity markets. The debt to IBM Credit Corp. has an interest rate of LIBOR plus 1.5%, was incurred to fund working capital, and matures on the earlier of the closing of the offering, termination upon 30 days' advance notice from us to IBM Credit Corp. and December 23, 1999. The debt under the notes has an interest rate of 10%. We have no specific plans for the remaining net proceeds, which we intend to use primarily for general corporate purposes, including working capital to fund anticipated operating losses and capital expenditures. We may, when and if the opportunity arises, use an unspecified portion of the net proceeds to acquire or invest in complementary businesses, products and technologies. We have no present understandings, commitments or agreements with respect to any material acquisition or investment in third parties. Pending use of the net proceeds for the above purposes, we intend to invest such funds in interest-bearing, investment-grade securities. DIVIDEND POLICY We have never declared or paid cash dividends on our stock. We currently anticipate that we will retain all of our future earnings, if any, for use in the expansion and operations of our business and, therefore, do not anticipate paying any cash dividends in the foreseeable future. 23 CAPITALIZATION The following table sets forth our cash, short-term borrowings and capitalization (i) at December 31, 1998; (ii) pro forma to reflect (a) a cash payment from IBM of $2,585,000 on January 5, 1999 for the purchase of convertible notes, (b) the conversion of all outstanding shares of preferred stock into common stock, including 1,654,041 shares of common stock issuable on automatic conversion of convertible notes on closing of the offering and (c) issuance of 3,051,803 shares of common stock, reflecting a "cashless" exercise of outstanding Series C, Series E and Series E-2 warrants to purchase convertible preferred stock at a weighted average exercise price of $4.82 per share by surrendering shares of common stock as payment of the exercise price, assuming a fair market value per share of common stock in the offering of $ ; and (iii) as adjusted to reflect (a) the pro forma capitalization and (b) our sale of shares to be sold in the offering at the initial public offering price of $ per share (after deducting the underwriting discounts and commissions and estimated expenses of the offering). See "Use of Proceeds" and note 1(d) of notes to consolidated financial statements. The information set forth below is unaudited and should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements:
DECEMBER 31, 1998 ---------------------------------- AS ACTUAL PRO FORMA ADJUSTED ---------- ---------- ---------- (IN THOUSANDS) Cash........................................................................ $ 1,288 $ 3,873 $ ---------- ---------- ---------- ---------- ---------- ---------- Short-term borrowings from IBM Credit Corp.................................. $ 18,813 $ 18,813 ---------- ---------- ---------- ---------- ---------- ---------- Capital lease obligations, less current portion............................. 271 271 Convertible notes from IBM and related party................................ 7,619 -- ---------- ---------- ---------- Total long-term obligations............................................. 7,890 271 ---------- ---------- ---------- Preferred stock, $0.01 par value; 22,816,300 shares authorized; 11,965,826 issued and outstanding, actual; none issued and outstanding, pro forma; none issued and outstanding, as adjusted................................................................ 113 -- Common stock, $0.01 par value; 28,300,000 shares authorized; 2,088,561 shares issued and outstanding, actual; 18,760,231 shares issued and outstanding, pro forma; shares issued and outstanding, as adjusted(1) 21 182 Additional paid-in capital.................................................. 26,567 36,723 -- Deferred stock-based compensation........................................... (441) (441) Stockholders' notes receivable.............................................. (113) (113) -- Translation adjustment...................................................... (6) (6) -- Accumulated other comprehensive losses...................................... (55,318) (55,318) -- ---------- ---------- ---------- Total stockholders' deficit............................................. (29,177) (18,973) ---------- ---------- ---------- Total capitalization.................................................... $ (21,287) $ (18,702) $ ---------- ---------- ---------- ---------- ---------- ----------
- ------------------------ (1) Excludes (i) 2,629,575 shares of common stock issuable at a weighted average exercise price of $2.38 per share upon exercise of stock options outstanding at December 31, 1998; (ii) 258,651 shares of common stock reserved for future issuance under our stock option plans; and (iii) 300,000 shares of common stock reserved for issuance under our 1999 Employee Stock Purchase Plan. See "Management--Benefit Plans." 24 DILUTION Our pro forma net tangible book deficit at December 31, 1998 was $18,973,000, or $(1.01) per share, as adjusted to give effect to (i) a cash payment from IBM of $2,585,000 on January 5, 1999 for the purchase of convertible notes, (ii) the conversion of all outstanding shares of preferred stock into common stock, including 1,654,041 shares of common stock issuable on automatic conversion of convertible notes on closing of the offering and (iii) the issuance of 3,051,803 shares of common stock, reflecting a "cashless" exercise of outstanding Series C, Series E and Series E-2 warrants to purchase convertible preferred stock at a weighted average exercise price of $4.82 per share by surrendering shares of common stock as payment of the exercise price assuming a fair market value per share of common stock in the offering of $ . Pro forma net tangible book deficit per share represents the amount of our total pro forma tangible assets less pro forma total liabilities divided by the aggregate pro forma number of shares of common stock outstanding. After giving effect to the application of the estimated net proceeds (which reflect an estimate of underwriting discounts and commissions and an estimate of offering expenses) from the sale of shares of common stock to be sold in the offering at the initial public offering price of $ per share, our adjusted pro forma net tangible book value at December 31, 1998 would have been approximately $ or $ per share of common stock. This represents an immediate increase in the pro forma net tangible book value of $ per share of common stock to existing stockholders and an immediate dilution of $ per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share........................... $ --------- Pro forma net tangible book deficit per share at December 31, 1998...... $ (1.01) Increase in pro forma net tangible book value per share attributable to new investors......................................................... --------- Adjusted pro forma net tangible book value per share after the offering... --------- Dilution per share to new investors....................................... $ --------- ---------
The following table summarizes, on a pro forma basis at December 31, 1998, after giving effect to the offering, the difference between existing stockholders and investors in the offering with respect to the number of shares of common stock purchased from our Company, the total consideration paid and the average price paid per share:
SHARES PURCHASED(1)(2) TOTAL CONSIDERATION -------------------------- --------------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ------------- ----------- -------------- ----------- --------------- Existing stockholders......................... 18,760,231 -- % $ 20,456,000 -- % $ 1.09 New investors................................. -- -- -- -- -- ------------- ----- -------------- ----- Total..................................... -- 100.0% $ -- 100.0% ------------- ----- -------------- ----- ------------- ----- -------------- -----
- ------------------------ (1) The table assumes no exercise of the underwriters' over-allotment option. Exercise of the over-allotment option in full would (i) reduce the proportion of shares held by existing stockholders to % of the total number of shares outstanding after the offering; and (ii) increase the number of shares purchased by investors in the offering to shares, or % of the total number of shares. (2) Excludes (i) 2,629,575 shares of common stock issuable at a weighted average exercise price of $2.38 per share upon exercise of stock options outstanding at December 31, 1998; (ii) shares of common stock reserved for future issuance under our stock option plans; and (iii) 300,000 shares of common stock reserved for issuance under our 1999 Employee Stock Purchase Plan. See "Management--Benefit Plans." 25 SELECTED CONSOLIDATED FINANCIAL DATA The following selected historical consolidated financial data presented below are derived from our consolidated financial statements. The financial statements for the period from November 21, 1995 (inception) to September 30, 1996, and as of and for the fiscal years ended September 30, 1997 and 1998, have been audited by KPMG LLP, independent auditors, and are included elsewhere in this prospectus. The balance sheet data as of September 30, 1996 is derived from audited consolidated financial statements of the Company that are not included herein. The selected historical consolidated financial data as of December 31, 1998 and for the three months ended December 31, 1997 and 1998 have been derived from unaudited consolidated financial statements included elsewhere in this prospectus, that include, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and results of operations for those periods. The selected consolidated financial data set forth below is qualified in its entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations", our consolidated financial statements, the related notes and the independent auditor's report, which contains an explanatory paragraph that states that our recurring losses from operations and net capital deficiency raise substantial doubt about our ability to continue as a going concern, included elsewhere in this prospectus. The consolidated financial statements and the selected consolidated financial data do not include any adjustments that might result from the outcome of that uncertainty. The operating results for the periods presented are not necessarily indicative of the results to be expected for the full fiscal year or any other period:
PERIOD FROM THREE MONTHS ENDED NOVEMBER 21, YEAR ENDED 1995 (INCEPTION) SEPTEMBER 30, DECEMBER 31, TO SEPTEMBER 30, -------------------- -------------------- 1996 1997 1998 1997 1998 --------------------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues: Software license fees........................... $ -- $ 7,392 $ 9,703 $ 2,086 $ 2,622 Service revenues................................ -- -- -- -- 190 Software license fees from IBM.................. -- 175 2,700 199 1,318 Service revenues from IBM....................... -- -- 2,867 -- 1,487 ------- --------- --------- --------- --------- Total revenues................................ -- 7,567 15,270 2,285 5,617 ------- --------- --------- --------- --------- Cost of revenues: Software license fees........................... -- 772 2,531 278 495 Service revenues................................ -- -- -- -- 184 IBM service revenues............................ -- -- 2,562 -- 1,404 ------- --------- --------- --------- --------- Total cost of revenues........................ -- 772 5,093 278 2,083 ------- --------- --------- --------- --------- Gross profit.................................. -- 6,795 10,177 2,007 3,534 --------- --------- --------- --------- Operating expenses: Research and development........................ 2,765 8,436 10,231 3,070 2,204 Sales and marketing............................. 2,998 12,161 17,114 4,060 4,430 General and administrative...................... 978 3,762 3,575 769 894 Stock-based compensation........................ -- -- 227 -- 100 ------- --------- --------- --------- --------- Total operating expenses...................... 6,741 24,359 31,147 7,899 7,628 ------- --------- --------- --------- --------- Operating loss................................ (6,741) (17,564) (20,970) (5,892) (4,094) Interest income (expense)......................... 46 (234) (1,194) (168) (712) Nonrecurring interest charge on beneficial conversion feature of convertible debt (1)...... -- -- -- -- (3,792) Loss before income taxes...................... (6,695) (17,798) (22,164) (6,060) (8,598) Income taxes...................................... -- 1 60 7 2 ------- --------- --------- --------- --------- Net loss.......................................... $ (6,695) $ (17,799) $ (22,224) $ (6,067) $ (8,600) ------- --------- --------- --------- --------- ------- --------- --------- --------- --------- Basic and diluted net loss per share applicable to common stockholders (2)......................... $ (4.89) $ (10.89) $ (13.11) $ (3.72) $ (4.64) ------- --------- --------- --------- --------- ------- --------- --------- --------- --------- Shares used to compute basic and diluted net loss per share applicable to common stockholders (2)............................................. 1,370 1,634 1,695 1,633 1,854 ------- --------- --------- --------- --------- ------- --------- --------- --------- ---------
26
SEPTEMBER 30, ------------------------------- DECEMBER 31, 1996 1997 1998 1998 --------- --------- --------- --------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash................................................................. $ 1,090 $ 303 $ 459 $ 1,288 Working capital (deficit)............................................ (1,749) (10,116) (30,229) (23,390) Short-term borrowings from IBM and IBM Credit Corp................... -- -- 20,666 18,813 Long-term obligations, less current portion.......................... 173 633 336 7,890 Total assets......................................................... 2,129 4,605 5,145 7,502 Accumulated deficit.................................................. (6,695) (24,494) (46,718) (55,318) Stockholders' deficit................................................ (1,357) (8,913) (28,925) (29,177)
- ------------------------ (1) Nonrecurring non-cash interest charge based on the difference between the price per share for Series F-2 preferred stock issued to Novell, Inc. and MC Silicon Valley, Inc. and for Series E-2 preferred stock issuable to IBM and another investor upon conversion of certain convertible notes in accordance with EITF Topic D-60. See note 8 of notes to consolidated financial statements. Under the terms of an April 1997 contract with IBM, we agreed that any funds provided by IBM for our operations during 1997 and 1998 through the sale of equity securities to IBM would have a per share price not higher than $6.68. In October and November 1998, we issued preferred stock to Novell, Inc. and MC Silicon Valley, Inc. at a price per share of $9.00. See "Certain Transactions--IBM Relationship." (2) Does not include the effect of outstanding shares of convertible preferred stock, shares from the assumed conversion of convertible notes and shares issuable upon the exercise of stock options and warrants that are considered anti-dilutive pursuant to SFAS No. 123. For an explanation of basic and diluted net loss per share applicable to common stockholders and the number of shares used to compute basic and diluted net loss per share applicable to common stockholders, see note 1 of notes to consolidated financial statements. 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE ACTUAL RESULTS OF OUR COMPANY MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. OVERVIEW We provide software and solutions that enable small to medium-sized businesses and large-scale enterprises to build, deploy and maintain Internet and intranet web sites and applications. We pioneered the web site building products category with the introduction of NetObjects Fusion in October 1996, and we have released several other award-winning software products, including NetObjects Authoring Server, a successor to NetObjects TeamFusion. In October 1998, we began offering online and professional services to serve the site building and maintenance needs of our customers. We were incorporated in November 1995 and first recognized revenues in October 1996, when we provided our first commercial version of NetObjects Fusion. We recognize revenues from software license fees upon delivery of our software products to our customers, net of allowances for estimated returns and price protection, as long as we have no significant obligations remaining and we believe that collection of the resulting receivable is probable. Software license fees earned from products bundled with OEM resellers, including IBM, are generally recognized upon the OEM resellers shipping the bundled products to their customers. We recognize service revenues from IBM in connection with the integration of our software with IBM's WebSphere software products using the percentage-of-completion method. We are deferring the recognition of profit on this arrangement until the amount of profit can be reasonably estimated. We defer recognition of maintenance revenues, paid primarily for support and upgrades, upon receipt of payment and recognize the related revenues ratably over the term of the contract, which typically is 12 months. These payments generally are made in advance and are nonrefundable. See "Risk Factors--Adequacy of Allowances for Product Returns and Price Protection." Through September 30, 1998, we recognized revenues in accordance with American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 91-1, SOFTWARE REVENUE RECOGNITION. On October 1, 1998, we adopted the provisions of SOP 97-2 and SOP 98-9, which supersede SOP 91-1. See note 1 of notes to consolidated financial statements. We earn revenues from software license fees primarily through sales of our software through our indirect and online distribution channels, direct sales force and through important strategic relationships such as our relationship with IBM. Our indirect and online distribution channels include distributors, direct and OEM resellers, VARs and online sales. During fiscal year 1997, our total revenues from software license fees rose from $0 to $7.6 million, and again grew significantly in fiscal year 1998, to $12.4 million, as a result of our introduction of new versions of our main product NetObjects Fusion and, secondarily, the release of other related products. In fiscal year 1998, our total revenues from IBM grew to approximately $5.6 million from approximately $175,000 in fiscal year 1997. Our total revenues from IBM in fiscal year 1998 and for the three months ended December 31, 1998 included revenues of $2.9 million and $1.5 million, respectively, for our charges for services under the WebSphere agreement. We initiated relationships with our primary distributors in North America, Europe and Asia Pacific in fiscal year 1997. Revenues generated by our indirect and online distribution channels 28 accounted for substantially all of our non-IBM revenues for fiscal years 1997 and 1998. We anticipate that revenues derived from our indirect and online distribution channels will decrease as a percentage of our total revenues. We anticipate that revenues derived from direct channels will continue to increase as a percentage of our total revenues. We derive our international revenues through our indirect distribution channels. In April 1997, when IBM acquired approximately 80% of our outstanding stock from existing investors, we agreed to license IBM the right to market and sell certain of our products to their customers for 10 years under an agreement that allowed us to receive nonrefundable cash prepayments totaling $10.5 million between April 1997 and December 31, 1998. We requested and received the full amount of these prepayments between April and December 1997. These prepayments have been reflected as deferred revenues from IBM on our balance sheet until recognized. In the three months ended December 31, 1997, IBM began reselling our products, and in the three months ended March 31, 1998, we began providing services under the WebSphere agreement that will end on February 28, 1999. As IBM reports sales of our products and we perform services, we recognize revenues and the deferred revenue from IBM declines by the same amount. At December 31, 1998, approximately $2.3 million of the prepayments remained as deferred revenue from IBM. As a result, we will not receive cash on sales by IBM of our products or for services that we provide to IBM until the prepayment balance has been reduced to zero. See "Risk Factors--Dependence on IBM and Potential Conflicts." From our inception through the end of fiscal year 1996, our operating activities related primarily to recruiting personnel, raising capital, purchasing operating assets, conducting research and development, building the NetObjects brand and establishing the market for our products. During fiscal year 1997, we continued to invest significantly in research and development, marketing, building our domestic and international sales channels and general and administrative infrastructure. During both fiscal years we engaged in many activities designed to gain corporate brand identity, seed the market with our product, establish the site building product category and educate the market about the benefits of site building rather than page authoring. In addition, we invested in a broad range of marketing activities such as advertising, trade shows, direct mail and public relations. We also entered into many co-marketing and distribution arrangements with well-known companies such as AT&T, Apple Computer, Inc., Compaq Computer, Inc., Microsoft, Netscape Communications Corp. and PeopleSoft that allowed us to identify our NetObjects Fusion brand with their brands. Most of these arrangements have not generated revenues for us, and their principal benefit has been to help us achieve substantial brand recognition in a relatively short period. The costs of these activities and arrangements, which were not offset by revenues, have contributed substantially to our significant losses since inception, and as of December 31, 1998, we had an accumulated deficit of approximately $55.3 million. We believe that our success will depend largely on our ability to extend our technological leadership and to continue to build our brand position. Accordingly, we intend to continue to invest heavily in research and development and sales and marketing. As a result, we expect to continue to incur substantial operating losses for the foreseeable future. See "Risk Factors" and "Risk Factors--History of Substantial Losses; Expectation of Future Losses; 'Going Concern' Qualification from Auditors" for a discussion of factors that could cause these forward looking statements not to come true. KPMG LLP, in their independent auditors' report, have expressed "substantial doubt" as to our ability to continue as a going concern based on significant operating losses since inception and significant debt and capital deficit as of September 30, 1998. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. Our ability to continue as a going concern is dependent upon the net proceeds from this offering. The net proceeds from the offering are estimated to be $ , after the repayment of a $19 million secured credit facility with IBM Credit Corp. and $3.45 million that we expect to owe to IBM under 29 notes to be issued prior to closing of the offering. This credit facility will be repaid out of the proceeds of this offering and the credit facility will terminate. We believe the net proceeds from the offering, together with other available cash resources, will be sufficient to meet our cash needs through September 30, 2000. Our prospects must be considered in light of our limited operating history and the risks, expenses and difficulties frequently encountered by companies in early stages of development, particularly companies in rapidly evolving markets such as the market for web site building software and services. To achieve and sustain profitability, we must, among other things: - increase substantially our revenues from our two principal products, NetObjects Fusion (which in fiscal year 1998 accounted for most of our total revenues) and NetObjects Authoring Server, and our professional services (which have generated minimal revenues to date); - continue to develop successfully new versions of our products, such as NetObjects Fusion 4.0, which was released in December 1998; - continue to be a leading provider of e-business software for building web sites and corporate intranet sites; - respond quickly and effectively to competitive, market and technological developments; - expand substantially our sales and marketing operations; - develop our professional services business, which we launched in October 1998; - control expenses; - continue to attract, train and retain qualified personnel in the competitive software industry; and - maintain existing relationships and establish new relationships with leading Internet hardware and software companies. There can be no assurance that we will achieve or sustain profitability. See "Risk Factors-- History of Substantial Losses; Expectation of Future Losses; 'Going Concern' Qualification from Auditors." 30 The following table sets forth financial data for the periods indicated as a percentage of total revenues:
THREE MONTHS YEAR ENDED ENDED SEPTEMBER 30, DECEMBER 31, -------------------- -------------------- 1997 1998 1997 1998 --------- --------- --------- --------- Revenues: Software license fees................................ 97.7% 63.5% 91.3% 46.7% Service revenues..................................... -- -- -- 3.4 Software license fees from IBM....................... 2.3 17.7 8.7 23.4 Service revenues from IBM............................ -- 18.8 -- 26.5 --------- --------- --------- --------- Total revenues..................................... 100.0 100.0 100.0 100.0 --------- --------- --------- --------- Cost of revenues: Software license fees................................ 10.2 16.6 12.2 8.8 Service revenues..................................... -- -- -- 3.3 Service revenues from IBM............................ -- 16.8 -- 25.0 --------- --------- --------- --------- Total cost of revenues............................. 10.2 33.4 12.2 37.1 --------- --------- --------- --------- Gross profit........................................... 89.8 66.6 87.8 62.9 --------- --------- --------- --------- Operating expenses: Research and development............................. 111.5 67.0 134.4 39.2 Sales and marketing.................................. 160.7 112.0 177.6 78.9 General and administrative........................... 49.7 23.4 33.7 15.9 Stock-based compensation............................. -- 1.5 -- 1.8 --------- --------- --------- --------- Total operating expenses........................... 321.9 203.9 345.7 135.8 --------- --------- --------- --------- Operating loss......................................... (232.1) (137.3) (257.9) (72.9) Interest expense..................................... (3.1) (7.8) (7.3) (12.7) Nonrecurring interest charge on beneficial conversion feature of convertible debt........................ -- -- -- (67.5) Income taxes......................................... -- 0.4 0.3 -- --------- --------- --------- --------- Net loss............................................... (235.2)% (145.5)% (265.5)% (153.1)% --------- --------- --------- --------- --------- --------- --------- ---------
RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 1997 AND 1998 REVENUES. Total revenues increased from approximately $2.3 million to approximately $5.6 million for the three months ended December 31, 1997 and 1998, respectively, primarily because of our performance of WebSphere services for IBM, increased market acceptance of our products, including the introduction of NetObjects Fusion 4.0 in December 1998, and increased software license fees from the bundling of NetObjects Fusion with Lotus' Designer for Domino. For the three months ended December 31, 1997 and 1998, respectively, international revenues were 14% and 18% of total revenues, respectively. The increase in international revenues was due to the expansion of our indirect sales channel in Europe, services revenues for the first time and OEM arrangements with internet service providers in Europe in December 1998. We sell our products in United States dollars in international markets. We do not expect international sales to continue to grow at the same rate during the balance of fiscal year 1999. See "Risk Factors--International Operations." 31 Revenues from IBM increased from approximately 8.7% to 50% of our total revenues for the three months ended December 31, 1997 and 1998, respectively. Our agreement with IBM for WebSphere services ends on February 28, 1999. In addition, our product bundling arrangement with Lotus for Designer for Domino expires in June 1999. We believe that all of the IBM deferred revenues, which were $2.3 million at December 31, 1998, will have been recognized as revenues by June 30, 1999. We have no commitments from IBM to pay us software license fees or services revenues after June 1999. Our software license revenues from IBM in the remaining quarters of fiscal year 1999 are likely to decline, perhaps substantially, from the level in the first quarter of fiscal year 1999. We do not expect to receive any services revenues from IBM after February 1999. See "Risk Factors--Dependence on IBM and Potential Conflicts" and "Business--Sales, Marketing and Distribution." COST OF REVENUES. Our cost of software license fees includes the cost of product media, duplication, manuals, packaging materials, shipping, technology licensed to us and fees paid to third-party vendors for order fulfillment, and was approximately $278,000 and $495,000 for the three months ended December 31, 1997 and 1998, respectively, which represented approximately 13% and 19%, respectively, of non-IBM software license fees. The increase in percentage terms arose primarily from the increase in royalties we pay to third parties for software included in NetObjects Fusion 4.0 that was not included in the version that we sold in the three months ended December 31, 1997. Our cost of services consists of personnel costs and related overhead as well as fees paid to third parties who assist us in providing services to our customers. Our cost of IBM services revenues consists solely of personnel costs and related overhead for the services provided. Gross margins may be affected by the mix of distribution channels we use, the mix of products sold, the mix of product revenues versus services revenues and the mix of international versus domestic revenues. We typically realize higher gross margins on direct channel sales relative to indirect channels and higher gross margins on domestic indirect channel sales relative to international indirect sales. If sales through indirect channels increase as a percentage of total revenues, or if, as we anticipate, services revenues increase as a percentage of total revenues, our gross margins will be adversely affected. RESEARCH AND DEVELOPMENT. Our research and development expenses consist primarily of salaries and consulting fees to support product development. To date, we have expensed all research and development costs as we have incurred them because we generally establish the technological feasibility of our products upon completion of a working model. We have not yet incurred significant costs between the date of completion of a working model and the date of general release of a product. We believe that continued investment in research and development is critical to attaining our strategic objectives and, as a result, we expect research and development expenses to continue to increase. Research and development expenses were approximately $3.1 million and $2.2 million for the three months ended December 31, 1997 and 1998, respectively, and 134% and 39%, respectively, of total revenues. The decrease in total dollars and in percentage terms in the three months ended December 31, 1998 occurred primarily because much of our personnel were redirected towards integrating our software with IBM's WebSphere software products. The associated expenses are reflected in our cost of IBM revenues from services instead. SALES AND MARKETING. Our sales and marketing expenses consist primarily of salaries, commissions, consulting fees, trade show expenses, advertising, marketing materials and the cost of customer service operations. We intend to continue to increase staff in our enterprise sales organization and decrease our aggressive brand building and marketing campaign and, therefore, expect sales and marketing expenses to continue to increase. Sales and marketing expenses were approximately $4.1 million and $4.4 million for the three months ended December 31, 1997 and 1998, respectively, representing 178% and 79%, respectively, of total revenues. The increase resulted primarily 32 from the growth in our sales personnel, increased sales commissions and costs related to the continued development and implementation of our branding and marketing campaigns. As our total revenues grew at a faster rate than expenses, our sales and marketing expenses decreased as a percentage of total revenues for the three months ended December 31, 1998. GENERAL AND ADMINISTRATIVE. Our general and administrative expenses consist primarily of salaries and fees for professional services. We expect general and administrative expenses to increase as we expand our staff, incur additional costs related to growth of our business and become a publicly traded company. General and administrative expenses were approximately $769,000 and $894,000 for the three months ended December 31, 1997 and 1998, respectively, representing approximately 34% and 16%, respectively, of total revenues. The increased amount resulted primarily from additional personnel and facility expenses related to our growth, while the decrease in percentage terms occurred because total revenues grew at a faster rate than general and administrative expenses. STOCK-BASED COMPENSATION. Beginning with the three months ended March 31, 1998 we have been amortizing aggregate stock-based compensation of $768,000 attributable to the grant of stock options over the 48-month period in which the options vest in a manner consistent with Financial Accounting Standards Board (FASB) Interpretation No. 28. Of the total deferred stock-based compensation expense, approximately $100,000 was amortized during the three months ended December 31, 1998. INTEREST EXPENSE. Our interest expense consists primarily of interest on our borrowings and amounted to approximately $168,000 and $712,000 for the three months ended December 31, 1997 and 1998, respectively. The increase was due primarily to the increase in borrowing over the period. In connection with the in-the-money convertible notes we issued to IBM and another existing investor that convert to Series E-2 preferred stock at $6.68 per share we recorded $3.8 million of interest expense in accordance with EITF Topic D-60 in the three months ended December 31, 1998. In connection with the revolving loan and security agreement with IBM Credit Corp., in December 1997 we issued warrants to purchase 83,333 shares of Series F preferred stock at $10.80 per share. In addition, in connection with the convertible notes we issued warrants to purchase 163,715 shares of Series E preferred stock at $6.68 per share. The Series E and Series F preferred stock warrants were valued based upon the Black-Scholes pricing model which resulted in approximately $191,000 of additional interest expense in the three month period ended December 31, 1998. INCOME TAXES. We had a net operating loss for each period from our inception through December 31, 1998. We recorded income tax expense due to withholding tax on payments made by Mitsubishi, our exclusive master distributor of our products in Japan. YEARS ENDED SEPTEMBER 30, 1997 AND 1998 REVENUES. Our total revenues increased from approximately $7.6 million to $15.3 million for the fiscal years ended September 30, 1997 and 1998, respectively. The increase was due primarily to growing market acceptance of our products, including the introduction of NetObjects TeamFusion in December 1997, NetObjects Fusion 3.0 for Windows 95, Windows 98 and Windows NT in March 1998 and NetObjects Fusion for Macintosh in June 1998, $2.9 million of WebSphere services revenues and successful product promotions and diversification of our sales channels, including online distribution, which began in August 1998. In August 1997, we reduced the price of NetObjects Fusion from a suggested retail price of $495 to $295, and provided credits for unsold inventory to many of our distributors and other resellers, thereby reducing revenues from software license fees for the three months ended September 30, 1997 to a lower amount than in the preceding quarter. 33 Our international revenues were approximately 15% and 16% of total revenues for the fiscal years ended September 30, 1997 and 1998, respectively. The increase in international revenues was due in part to the expansion of the indirect sales channel in Europe as well as the initiation of our master distributor agreement with Mitsubishi, which also invested in us in November 1998, to manufacture and sell our products in Japan. Our revenues from IBM were approximately 2% and 36% of total revenues for the fiscal years ended September 30, 1997 and 1998, respectively. The increased revenues from IBM were generated primarily from our product bundles with Lotus Designer for Domino and our provision of WebSphere services beginning in March 1998. COST OF REVENUES. Our cost of software license fees was approximately $772,000 and $2.5 million for the fiscal years ended September 30, 1997 and 1998, respectively, representing approximately 10% and 26%, respectively, of total non-IBM revenues. Total costs increased as our product sales increased, and increased as a percentage of total revenues because we reduced the price of NetObjects Fusion in August 1997, wrote off unsold inventory resulting from product upgrades and increased our fulfillment costs for fiscal year 1998. Cost of IBM revenues consists solely of the costs of providing WebSphere services. RESEARCH AND DEVELOPMENT. Our research and development expenses were approximately $8.4 million and $10.2 million for the fiscal years ended September 30, 1997 and 1998, respectively, and 111% and 67%, respectively, of total revenues. The increase in fiscal 1998 resulted primarily from increases in internal development personnel and independent contractor expenses. The decrease in percentage terms occurred as revenues grew at a faster rate than expenses. SALES AND MARKETING. Our sales and marketing expenses were approximately $12.2 million and $17.1 million for the fiscal years ended September 30, 1997 and 1998, respectively, representing approximately 161% and 112%, respectively, of total revenues. The increase resulted primarily from the growth in our sales personnel, sales commissions and costs related to the continued development and implementation of our branding and marketing campaigns. The decrease in percentage terms occurred as revenues grew at a faster rate than expenses. GENERAL AND ADMINISTRATIVE. Our general and administrative expenses were approximately $3.8 million and $3.6 million for the fiscal years ended September 30, 1997 and 1998, respectively, representing approximately 50% and 23%, respectively, of total revenues. Costs of approximately $300,000 in professional fees incurred in connection with IBM's acquisition of approximately 80% of our stock are included in general and administrative expenses in fiscal 1997. The decrease in percentage terms occurred as revenues grew at a faster rate than expenses. STOCK-BASED COMPENSATION. We amortized approximately $227,000 of the total deferred stock-based compensation in fiscal year 1998. INTEREST EXPENSE. Our interest expense consisted primarily of interest on our borrowings and increased from approximately $234,000 to $1.2 million for the fiscal years ended September 30, 1997 and 1998, respectively, as we increased our borrowings during fiscal year 1998. Fiscal year 1998 interest expense included $201,000 for the Series F preferred stock warrants issued to IBM Credit Corp. PERIOD FROM NOVEMBER 21, 1995 (INCEPTION) THROUGH SEPTEMBER 30, 1996 During the period from November 21, 1995 (inception) through September 30, 1996, our operating activities related primarily to recruiting personnel, raising capital, purchasing operating assets, conducting research and development, building the NetObjects brand and establishing the market for our products. We recognized no revenue and incurred operating expenses of $6.7 million during the period. Accordingly, a comparison of the operating results for that period with the operating results for fiscal year 1997 is not meaningful and has been omitted. 34 QUARTERLY RESULTS OF OPERATIONS The following table sets forth certain unaudited quarterly results of operations data for the eight quarters ended December 31, 1998. We believe that this information has been prepared substantially on the same basis as the audited consolidated financial statements appearing elsewhere in this prospectus, and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly the unaudited quarterly results of operations. The quarterly data should be read in conjunction with our audited consolidated financial statements and notes to consolidated financial statements appearing elsewhere in this prospectus. The operating results for any quarter are not necessarily indicative of the operating results for any future period:
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, 1997 1997 1997 1997 1998 1998 1998 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Revenues: Software license fees............... $ 2,115 $ 2,332 $ 1,721 $ 2,086 $ 2,485 $ 2,524 $ 2,608 Service revenues.................... -- -- -- -- -- -- -- Software license fees from IBM...... -- 75 100 199 1,016 1,069 416 Service revenues from IBM........... -- -- -- -- 206 1,225 1,436 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total revenues.................... 2,115 2,407 1,821 2,285 3,707 4,818 4,460 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cost of revenues: Software license fees............... 143 240 305 278 704 840 709 Service revenues.................... -- -- -- -- -- -- -- IBM service revenues................ -- -- -- -- 184 1,095 1,284 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total cost of revenues............ 143 240 305 278 888 1,935 1,993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Gross profit.......................... 1,972 2,167 1,516 2,007 2,819 2,883 2,468 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating expenses: Research and development............ 1,671 2,500 2,711 3,070 2,785 2,175 2,201 Sales and marketing................. 1,888 3,833 4,454 4,060 4,353 4,444 4,257 General and administrative.......... 1,016 1,180 926 769 977 878 951 Stock-based compensation............ -- -- -- -- 53 74 100 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total operating expenses.......... 4,575 7,513 8,091 7.899 8,168 7,571 7,509 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating loss........................ (2,603) (5,346) (6,575) (5,892) (5,349) (4,688) (5,041) Net other expense................... 75 37 53 175 303 335 441 Nonrecurring interest charge on beneficial conversion feature of convertible debt.................. -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net loss.............................. $ (2,678) $ (5,383) $ (6,628) $ (6,067) $ (5,652) $ (5,023) $ (5,482) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Revenues: Software license fees............... 100.0% 96.9% 94.5% 91.3% 67.4% 52.4% 58.5% Service revenues.................... -- -- -- -- -- -- -- Software license fees from IBM...... -- 3.1 5.5 8.7 27.4 22.2 9.3 Service revenues from IBM........... -- -- -- -- 5.6 25.4 32.2 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total revenues.................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cost of revenues: Software license fees............... 6.8 10.0 16.7 12.2 19.0 17.5 15.9 Service revenues.................... -- -- -- -- -- -- -- Service revenues from IBM........... -- -- -- -- 5.0 22.7 28.8 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total cost of revenues............ 6.8 10.0 16.7 12.2 24.0 40.2 44.7 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Gross profit.......................... 93.2 90.0 83.3 87.8 76.0 59.8 55.3 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating expenses: Research and development............ 79.0 103.9 148.9 134.3 75.1 45.1 49.4 Sales and marketing................. 89.3 159.2 244.6 177.7 117.4 92.2 95.4 General and administrative.......... 48.0 49.0 50.8 33.7 26.4 18.2 21.3 Stock-based compensation............ -- -- -- -- 1.4 1.6 2.2 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total operating expenses.......... 216.3 312.1 444.3 345.7 220.3 157.1 168.3 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating loss........................ (123.1) (222.1) (361.0) (257.9) (144.3) (97.3) (113.0) Net other expense................... 3.5 1.5 2.9 7.6 8.2 7.0 9.9 Nonrecurring interest charge on beneficial conversion feature of convertible debt.................. -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net loss.............................. (126.6)% (223.6)% (363.9)% (265.5)% (152.5)% (104.3)% (122.9)% ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- DEC. 31, 1998 ----------- Revenues: Software license fees............... $ 2,622 Service revenues.................... 190 Software license fees from IBM...... 1,318 Service revenues from IBM........... 1,487 ----------- Total revenues.................... 5,617 ----------- Cost of revenues: Software license fees............... 495 Service revenues.................... 184 IBM service revenues................ 1,404 ----------- Total cost of revenues............ 2,083 ----------- Gross profit.......................... 3,534 ----------- Operating expenses: Research and development............ 2,204 Sales and marketing................. 4,430 General and administrative.......... 894 Stock-based compensation............ 100 ----------- Total operating expenses.......... 7,628 ----------- Operating loss........................ (4,094) Net other expense................... 714 Nonrecurring interest charge on beneficial conversion feature of convertible debt.................. 3,792 ----------- Net loss.............................. $ (8,600) ----------- ----------- Revenues: Software license fees............... 46.7% Service revenues.................... 3.4 Software license fees from IBM...... 23.4 Service revenues from IBM........... 26.5 ----------- Total revenues.................... 100.0 ----------- Cost of revenues: Software license fees............... 8.8 Service revenues.................... 3.3 Service revenues from IBM........... 25.0 ----------- Total cost of revenues............ 37.1 ----------- Gross profit.......................... 62.9 ----------- Operating expenses: Research and development............ 39.2 Sales and marketing................. 78.9 General and administrative.......... 15.9 Stock-based compensation............ 1.8 ----------- Total operating expenses.......... 135.8 ----------- Operating loss........................ (72.9) Net other expense................... 12.7 Nonrecurring interest charge on beneficial conversion feature of convertible debt.................. 67.5 ----------- Net loss.............................. (153.1)% ----------- -----------
35 Our total revenues fluctuate from quarter-to-quarter due to many factors, including new product and product upgrade introductions. In addition, we attempt to limit sales of existing products for the months preceding the release of upgraded products in order to reduce the number of returns of the older product from certain of our direct and indirect channel resellers. The timing of our recognition of revenues from strategic arrangements with other companies such as AT&T, IBM or Netscape has contributed to fluctuations in revenues from quarter to quarter. During the three months ended September 30, 1997, we reduced the suggested retail price of NebObjects Fusion from $495 to $295, and provided price protection credits to our indirect channel distributors for unsold inventory. Consequently, our total revenues for the quarter declined substantially as a percentage of the preceding quarter's revenues. While unit volumes increased in quarters subsequent to the price reduction, the price reduction reduced total revenue growth in subsequent quarters. For a discussion of IBM revenues in the remaining quarters of 1999, see "Risk Factors--Dependence on IBM and Potential Conflicts--Dependence to Date on IBM for Financing and Significant Revenues." FACTORS AFFECTING OPERATING RESULTS. As a result of our limited operating history and the emerging nature of the markets in which we compete, we are unable to forecast accurately our revenues. Our expense levels are based in part on our expectations with regard to future revenues. We may be unable to adjust spending in a timely manner to compensate for any unexpected revenues shortfall. As a result, any significant shortfall in demand for our products and services relative to our expectations would have an immediate material adverse effect on our business, prospects, financial condition and results of operations. Further, as a strategic response to changes in the competitive environment, we may from time to time implement pricing, service or marketing changes that could have a material adverse effect on our business, prospects, financial condition and results of operations. See "Risk Factors--Uncertainty of Future Revenues; Probable Fluctuation in Quarterly Operating Results," and "Business--Competition." We expect to experience significant fluctuations in our future quarterly operating results due to a variety of factors, many of which are outside our control, including - the expiration of commitments from IBM for software license fees in June 1999 and service revenues in February 1999; - the introduction or enhancement of our products and services and market acceptance of such products and services; - a longer sales cycle for products for large-scale enterprise customers and for NetObjects Authoring Server; - competitors' introductions of other types of software products (for example, Microsoft's introduction of Windows 98 adversely impacted our sales temporarily); - the amount and timing of operating costs and capital expenditures related to expansion of our business, operations and infrastructure; - price reductions by us or our competitors or changes in how their products and services are priced; - the mix of distribution channels through which our products are licensed and sold; and - the promptness with which sales data are reported to us from third parties. In addition to fluctuations of revenues from IBM, our revenues may become more variable due to factors such as seasonal demand for our products and services (for example, annual reductions in sales in Europe in July and August), costs of litigation and intellectual property protection, technical difficulties with respect to the use of our products, general economic conditions and economic 36 conditions specifically related to businesses dependent upon the Internet. It often is difficult to forecast the effect such factors, or any combination thereof, would have on our results of operations for any given fiscal quarter. We have used, and expect to continue to use, price promotions to increase the trial, purchase and use of our products, as well as to increase the overall recognition of our brands. The effect of such promotions on revenues in a particular period may be significant and extremely difficult to forecast. Quarterly sales and operating results depend primarily on the volume and timing of orders received in the quarter, both of which are difficult to forecast. Quarterly sales and operating results depend primarily on the volume and timing of orders received in the quarter, both of which are difficult to forecast. We typically recognize a substantial portion of our revenues in the last month of each quarter. Based on the foregoing, we believe that our quarterly revenues, expenses and operating results could vary significantly in the future, and that period-to-period comparisons should not be relied upon as indications of future performance. We generally distribute our software products in "trial" form to the public electronically from our web site. The "trial" version generally allows the customer to use the product but either has an expiration period, in which case the product is automatically deleted from a hard drive, or prohibits the site from being published. These features may cause certain customers to delay purchasing decisions until they have thoroughly tested the product, or they may be able to override the "trial" features and use the product in an unlicensed manner, which could have a material adverse effect on our revenues and quarterly results of operations. Due to the foregoing factors, it is likely that in some future quarters our operating results will fall below the expectations of securities analysts and investors, which would likely have a material adverse effect on the trading price of our stock. LIQUIDITY AND CAPITAL RESOURCES Since inception, we have financed our operations primarily through a combination of private placements of equity securities and borrowings, which yielded an aggregate of $47.3 million of net proceeds from November 1995 through December 31, 1998. Since December 1997, approximately $7.5 million and $19 million of this financing have been provided by IBM and IBM Credit Corp., respectively, in the form of a secured credit facility. In addition, we have received cash prepayments from IBM of approximately $10.5 million which are recorded as deferred revenues from IBM on our balance sheet. We have paid interest to IBM on the amounts of prepayments that we received in advance of the scheduled prepayment period set forth in our license agreement with IBM. All such interest expense ceased at December 31, 1998. This credit facility will be repaid out of the proceeds of this offering and the credit facility will terminate. We will not receive additional cash on sales of our products by IBM or for services that we provide to IBM until the balance of the deferred revenues from IBM has been reduced to zero. At December 31, 1998 approximately $2.3 million of the cash prepayments provided by IBM had not been recognized and were reflected as deferred revenue from IBM on our balance sheet. We also have established equipment lease lines under which we may finance the purchase up to approximately $2.7 million in furniture, computer equipment and software, approximately $720,000 of which is provided by IBM Credit Corp. The lease terms range from three to five years. At December 31, 1998 approximately $200,000 was available under these lease lines. Net cash used in operating activities in the period from November 21, 1995 (inception) to December 31, 1996 and for the years ended September 30, 1997 and 1998 was $4.8 million, $10.8 million and $19.0 million, respectively, and $8.2 million in the three months ended December 31, 1998. Net cash used for operating activities in each of these periods resulted primarily from our net losses, offset in part by increases in our accounts payable, accrued expenses and non-cash expenses. 37 Net cash used in investing activities in the period from November 21, 1995 (inception) to December 31, 1996 and for the years ended September 30, 1997 and 1998 was $551,000, $1.0 million and $792,000, respectively, and $703,000 in the three months ended December 31, 1998. Net cash used in investing activities in each of these periods was related to the purchases of property and equipment. The property and equipment purchased consisted primarily of computer hardware and software. Net cash provided by financing activities in the period from November 21, 1995 (inception) to December 31, 1996 and for the years ended September 30, 1997 and 1998 was $6.5 million, $11.0 million and $20.0 million, respectively, and $9.8 million in the three months ended December 31, 1998. The cash provided by financing activities was the result of net proceeds from borrowings and the sale of our preferred stock and common stock. As of December 31, 1998, we had approximately $1.3 million in cash. Other than the $19 million of short-term borrowings from IBM, our principal commitments consisted of obligations outstanding under operating leases. Although we have no material commitments for capital expenditures, they may increase consistent with our anticipated growth in operations, infrastructure and personnel, and we anticipate capital expenditures of at least $2.0 million over the next 24 months given our current growth rate. We will continue to add computer hardware resources. There can be no assurance, however, that our growth rate will continue at current levels or that it will meet our current expectations. In October 1998, we issued convertible notes to IBM and Perseus Capital L.L.C., which has business relationships with several of our directors, for a total of $10.9 million. Prior to closing of this offering, the convertible notes will be converted into shares of Series E-2 preferred stock, which converts to common stock automatically at the closing of this offering. The notes bear interest at 10% per annum. By December 31, 1998, we had received $8.3 million of the $10.9 million amount. We received the remaining $2.6 million in January 1999. In October and November 1998, we sold 388,888 shares of Series F-2 preferred stock for a total of $3.5 million. See "Certain Transactions." Prior to the closing of this offering we have the right to sell up to $3.45 million of notes and warrants to IBM to continue to finance our operations. We expect to incur substantially all of this additional debt and expect IBM to exercise its right to require the repayment of the additional convertible notes in full upon the closing of this offering. After the offering, we anticipate moderate growth in our operating expenses for the foreseeable future to execute our business plan, particularly in sales and marketing expenses and to a lesser extent research and development and general and administrative expenses. As a result, we expect our operating expenses, as well as planned capital expenditures, to continue to constitute a material use of our cash resources. In addition, we may require cash resources to fund acquisitions or investments in complementary businesses, technologies or product lines. We believe that the net proceeds from the offering, together with our current cash and cash equivalents, will be sufficient to meet our anticipated cash requirements for working capital and capital expenditures through September 30, 2000. Thereafter, if cash generated from operations is insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities, or obtain additional credit facilities. YEAR 2000 READINESS Many existing software programs are coded to accept only two digit entries in their date fields. As a result, these programs are unable to distinguish whether "00" means the year 1900 or the year 2000, which could result in system failures or miscalculations causing disruptions to operations. Although we believe that our products are Year 2000 ready, because NetObjects Fusion and NetObjects Authoring Server may interact with external databases for purposes of data storage, the 38 ability of applications integrated with a web site built using NetObjects Fusion or NetObjects Authoring Server to comply with Year 2000 requirements is largely dependent on whether any such databases underlying the application are Year 2000 ready. If NetObjects Fusion or NetObjects Authoring Server is connected to a database that is not Year 2000 ready, a web application created or developed for a web site built using NetObjects Fusion or NetObjects Authoring Server could work incorrectly. Furthermore, the purchasing patterns of customers or potential customers may be affected by Year 2000 issues as businesses expend significant resources to correct their current systems for Year 2000 readiness. These expenditures may result in reduced funds available for web site building activities, which could have a material adverse effect on our business, prospects, financial condition and results of operations. Year 2000 complications may disrupt the operations, viability or commercial acceptance of the Internet, which could have a material adverse effect on our business, prospects, financial condition and results of operations. We have received verbal confirmations, and are in the process of obtaining written certifications, from vendors of software that we have purchased for our internal financial systems is Year 2000 ready. To date, we have not incurred significant costs to comply with Year 2000 requirements, and, based upon our preliminary analysis, we do not believe we will incur significant costs in the foreseeable future. There can be no assurance, however, that Year 2000 errors or defects will not be discovered in our internal software systems. If such errors or defects were discovered, the costs of making such systems Year 2000 ready could have a material adverse effect on our business, prospects, financial condition and results of operations. We rely on third party vendors that may not be Year 2000 compliant for certain equipment and services. In addition, many of our distributors are dependent on commercially available operating systems that may be impacted by Year 2000 complications. To date, we have not completed our Year 2000 review of our vendors or distributors. Failure of systems maintained by our vendors or distributors to operate properly with regard to the Year 2000 and thereafter could require us to incur significant unanticipated expenses to remedy any problems or replace affected vendors, could reduce our revenues from our indirect distribution channel and could have a material adverse effect on our business, prospects, financial condition and results of operations. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. This statement establishes standards for the reporting and display of comprehensive income and its components. SFAS No. 130 is effective beginning in 1998. Adoption of SFAS No. 130 is for presentation only and did not affect our financial condition or results of operations. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The new standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. We do not expect SFAS No. 133 to have a material effect on our financial condition or results of operations. In February 1998, the AcSEC issued SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-1 establishes the accounting for costs of software products developed or purchased for internal use, including when such costs should be capitalized. We do not expect SOP 98-1, which is effective for us beginning January 1, 1999, to have a material effect on our financial condition or results of operations. 39 BUSINESS OUR COMPANY We are a leading provider of e-business software and solutions that enable small to medium-sized companies and large-scale enterprises to build, deploy and maintain web sites on the Internet and corporate intranets. Our e-business solutions address the growing challenges faced by businesses in capturing the explosive growth of the Internet as an online business medium by helping them build web sites that can publish content, conduct electronic commerce and run web applications. In 1996, we pioneered the web site building product category with the introduction of our award-winning flagship product, NetObjects Fusion. NetObjects Fusion is an easy-to-use desktop software application for building business web sites with an intuitive, visual interface that helps automate and integrates many site building functions. NetObjects Fusion's open architecture supports a wide range of platforms, including web browsers, databases and web servers. Since 1996, we have released enhanced versions of NetObjects Fusion, and we have introduced other products, including NetObjects Authoring Server, a scalable client-server application for large-scale enterprises and corporate departments, which facilitates controlled, collaborative building of intranet sites. We have also built popular online resources, including NetObjects.com, eFuse.com, launched in December 1998, eScriptZone.com and eSiteStore.com, that target communities of business users and provide sources of information, products and services for building web sites. In addition, in October 1998, we began offering professional services to our business customers to better serve their web site planning, building and maintenance needs. As part of our strategy to provide complete e-business solutions, we have formed technology relationships with other Internet companies. Many of these companies have built products with extensions for NetObjects Fusion and NetObjects Authoring Server, such as Allaire Cold Fusion, iCat Commerce Online, Lotus Domino, Beatnik audio software and IBM HotMedia. In addition, we have built extensions for the Microsoft ASP Site Server. These extensions provide us with broader platform connectivity and interoperability, and help position our products as the open platforms of choice for web site building. We offer integrated web services with key online service providers which host and promote e-business sites. We also have product bundling agreements with technology companies, such as IBM, Lotus and Novell, that help create greater brand recognition and awareness. In addition, our strategic relationship with IBM has furnished us with sales and marketing benefits, including access to IBM and Lotus sales and distribution channels, co-marketing and co-promotion benefits, and credibility in the marketplace. We have established a premier Internet brand and estimate that over 300,000 copies of NetObjects Fusion have been delivered to date, and more than 1,000,000 web pages or sites have been built using NetObjects Fusion. Our total revenues have grown from a base of $0 for fiscal year 1996 to approximately $7.6 million for fiscal year 1997 and approximately $15.3 million for fiscal year 1998. Traffic to our web sites has grown from approximately 800,000 visitors in 1996 to approximately 2.5 million visitors in 1998. New visitors provided approximately half of the traffic to our web sites in 1998. INDUSTRY OVERVIEW GROWTH OF THE WEB In fewer than five years, the web has emerged as a universal, rapidly growing online business medium enabling millions of users worldwide to share information, conduct electronic commerce and access business applications. According to International Data Corp., the number of web users worldwide will grow from an estimated 97.3 million at the end of 1998 to an estimated 320 million by the end of 2002. IDC estimates that worldwide Internet commerce will increase from an estimated $32 billion at the end of 1998 to an estimated $426 billion by the end of 2002. The explosive 40 growth of the web as an online business medium has been fueled by a number of factors, including an increased awareness by businesses of the revenue, cost and performance benefits from using the web to conduct business, and the large and growing number of web users. In addition, we believe the cycle of growth will accelerate as an increasing number of web users attracts more businesses to build or enhance their online web sites, which in turn attracts more users. IDC reported that the number of universal resource locators (URL's) will grow from 250.5 million in 1997 at a compound annual growth rate of approximately 60% to 640 million in 2000. According to IDC in the U.S., there are currently 6 million businesses with a web site, or about 21% of all businesses. By the year 2000, IDC expects over 12.3 million businesses to have a web site. As developing or enhancing a web presence becomes increasingly important to businesses, business web sites are becoming more complex. As the web's importance has grown, businesses have applied advances in Internet technology to convert business web sites from static "billboards" to sophisticated e-business web sites where businesses can interact and transact with customers, employees, suppliers and distributors. E-business sites may contain hundreds of pages, embed audio and video content and provide access to dynamic data ("e-publishing"), provide online commerce ("e-commerce") capabilities, and run web applications ("e-applications") such as interactive forms. E-business web sites are rapidly becoming a strategic necessity for many companies as they discover how conducting business online can enhance revenues, reduce costs and improve performance. GROWTH OF CORPORATE INTRANETS The growth of the web as a global communications medium is also driving large-scale corporate enterprises to enhance communication, collaboration and productivity by building corporate intranets consisting of numerous internal web sites. These intranets bring together corporate information and applications that facilitate communication and information sharing within an organization. Intranets can also streamline business processes such as customer service, sales and marketing and human resources, thereby reducing costs or improving performance through automation or self-service. According to a recent report, Zona Research estimates that two-thirds of intranet sites are being developed through team-based web site building, and corporate intranets represent the greatest business opportunity for providers of Internet and intranet-related software technologies and products. THE BUSINESS WEB SITE OPPORTUNITY Although it has become relatively easy to access the web, it can be difficult and expensive to build an effective web presence. The challenges of building a successful Internet or intranet web site require solutions that address planning, design, building and deployment, as well as web site promotion and maintenance after the web site is placed online. Companies are often also faced with a difficult "make or buy" decision, either to build a web site by using in-house resources or third-party service providers, or to develop a web site with available "off-the-shelf" applications. Key factors influencing their choice of solutions include ease and flexibility of building, construction time and cost and the cost and flexibility of later maintaining and enhancing their web site. In addition, the web utilizes multiple standards and platforms, including different web browsers, databases and web servers, which increase the complexity of building a site that operates in multiple environments. The first generation of web site building products was technically difficult to use and generally required the programming expertise of a limited number of highly skilled users such as HTML programmers or highly skilled designers. The second generation of products, and online services that facilitated web site building, targeted consumers with personal "home page" building tools and 41 casual desktop users with the ability to publish simple, static information. Although third-party service providers and in-house IS personnel can provide technical coding, these resources can be expensive and may not provide the flexibility required to develop and maintain dynamic, evolving web sites. In addition, third-party and in-house IS solutions often have excluded key business users from the web site building and maintenance process, rather than enabling a truly collaborative site building development process which includes content contributions from such users. According to the Yankee Group, the majority of small to medium-sized businesses have not strategically embraced the Internet. We believe those that have a web presence often need to enhance their web sites with new functionality such as e-commerce or e-applications, or otherwise improve their web site features and promotion. Businesses with more sophisticated web site requirements, but without access to highly skilled HTML programmers, require an easy-to-use, capability-rich, open and scalable solution. In-house IS personnel or third-party service providers can address technical design and coding requirements, but often at a higher cost than a packaged application and with less flexibility in building and maintaining their web sites. In addition, large-scale corporate enterprises have complex organizational structures with a variety of departments and need solutions that allow effective collaboration in developing, deploying and maintaining their intranet web sites. THE NETOBJECTS SOLUTION We provide e-business software and services that enable small to medium-sized businesses, as well as large-scale corporate enterprises, to build, deploy and maintain web sites on the Internet and corporate intranets. Our e-business solutions are specifically designed to help businesses build web sites that can publish content, conduct e-commerce and run e-applications on the web. Our solutions include products and online services for small and medium-sized businesses, and products and professional services for large-scale enterprises and departments, that use collaborating teams to build web sites. Small and medium-sized businesses require easy-to-use solutions that enable them to build or enhance their web sites quickly and efficiently, add key functions such as electronic commerce or web applications and work with a variety of industry standards and platforms. Our award-winning application, NetObjects Fusion is designed specifically to address these needs. NetObjects Fusion has an intuitive, visual interface that integrates and helps automate many site creation functions, including site layout and design, page building and content management. In addition, we, along with third parties, offer small and medium-sized businesses online solutions to help them register, host, build, maintain and promote their web sites. eFuse.com, our latest web site launched in December 1998, is the first online resource to provide integrated content, products and solutions for small and medium-sized businesses. eScriptZone.com is an online resource that provides articles, tutorials, software and an online community of forums and newsgroups for webmasters and corporate web applications builders. eSiteStore.com is our online retail store that provides a one-stop shopping destination for businesses to purchase our software, third-party software and components and also offers online services to customers. Large-scale corporate enterprises and departments require scalable, reliable and secure solutions that enable them to design, develop, deploy and manage their complex Internet and intranet web sites. They also need products that will operate across disparate corporate systems and platforms in order to leverage existing legacy systems, databases and content. In addition, teams that develop corporate intranet sites have requirements distinctly different from those of individuals who develop external Internet sites. They need a client-server-based web site building environment that supports creativity and collaboration, while allowing an administrator to assert control over the site building process, so that sites are built more efficiently and deliver corporate information more 42 effectively. Our award-winning client-server application, NetObjects Authoring Server, addresses these large-scale corporate needs. In addition, software components that provide integration with products from other technology companies, including Allaire, IBM, Lotus, Microsoft and Netscape, provide additional web applications, dynamic database publishing and electronic commerce capabilities for the NetObjects Authoring Server. In response to customer demand, in October 1998 we formed our Professional Services Group, which provides training, consulting and implementation services to large-scale enterprises to help design, build, deploy and maintain their web sites, and integrate their web sites with existing corporate applications. We provide these services through our own professional services organization and through relationships with third-party service providers. NETOBJECTS STRATEGY Our strategy is to establish ourselves as a complete e-business solutions provider by leveraging our position as a leading provider and brand of web site building software. As more companies seek solutions for capturing the explosive growth of the web as an online business medium, we believe our e-business software and resources serve as ideal starting points. NetObjects Fusion, NetObjects Authoring Server and our online resources are positioned as open platforms for aggregating broader solutions, including web site hosting by third parties, software and components, site content, e-commerce using third-party transactional software and other web applications and services. Key elements of our strategy include: BRAND RECOGNITION AND BROAD CUSTOMER BASE. As a pioneer of the web site building product category, and as the recipient of over 50 industry awards, we believe that we have established a premier Internet brand in the market for web site building products and services. We estimate that over 300,000 copies of NetObjects Fusion have been delivered to date, and more than 1,000,000 web pages or sites have been built using NetObjects Fusion. Our customer base and the active online communities of builders who use our products help sustain and promote our brand by participating in our web site forums and bulletin boards and by providing feedback on pre-release versions of our software. Over 60,000 links exist from other web sites to NetObjects.com, including the web sites of complementary products and services providers. In addition, over 500 businesses worldwide have deployed NetObjects Authoring Server, or its predecessor NetObjects TeamFusion. Our strong brand recognition and growing customer base are significant assets for attracting new customers, as well as for enhancing our ability to develop relationships with other leading software and service solution providers. STRATEGIC RELATIONSHIPS. We have entered into product bundling relationships with many companies, including Allaire, IBM, Lotus and Novell, to combine NetObjects Fusion and NetObjects Authoring Server with popular business software. We will continue to pursue such relationships in the future. We believe that our products have broad-based platform connectivity and interoperability, such as with web application servers from Allaire, Lotus, IBM, Microsoft and PeopleSoft, and e-commerce software from Breakthrough Software and iCat. Our strategic relationship with IBM has provided us with other sales and marketing benefits, including access to IBM and Lotus sales and distribution channels, co-marketing and co-promotion benefits and credibility in the marketplace. We also provide integrated web solutions with key online service providers such as CompuServe, SmartAge, T-Online and Zip2 for hosting and promoting e-business sites, which enhance our products and solutions, as well as complement our sales, marketing and distribution reach. These relationships also greatly enhance our brand recognition and may provide a short-term source of revenues. We intend to continue to leverage new and existing strategic relationships to enhance our product and service offerings and help expand our market presence. See "Risk Factors--Dependence on IBM and Potential Conflicts." 43 TECHNOLOGICAL LEADERSHIP AND OPEN ARCHITECTURE. NetObjects Fusion and NetObjects Authoring Server are based on proprietary open technology that provides an intuitive, visual, site-based building environment without coding that allows for significant productivity gains compared to page-based, coding-intensive products. In addition, NetObjects Authoring Server offers a collaborative web site building environment for teams of builders while providing centralized control over the site building effort. We believe our open technology architecture and products provide the optimal solutions for web site building, compared to highly technical HTML coding products or consumer-based web applications. In addition, our products support all major Internet protocols and are publishable on major web platforms, such as Netscape Navigator and Microsoft Internet Explorer, and our products were among the first to offer an open Java-based component architecture that allows other web site solutions providers to integrate their products with our products. By maintaining our technological advantages and our open architecture, we believe our web applications will continue to be recognized by other web site building solutions providers as open platforms for easy integration with their products and services. PLATFORMS OF CHOICE FOR E-BUSINESS SOLUTIONS AGGREGATION. As businesses face the increasingly complex and numerous challenges of establishing a successful e-business presence, we believe they will seek aggregated solutions to address their needs, from building and hosting their web sites to maintaining and promoting them. We believe that other web site solutions providers have compelling incentives to use NetObjects Fusion, NetObjects Authoring Server and our online resources as platforms for aggregating their e-business solutions, as well. Other solutions providers can benefit from our strong brand to reach a growing business customer base through our products, services and web sites. In turn, we can offer more complete solutions by leveraging our strategic relationships to include e-commerce services, database access, banner exchange, content, web applications and other online services from other web site solutions providers. PRODUCTS AND SERVICES We provide solutions specifically designed for two broad categories of customers: NetObjects Fusion and online services for businesses, and NetObjects Authoring Server and professional services for large-scale enterprises and departments. NETOBJECTS FUSION AND ONLINE SERVICES NetObjects Fusion is an easy-to-use desktop application designed specifically for small and medium-sized businesses and corporate intranet builders. NetObjects Fusion offers a range of publishing and electronic commerce capabilities to simplify web site building and enhance the productivity of both novice and experienced web site builders. Earlier versions of NetObjects Fusion are available in major languages including German, French, Spanish, Chinese and Japanese, and our relationship with IBM has allowed us to release upgraded versions of NetObjects in a total of nine languages in addition to English. 44
PRODUCT DESCRIPTION AWARDS NETOBJECTS FUSION NetObjects Fusion provides five views Four out of Four Stars, Internet World, (suggested selling price that map to the process of site building: February 1999 SITE VIEW lets the author visually plan Editor's Choice, CNET's Builder.com, $295) and organize the pages on the web site. September 1998 NetObjects Fusion automatically creates Five Stars, PC Computing, August 1998. [LOGO] and maintains the navigation buttons and Stellar Award, Windows Sources, May 1998 links based on how the author lays out WinList, Windows Magazine, March 1998-- the web site. November 1998. PAGE VIEW lets the author create pages Best of Internet Showcase "98, David visually. A wide range of content can be Coursey's Internet Showcase, January 1998 incorporated on the page, including text, Analyst's Choice, InfoWorld, 1997 graphics, rich media, applets and other components. STYLES VIEW lets the author create a consistent, attractive visual style for the site. Over 150 site styles are available, and authors can customize or create their own styles. ASSETS VIEW serves as a content manager to make it easy to find and replace assets throughout the site. PUBLISH VIEW lets the author publish all or portions of the site as standard HTML pages to the server of choice.
PRODUCT DESCRIPTION AWARDS NETOBJECTS NetObjects Fusion Enterprise Best Scripting Tool of 1998, ENTERPRISE EDITION Edition contains NetObjects CNET's Builder.com (suggested selling Fusion, NetObjects ScriptBuilder Editors Choice, PC Magazine, price $495) and NetObjects BeanBuilder April 1998 NETOBJECTS SCRIPTBUILDER is a [LOGO] JavaScript building environment for the web. [LOGO] NETOBJECTS BEANBUILDER allows intranet builders to quickly assemble and connect JavaBeans-TM- in a visual, point and click environment without programming.
We also offer small and medium-sized businesses online solutions, including content, products and services, to help them register, host through third parties, build, maintain and promote their web sites. eFuse.com, our latest web site launched in December 1998, is an online resource dedicated to business web site builders and features articles from the industry's experienced builders and authors on how to use NetObjects Fusion and other complementary products. eScriptZone.com (formerly "ScriptBuilder.com") is an online resource that provides articles, tutorials, software and an 45 online community of forums and newsgroups for webmasters and corporate web application builders. In November 1998, Web21.com's 100 Hot sites rated it as the 33rd most visited site for technology developers. eSiteStore.com is our online retail store that provides a one-stop shopping destination for businesses to purchase our software, third party software, components and merchandise, and also offers online services to customers. NETOBJECTS AUTHORING SERVER AND PROFESSIONAL SERVICES NetObjects Authoring Server is a scalable client-server application, with the same easy-to-use features and open architecture as NetObjects Fusion, and is targeted at large-scale enterprises and corporate departments developing web sites involving multiple builders and content contributors. We introduced NetObjects Authoring Server Suite 3.0 in September 1998 as a new product that replaced our original client-server application, NetObjects TeamFusion, introduced in December 1997. The family of NetObjects Authoring Server products now consists of the NetObjects Authoring Server Suite, NetObjects Authoring Server Connectors and NetObjects Authoring Server for IBM WebSphere, which may be used with the IBM WebSphere web application server. NetObjects Authoring Server Suite consists of four modules for creating a controlled and structured environment for teams of concurrent users to develop web sites: AUTHORING SERVER. Authoring Server is the server-side control center of NetObjects Authoring Server and contains an internal repository, built on an SQL database, which stores the information about assets, site pages, site structure, link information and user profiles for multiple web sites. It also controls the number of concurrent users that can access the system. Authoring Server works in conjunction with any web server. AUTHORING SERVER ADMINISTRATOR. Authoring Server Administrator is used to create sites and form teams, assign team members with editing and publishing privileges and monitor workflow. The product is designed to provide control of the web site building process, without imposing a specific workflow on team members. TEAMFUSION CLIENT. TeamFusion Client provides the "client"-side software of the client-server application and includes all of NetObjects Fusion's features. CONTENT CONTRIBUTOR CLIENT. Content Contributor Client enables any business user to submit content directly onto templates created on completed web sites or web sites under construction, regardless of their web authoring skills, and without compromising the web site's integrity. Users can add, modify and delete text easily and without considering web site design. NetObjects Authoring Server automatically formats the content contributed as a web page when the web site is published. In addition, NetObjects Authoring Server Connectors include NetObjects Authoring Server Connector for Microsoft FrontPage, which enables Microsoft FrontPage users to collaborate with team members using NetObjects Authoring Server. 46
PRODUCT DESCRIPTION AWARDS NETOBJECTS AUTHORING NetObjects Authoring Server Suite 1999 Crossroads A-List Award, SERVER SUITE consists of four modules: Open Systems Advisors, January (suggested selling NETOBJECTS AUTHORING SERVER is 1999 price for 2 user the "server"-side control center Four out of Four Stars, Internet system inclusive of and runs on a Windows NT server. World, September 1998 server and clients NETOBJECTS AUTHORING SERVER Industrial Design Excellence is $1,585; 20 user ADMINISTRATOR is used to create Award--Gold, Designers Society of is $10,475) sites and form teams, assign team America, May 1998 members with editing and (NetObjects Fusion and [LOGO] publishing privileges, and TeamFusion) monitor workflow. Win 100 List, Windows Magazine, NETOBJECTS TEAMFUSION CLIENT is May--July 1998 (TeamFusion) based on the award-winning NetObjects Fusion, and connects to NetObjects Authoring Server. Its site-oriented, visual approach, along with its check-in/check-out controls, allows a web team to work collaboratively and efficiently. NETOBJECTS CONTENT CONTRIBUTOR CLIENT is a browser-based Java application that lets departmental web contributors submit content directly to sites under development. NETOBJECTS AUTHORING NETOBJECTS AUTHORING SERVER SERVER CONNECTORS CONNECTOR FOR MICROSOFT FRONTPAGE [image] enables Microsoft FrontPage users to collaborate using NetObjects Authoring Server. NETOBJECTS AUTHORING NETOBJECTS AUTHORING SERVER FOR SERVER FOR IBM IBM WEBSPHERE is optimized for WEBSPHERE tight integration with the IBM [image] WebSphere Application Server through powerful Java servlets and special components.
We formed our Professional Services Group in October 1998 to provide training, consulting and implementation services to our customers deploying the NetObjects Authoring Server. We provide these services through our own professional services organization and, at present, primarily through relationships with third-party service providers. We believe that providing a high level of customer service and technical support is necessary to achieve rapid product implementation which, in turn, is essential to customer satisfaction and continued license sales and revenue growth. We also offer support and training services to our customers in addition to our Professional Services Group, including telephone and online support. Internationally, with our technical assistance, our distributors provide telephone support to their customers. 47 CUSTOMERS We market and sell our products to a wide range of customers located in the U.S. and in over 30 other countries worldwide. We believe that approximately 70% of our customers have been small and medium-sized businesses and approximately 30% have been large-scale enterprises, including Fortune 1,000 companies or departments within such enterprises. Approximately one-third of our small and medium-sized business customers are third-party service providers that build web sites for other companies. SMALL AND MEDIUM-SIZED BUSINESSES. Our products appeal to small and medium-sized businesses needing to build web sites that support rich content and e-commerce, with a minimum of resources and time, and with little design and HTML coding expertise. Some examples of small and medium-sized customers that have built e-commerce web sites with our products include Cellular Market (cellularmarket.com) and Christmas.com. Some examples of customers that have built e-publishing web sites with our products include Pangea Systems (pangeasystems.com), Northstar Nursery (northstarnursery.com), Raychem (raychem.com) and Realty.com. LARGE-SCALE ENTERPRISES. Our products appeal to a wide range of larger customers across multiple industry segments. The following is a list of certain of our large scale enterprise customers:
COMMUNICATIONS GOVERNMENT & EDUCATION HEALTHCARE AND MEDICAL Cellular One (Bay Area) U.S. Senate Blue Cross/Blue Shield Bell Atlantic Data Solutions Group State of Utah, Dept. of Community Dept. of Health & Human Services Nortel Networks & Bayer AG Economic Development University of North Carolina Kings County, California MANUFACTURING FINANCIAL TECHNOLOGY DuPont NationsBank Corporation VLSI Technology, Inc. The Boeing Company Credit Suisse First Boston Lockheed Martin DaimlerChrysler AG Goettinger Gruppe Siemens Microelectronics Shell Lubricants Travelers Life and Annuity Mitsubishi Electronics America
CUSTOMER SITES BUILT USING NETOBJECTS FUSION NetObjects Fusion is well-suited for a wide range of web site projects that require a rapid site building cycle, a combination of rich content and transaction processing capability, interactivity and personalization and deployment on a variety of web browsers from multiple server platforms. Some examples of sites that help demonstrate our product's robust site building capabilities include: CHRISTMAS.COM, the most popular Christmas site on the web and selected as the top Christmas site by Excite, receives over 10 million page views per season and provides families and children all over the world with rich content sources about Christmas. First unveiled in 1995, the site was rebuilt with NetObjects Fusion in 1997 and is enhanced and updated annually using our product, including recent enhancements to support e-commerce transactions. JUSTFORFEET.COM, the world's largest athletic shoe store, developed its web site and corporate intranet using NetObjects Authoring Server Suite. Recently, a complete web site redesign coincided with the launch of a national television campaign. The new site provides a variety of information from shoe longevity tips to store tours to help finding store locations. The state-of-the-art site also features e-commerce functionality, allowing customers to virtually browse the shelves, compare prices and purchase shoes online. The sites are maintained by a core web team of six people, each providing different areas of expertise. The corporate intranet site, with over 600 pages of information, continuously maintains up-to-the-minute information provided by over 20 content contributors throughout the company. 48 DAIMLERCHRYSLER AG sites built with our products range from departmental home pages, to newsletters, to sites that share information across the entire corporation. Many departments within DaimlerChrysler selected NetObjects Fusion because it provides an open and robust site building environment that integrates with existing desktop and backend software systems to create web sites that are easy for users to navigate and search. DaimlerChrysler estimates that over 40 Internet and intranet sites have been built using NetObjects Fusion within the company by departments including DaimlerChrysler's Fleet Operations, General Auditor's Office and Information Systems. SALES, MARKETING AND DISTRIBUTION We sell our products and services to our customers using a combination of indirect distribution channels, our direct enterprise sales force, our online distribution channel and strategic relationships, and we market our products and services using a broad range of activities to generate demand and build brand awareness. As of December 31, 1998, we had 63 employees, or approximately 41% of our work force, engaged in sales and marketing activities. INDIRECT DISTRIBUTION CHANNELS Our indirect distribution channels include domestic and international distributors, retail vendors, VARs and other technology companies with whom we have strategic relationships. We have 15 non-exclusive distributors worldwide including Ingram Micro, Tech Data and Douglas Stewart in North America; Softline, Internet 2000, Unipalm and Principal in Europe; and Mitsubishi in Japan. As of December 1998, we had over 1,500 corporate and catalog resellers, OEMs and VARs purchasing products through these distributors. DIRECT ENTERPRISE SALES FORCE Our direct enterprise sales force focuses on sales to larger corporate customers worldwide. The enterprise sales force is comprised of field representatives and inside sales representatives. The field representatives market and sell our products and services to corporate customers that the inside sales team has identified as sales prospects. The inside representatives develop and pursue leads generated from inquiries on our web sites, downloads of our trial products and other direct marketing efforts. Our sales force increased from 17 employees to 21 employees in fiscal year 1998, and during that period, revenues per salesperson increased while the number of transactions per salesperson decreased. ONLINE DISTRIBUTION CHANNEL Our web site eSiteStore.com allows users to download and purchase our products. In addition, several third-party electronic commerce and distribution sites, including buydirect.com, beyond.com and download.com, make our products available for sale by direct download or ESD (electronic software distribution). ESD provides us with a low-cost, globally accessible, 24-hour sales channel. STRATEGIC RELATIONSHIPS We have a number of significant ongoing strategic relationships with other technology companies pursuant to which our products are incorporated into, or bundled with, the third party's products. We believe that these strategic relationships significantly enhance our brand recognition and awareness of our products and services, and also provide a source of revenues. Such strategic relationships include: IBM/LOTUS. Lotus markets, bundles and sells a version of NetObjects Fusion with Lotus Designer for Domino, and IBM markets, bundles and sells NetObjects Fusion Enterprise Edition 49 (NetObjects Fusion, NetObjects ScriptBuilder and NetObjects BeanBuilder) with its WebSphere Studio product. In addition, our products are offered for sale through a variety of IBM and Lotus channels including "Passport Advantage," the worldwide direct purchasing option for Lotus and IBM branded software and the Lotus Business Partner program, which allows 18,000 program members access to our products at discounted prices globally. Our relationship with IBM and Lotus provides us with access to customers and marketing leverage generally beyond the reach of companies our size, including participation in advertising, direct marketing, tradeshows and seminars. See "Risk Factors--Dependence on IBM and Potential Conflicts" and "Certain Transactions." MITSUBISHI CORPORATION. Mitsubishi is our master distributor in Japan that markets and sells through a variety of Japanese companies. Mitsubishi is also an investor in our Company. See "Certain Transactions." NOVELL. Novell bundles a version of NetObjects Fusion with its NetWare for Small Business product offering on a worldwide basis. Novell also offers end-user training on NetObjects Fusion at over 100 Novell certified training centers worldwide. Novell is an investor in our Company. See "Certain Transactions." MARKETING ACTIVITIES Since our inception, we have invested a substantial percentage of our annual revenues in a broad range of marketing activities to generate demand, gain corporate brand identity, establish the site building product category and educate the market about the benefits of site building rather than page authoring. These activities have included advertising (both print and online), direct marketing (direct mail and e-mail), public relations, sponsoring seminars for potential customers, participating in trade shows and conferences and providing product information through our web sites. Our marketing programs are aimed at informing our customers of the capabilities and benefits of our products and services, increasing brand awareness, stimulating demand across all market segments and encouraging independent software developers to develop products and web applications that are compatible with our products and technology. We also entered into many co-marketing and distribution arrangements with well-known companies such as AT&T, Apple Computer, Inc., Compaq Computer, Inc., Microsoft, Netscape and PeopleSoft that have allowed us to identify our NetObjects Fusion brand with their brands. COMPETITION The market for software and services for the Internet and intranets is relatively new, constantly evolving and intensely competitive. We expect competition to intensify in the future. Many of our current and potential competitors have longer operating histories, greater name recognition and significantly greater financial, technical and marketing resources. Our principal competitors in the web site building software market segment include Microsoft, Adobe and Macromedia, Inc. Microsoft's FrontPage, a web site building software product, has a dominant market share. Microsoft has announced but not shipped FrontPage 2000, which may become one of the products in at least one version of Microsoft's Office product suite, which dominates the market for desktop business application software. We believe that NetObjects Fusion and NetObjects Authoring Server contain features that significantly differentiate them from the announced description of FrontPage 2000, but widespread distribution of Office with FrontPage 2000, and the vast number of computer users familiar with Microsoft desktop application software products, give Microsoft a substantial competitive advantage over us. In addition, Microsoft and other competitors who bundle their software products as a suite may offer their suites at prices that may force us to reduce prices for our products, which are not sold in comparable suites, to keep them competitive. In connection with its recent acquisition of GoLive, Inc., Adobe acquired a web site building software product for 50 Macintosh, which increases the competitiveness of the market for Macintosh web site building products. Our current Macintosh product, NetObjects Fusion 3.0, may become less competitive over time. Alternatives to using web site building software include using services from third-party web site builders, in-house resources or online web site building resources, such as GeoCities, some of which also provide web site hosting and other services. Competitive factors in the web site building products and services market include the manner in which the software is distributed with other products; quality and reliability; features for creating, editing and developing web sites; ease of use and interactive user features; scalability and cost per user; and compatibility with the user's existing computer systems. To expand our user base and further enhance the user experience, we must continue to innovate and improve the performance of our products. We anticipate that consolidation will continue in the web site building products industry and related industries such as computer software, media and communications. Consequently, our competitors may be acquired by, receive investments from or enter into other commercial relationships with larger, well-established and well-financed companies. There can be no assurance that we can establish or sustain a leadership position in this market segment. We believe that additional competitors may enter the market with competing products as the size and visibility of the market opportunity increases. Increased competition could result in additional pricing pressures, reduced margins or the failure of our products to achieve or maintain market acceptance, any of which could have a material adverse effect on our business, prospects, financial condition and results of operations. Many of our current and potential competitors such as Microsoft, Adobe and Macromedia have longer operating histories and substantially greater financial, technical, marketing and other resources than us and therefore may be able to respond more quickly to new or changing opportunities, technologies, standards or customer requirements. Many of these competitors also have broader and more established distribution channels that may be used to deliver competing products directly to customers through product bundling or other means. For example, Microsoft enjoys significant distribution advantages over us, including the vast number of computer users familiar with Microsoft desktop application software products. If our competitors bundle competing products with their products, the demand for our products might be substantially reduced and our ability to distribute our products successfully would be substantially diminished. Moreover, Microsoft's dominance in desktop business application software enables it to vary the pricing for its software sold as part of a suite. As a result of Microsoft's and other competitors' bundling arrangements, we may need to reduce our prices for our products to keep them competitive. New technologies and the enhancement of existing technologies will likely increase the competitive pressures. There can be no assurance that competing technologies developed by market participants or the emergence of new industry standards will not adversely affect our competitive position or render our products or technologies noncompetitive or obsolete. As a result of the foregoing and other factors, there can be no assurance that we will compete effectively with current or future competitors or that competitive pressures will not have a material adverse effect on our business, prospects, financial condition and results of operations. See "Risk Factors--Intense Competition from Microsoft and Other Established Software Vendors." TECHNOLOGY AND DEVELOPMENT We devote substantial resources to the development of innovative products for the market for web site building software and services. During the fiscal years ended September 30, 1997 and 1998, respectively, we invested approximately 111% and 67%, respectively, of our total revenues on research and development activities. NetObjects Fusion and NetObjects Authoring Server are among the earliest and most recognized entrants in the emerging market for web site building software. We 51 believe that we have been able to leverage our understanding of the market and technology opportunity as well as our staff and software development processes to build robust, open solutions for customers. We intend to continue to use these core strengths to introduce innovative products and product enhancements for building, deploying and maintaining business web sites. We intend to continue to devote substantial resources to research and development for at least the next several years. As of December 31, 1998, we had 50 employees, or approximately one-third of our workforce, engaged in research and development activities. We must hire additional skilled software engineers to further our research and development efforts. Our business, prospects, financial condition and results of operations could be adversely affected if we are not able to hire, train and retain an adequate number of engineers. OPEN AND SCALABLE ARCHITECTURE Our products are built upon a scalable and flexible object-oriented architecture called SOLO (Structure of Linked Objects). This architecture, which was created by Rae Technology, Inc. and transferred to us, has been instrumental in the rapid development of our products. See "Certain Transactions." One of the core benefits of the architecture is a clear separation of visual presentation from content, and the architecture is based on a strong navigational framework. Software web applications based upon this architecture provide certain benefits, such as data storage independence, Internet communication protocol independence, modularity, portability and extensibility. We intend to continue to invest in further development of this architecture to build and integrate new products and technologies that offer open integration, platform interoperability and controlled collaboration. OPEN INTEGRATION We specifically design our products to support key web client and web server software platforms, technologies and protocols, as well as key enterprise and client-server standards. NetObjects Fusion and NetObjects Authoring Server can be fully integrated with a broad range of Internet protocols and technologies, enabling web site builders to incorporate these technologies into virtually any business site. NetObjects Fusion offers site builders an open site building environment that provides superior flexibility and choice for easy page layout and allows site-builders to control and edit HTML code, add DHTML-based interactivity and animation, publish for different browsers and integrate sites with existing databases and e-commerce applications. These products provide further extensibility with other software applications; for example, NetObjects Fusion components, which are Java-encapsulated mini-applications that can be used to create or manipulate pages, extend the functionality of the page by embedding Java-based objects, and process the generated HTML for deployment. Our products also provide open editors support; for example, NetObjects Fusion allows users to launch any HTML editor to modify pieces of HTML embedded inside pages; and NetObjects Authoring Server provides an open site building platform and offers support for non-NetObjects clients, such as Microsoft FrontPage. PLATFORM INTEROPERABILITY Businesses utilize a variety of software and hardware platforms to meet their information technology needs. These platforms include different operating systems, different programming languages and different web-enabling technologies, such as web browsers. Our technology strategy includes the objective of platform interoperability; for example, NetObjects Fusion runs on Windows 95, Windows 98 and Windows NT, and an older version runs on Macintosh. NetObjects Fusion also is localized in a variety of languages, and is capable of publishing web sites for Internet Explorer or Netscape Navigator, and on different web servers. NetObjects Authoring Server currently runs only on Windows NT and also supports a variety of web browsers, databases and web servers. 52 CONTROLLED COLLABORATION Intranet web sites are evolving from simple publishing pages coordinated by a single webmaster to multi-contributor strategic business platforms that integrate business processes and deploy mission-critical applications. Enterprise groups that build these intranet web sites face the conflicting needs of maintaining control and encouraging collaboration. NetObjects Authoring Server provides the scalability and performance needed to support concurrent, collaborating users across an enterprise-wide deployment with several underlying technologies such as a Java-based content contributor, an integrated asset manager and remote systems administrator. In addition to our products, product enhancements and core proprietary technology, we have a highly-skilled engineering workforce that includes several seasoned software industry veterans. Our original key technologists are still employees of our Company, and they continue to play an integral role in defining and leading our technology vision and strategy. We intend to hire additional software engineers to further our research and development efforts. Our business, prospects, financial condition and results of operations could be adversely affected if we are unable to hire and retain the required number of skilled engineers. See "Risk Factors--Dependence on Key Personnel; Need for Additional Personnel." INTELLECTUAL PROPERTY Our success depends in part on our ability to protect our proprietary software and other intellectual property. To protect our proprietary rights, we rely generally on patent, copyright, trademark and trade secret laws, confidentiality agreements with employees and third parties, license agreements with consultants, vendors and customers and "shrinkwrap" license agreements. Despite such protections, a third party could, without authorization, copy or otherwise obtain and use our products, or develop similar products. There can be no assurance that our agreements will not be breached, that we will have adequate remedies for any such breach or that our trade secrets will not otherwise become known or independently developed by competitors. We currently have several pending patents relating to our product architecture and technology and have licensed two utility patents from Rae Technology. See "Certain Transactions--Transactions with Rae Technology and Studio Archetype." There can be no assurance that any pending or future patent application will be granted, that any existing or future patent will not be challenged, invalidated or circumvented or that the rights granted under any patent that has issued or may issue will provide competitive advantages to us. If a blocking patent has issued or issues in the future, we would need to obtain a license or design around the patent. Except for patents licensed from Rae Technology, which we have rights to acquire, there can be no assurance that we would be able to obtain such a license on acceptable terms, if at all, or to design around the patent. We pursue the registration of certain of our trademarks and service marks in the United States and in certain other countries, although we have not secured registration of all of our marks. Many of our current and potential competitors dedicate substantially greater resources to protection and enforcement of intellectual property rights. We are also aware of other companies that use "Fusion" in their marks alone or in combination with other words (such as Allaire's ColdFusion), and we do not expect to be able to prevent third party uses of the word "Fusion" for competing goods and services. We have agreed with Allaire that neither party will use the word "Fusion" to describe products in the absence of appropriate brand identification, such as "NetObjects Fusion." The laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States, and effective patent, copyright, trademark and trade secret protection may not be available in such jurisdictions. We license certain of our proprietary rights to third parties, and there can be no assurance that such licensees will abide by compliance and quality 53 control guidelines with respect to such proprietary rights. See "Risk Factors--Uncertain Protection of Intellectual Property; Risks Associated with Licensed Third-Party Technology." EMPLOYEES As of December 31, 1998, we had 153 full-time employees and 4 part-time employees. None of our employees is subject to a collective bargaining agreement, and we believe that our relations with our employees are good. We believe that our future success will depend in part on our continued ability to attract, integrate, retain and motivate highly qualified sales, technical, professional services and managerial personnel, and upon the continued service of our current personnel. We also use independent contractors to supplement our work force. None of our personnel is bound by an employment agreement that prevents such person from terminating his or her relationship at any time for any reason. Competition for qualified personnel is intense. There can be no assurance that we will be successful in attracting, integrating, retaining and motivating a sufficient number of qualified personnel to conduct our business in the future. FACILITIES Our executive offices are located in Redwood City, California, in an office building in which, as of December 31, 1998, we lease an aggregate of approximately 25,000 square feet. The lease agreement terminates on September 11, 2002. We also lease three serviced office suites in a facility in Windsor, United Kingdom under a lease that expires in February 1999. We expect to renew the lease through February 2000. LEGAL PROCEEDINGS From time to time, we expect to be subject to legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of third-party trademarks and other intellectual property rights by us and our licensees. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources. We are not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, prospects, financial condition or results of operations. 54 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Our directors and executive officers as of December 31, 1998 are as follows:
NAME AGE POSITION - ------------------------------------------ --- --------------------------------------------------------------- Samir Arora(1)............................ 33 Chairman of the Board, Chief Executive Officer and President Michael J. Shannahan...................... 50 Senior Vice President, Finance and Chief Financial Officer David Kleinberg........................... 40 Executive Vice President, Desktop Products and Online Services Morris Taradalsky......................... 52 Executive Vice President, Server Products and Professional Services Mark Patton............................... 40 Senior Vice President, Worldwide Sales and Corporate Marketing Clement Mok............................... 40 Chief Creative Architect Gagan (Sal) Arora......................... 25 Chief Technology Architect and Vice President, Engineering, Desktop Products and Online Services Robert G. Anderegg(2)..................... 49 Director Lee A. Dayton(1).......................... 56 Director John Sculley(1)(2)........................ 59 Director Christopher M. Stone(2)(3)................ 41 Director Michael D. Zisman......................... 49 Director
- ------------------------ (1) Member of the Compensation Committee. (2) Member of the Audit Committee. (3) Mr. Stone will become a director of our Company on the closing date of the offering. Set forth below is certain information regarding the business experience during the past five years for each of our officers and directors. SAMIR ARORA has served as our Chairman of the Board, Chief Executive Officer and President since our inception in November 1995. In 1992, Mr. Arora founded Rae Technology, a provider of software applications, and from 1992 through November 1995 served as its CEO. From 1986 to 1992, Mr. Arora served in several management roles in Apple Computer, Inc. Mr. Arora holds a diploma in sales and marketing from the London Business School and attended INSEAD, France and BITS, India. Samir Arora is the brother of Sal Arora, who is our Chief Technology Architect and Vice President, Engineering Desktop Products and Online Services. MICHAEL J. SHANNAHAN has served as our Senior Vice President, Finance and Chief Financial Officer since August 1997. From February 1995 to August 1997, Mr. Shannahan served as Vice President, Finance and Chief Financial Officer of Broderbund Software Inc. From 1980 to 1995, Mr. Shannahan was employed at KPMG LLP, where he served as a Partner from 1986 to 1995. Mr. Shannahan holds a B.S. in Business Administration from Rockhurst College and is a certified public accountant. DAVID KLEINBERG has served as our Executive Vice President, Desktop Products and Online Services since November 1995. In September 1992, Mr. Kleinberg co-founded Rae Technology with Samir Arora. Mr. Kleinberg served as Executive Vice President, Sales and Marketing of Rae Technology from September 1992 to November 1995. Mr. Kleinberg holds a B.A. in English from Georgetown University and an M.B.A. from Stanford University. 55 MORRIS TARADALSKY has served as our Executive Vice President, Server Products and Professional Services since April 1997. From April 1994 to April 1997, Mr. Taradalsky served as Chief Executive Officer of MicroNet Technology, Inc., a privately-held storage systems supplier. From December 1988 to April 1994, Mr. Taradalsky was employed at Apple Computer, Inc. where he was General Manager of the Apple Business Systems Division. Prior to joining Apple Computer, Mr. Taradalsky was employed by IBM for 18 years in a number of positions, including Vice President and General Manager, Santa Teresa Laboratory. Mr. Taradalsky graduated MAGNA CUM LAUDE from Pennsylvania State University with a B.S. in Mathematics. MARK PATTON has served as our Senior Vice President, Worldwide Sales and Corporate Marketing since December 1996. From February 1995 to November 1996, Mr. Patton was Vice President and General Manager of the Digital and Applied Imaging Division at Eastman Kodak, Inc. From February 1994 to February 1995, Mr. Patton was Vice President and General Manager, American Division at Logitech, Inc., a computer peripheral products manufacturer. From August 1985 to February 1994, Mr. Patton held various sales management positions at Apple Computer, Inc. Mr. Patton holds a B.A. in Speech Communication from the University of Washington. CLEMENT MOK has served as our Chief Creative Architect since September 1998. Prior to that, Mr. Mok was our Chief Creative Officer from our founding in November 1995. In 1988, Mr. Mok founded Studio Archetype, now a wholly-owned subsidiary of Sapient Corporation. From 1988 to 1998, Mr. Mok was Chairman and Chief Creative Officer of Studio Archetype. He is currently the Chief Creative Officer of Sapient Corporation. From 1993 to present, Mr. Mok also has been the Chief Executive Officer of CMCD, Inc., a royalty-free, media publishing company. Mr. Mok holds a B.F.A. from the Art Center College of Design. SAL ARORA has served as our Chief Technology Architect and Vice President, Engineering, Desktop Products and Online Services since November 1995. From September 1994 to November 1995, Mr. Arora was the lead engineer at Rae Technology. From June 1992 to September 1994, Mr. Arora was a software engineer at ACIUS Inc. Mr. Arora holds a B.S. in Computer Science from the University of California, Berkeley. Sal Arora is the brother of Samir Arora, who is our Chairman of the Board, Chief Executive Officer and President. ROBERT G. ANDEREGG has been a director of our corporation since April 11, 1997. Mr. Anderegg has served as Vice President and Assistant General Counsel at IBM since August 1998. He has been appointed to serve on our board of directors by IBM as one of its representatives. Mr. Anderegg has served as an Assistant General Counsel or Associate General Counsel at IBM since 1988. Mr. Anderegg holds a B.S. degree from Georgia Tech and received his J.D. from Harvard Law School. LEE A. DAYTON has been a director of our Company since April 11, 1997. Mr. Dayton is Vice President, Corporate Development and Real Estate at IBM. He has been appointed to serve on our board of directors by IBM as one of its representatives. Mr. Dayton has held various management positions at IBM since he joined in 1965 as a systems engineer. Mr. Dayton holds a B.S. in Engineering from Northwestern University. JOHN SCULLEY has been a director of our Company since December 20, 1996. Since April 1994, Mr. Sculley has been a partner of Sculley Brothers, an investment capital firm. Mr. Sculley also is a director of General Wireless, Inc., a wireless communications services provider, Talk City, Inc., an online chat community, and NFO Worldwide, Inc., a market research firm. From 1983 to 1993, Mr. Sculley served as Chief Executive Officer of Apple Computer, Inc. Mr. Sculley holds a B.A. in Architectural Design from Brown University, an M.B.A. from the Wharton School at the University of Pennsylvania and holds eight honorary doctorates from various schools. CHRISTOPHER M. STONE will become a director of our Company on the closing date of this offering. Since August 1997, Mr. Stone has been the Executive Vice President of Corporate Strategy and 56 Development at Novell, Inc. From September 1989 to August 1997, Mr. Stone was Chairman and Chief Executive Officer of the Object Management Group, the creators of an industry standard known as CORBA. Mr. Stone holds a B.S. in Computer Science from the University of New Hampshire. MICHAEL D. ZISMAN has been a director of our Company since April 11, 1997. Mr. Zisman is an Executive Vice President of Lotus, a position that he has held since October 1996. He has been appointed to serve on our board of directors by IBM as one of its representatives. From July 1994 to October 1996, he held other executive positions at Lotus. Mr. Zisman is also the Vice President of Strategy for the IBM Software Group. Mr. Zisman was the Chief Executive Officer of Soft-Switch, Inc., a software development company, from 1979 to July 1994. Mr. Zisman is a director of Strategic Weather Services, Inc., a privately-held company. Mr. Zisman holds a B.S. from Lehigh University, an M.S. from the University of Pennsylvania Moore School and a Ph.D. from The Wharton School at the University of Pennsylvania. NUMBER, TERM AND ELECTION OF DIRECTORS Effective upon the closing of this offering, our bylaws will be amended automatically to fix the number of directors at six until changed by approval of the stockholders or a majority of the directors. Each director is elected to serve until the next annual meeting of stockholders and until the election and qualification of his or her successor or his or her earlier resignation or removal. CONTRACTUAL ARRANGEMENTS We are party to a voting agreement with IBM that provides, effective upon the closing of this offering, that IBM will vote its shares of voting stock in a way that limits the number of IBM representatives on a six-member board of directors to three, notwithstanding IBM's legal right to elect the entire board for as long as IBM owns a majority of our voting stock. The agreement defines an IBM representative as an officer, director or other agent or employee of IBM, IBM's subsidiaries or any other entity controlled by IBM, other than our Company. The voting agreement also obligates us and IBM to maintain a board of directors consisting of six members unless the holders of a majority of outstanding voting stock, excluding IBM's shares, approve an amendment to our amended and restated bylaws or restated certificate of incorporation to change the size of the board. The voting agreement remains in effect until IBM holds less than 45% of our voting securities on a fully-diluted basis for a period of 180 consecutive days (taking into account warrants and convertible securities held by IBM as well as outstanding shares). DIRECTOR COMPENSATION Our directors do not receive cash compensation for their services as directors or members of committees of the board of directors. After the offering we will automatically grant options to purchase 20,000 shares of common stock to outside directors upon joining the board. The option exercise price will be equal to the fair market value of a share of common stock at the date of grant. The option term will be six years and the option will vest and become exercisable pro rata at the end of each month for 48 months while the option holder continues to serve as a director. BOARD COMMITTEES We have established an audit committee and a compensation committee. The audit committee consists of Messrs. Sculley, Anderegg and, after the offering, Mr. Stone. The functions of the audit committee are to make recommendations to the board of directors regarding the selection of independent auditors, review the results and scope of the audit and other services provided by our independent auditors and evaluate our internal controls. 57 The compensation committee consists of Messrs. Arora, Dayton and Sculley. The functions of the compensation committee are to review and approve the compensation and benefits for our executive officers, administer our stock option and stock purchase plans and make recommendations to the board of directors regarding such matters. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION As of the end of our last fiscal year, we did not have a compensation committee, and all decisions regarding compensation of our executive officers were made by the board of directors. During fiscal year 1998, Mr. Samir Arora participated in deliberations of the board of directors concerning executive officer compensation. No executive officer currently serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or the compensation committee, which was established during fiscal year 1999. EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation received by our Chief Executive Officer and by the other four most highly compensated executive officers during the fiscal year ended September 30, 1998 (the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ------------------------ NAME AND PRINCIPAL POSITION SALARY($)(1) BONUS($) - --------------------------------------------------------------------------------------- ------------ ---------- Samir Arora Chairman of the Board, Chief Executive Officer, President............................ $ 175,338 $ 47,434 Morris Taradalsky Executive Vice President, Server Products and Professional Services.................. 166,048 86,095(1) Mark Patton Senior Vice President, Worldwide Sales and Corporate Marketing....................... 150,000 35,555 David Kleinberg Executive Vice President, Desktop Products and Online Services....................... 145,600 24,856 Michael J. Shannahan Senior Vice President, Finance and Chief Financial Officer........................... 151,436 15,542
- ------------------------ (1) Includes $65,745 for relocation expenses. The following table sets forth information regarding option exercises, and the fiscal year-end values of stock options held, by each of the Named Executive Officers during the fiscal year ended September 30, 1998: 58 AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS OPTIONS AT AT SEPTEMBER 30, SEPTEMBER 30, 1998(#) 1998($) ------------------------ ---------------------- EXERCISABLE/ EXERCISABLE/ NAME UNEXERCISABLE UNEXERCISABLE(1) - ---------------------------------------------------------------- ------------------------ ---------------------- Samir Arora..................................................... 84,375/140,625 $ 374,625/$624,375 Morris Taradalsky............................................... 47,222/86,111 209,666/382,334 Mark Patton..................................................... 55,661/69,339 247,136/307,864 David Kleinberg................................................. 56,250/93,750 249,750/416,250 Michael J. Shannahan............................................ 29,340/78,993 130,270/350,730
- ------------------------ (1) The fair market value of the underlying securities at the close of business on September 30, 1998 was estimated to be approximately $4.44 per share, as determined by the board of directors. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS Our amended and restated certificate of incorporation, which takes effect only upon the closing of this offering, limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for any breach of their duty of loyalty to the corporation or its stockholders, acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, unlawful payments of dividends or unlawful stock repurchases or redemptions, or any transaction from which the director derived an improper personal benefit. Such limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. Our amended and restated bylaws, which take effect only upon the closing of this offering, provide that we will indemnify our directors and officers and may indemnify our employees and other agents to the fullest extent permitted by law. The amended and restated bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the amended and restated bylaws would permit indemnification. We have obtained officer and director liability insurance with respect to liabilities arising out of certain matters, including matters arising under the Securities Act. We have entered into agreements with our directors and executive officers that take effect only upon the closing of this offering and, among other things, will indemnify them for certain expenses (including attorneys' fees), judgments, fines and settlement amounts incurred by them in any action or proceeding, including any action by us or on our behalf, arising out of such person's services as a director or officer of NetObjects or any of our subsidiaries or any other company or enterprise to which the person provides services at our request. We are obligated to advance expenses incurred by the indemnified person prior to the conclusion of any such action or proceeding, in the absence of a determination, as provided in the agreement, that indemnification would not be permitted under applicable law. We believe that these provisions and agreements are necessary to attract and retain qualified directors and officers. These agreements also provide officers with the same limitation of liability for monetary damages that Delaware corporate law and our restated certificate of incorporation provide to directors. 59 BENEFIT PLANS 1997 STOCK OPTION PLAN The NetObjects 1997 Stock Option Plan, or the 1997 Plan, provides for the issuance of incentive stock options under the Internal Revenue Code of 1986 and nonqualified stock options to purchase common stock to employees, non-employee directors or consultants at prices not less than the fair market value at the date of grant. A total of 2,158,943 shares of common stock has been authorized for issuance under the 1997 Plan. The fair market value of the common stock is determined by the board of directors. Options currently outstanding generally vest 25% at the end of the first year and then monthly on a pro rata basis over the next three years. In connection with the IBM's acquisition of approximately 80% of our outstanding stock, the 1996 Stock Option Plan was cancelled and all options issued under that plan were reissued under the 1997 Plan. Under the 1996 Stock Option Plan, optionees had the right to exercise unvested options, subject to our Company's right to repurchase (at the original purchase price) unvested shares held at the time of termination of employment. That right was carried over to the 1997 Plan for optionees who held options under the 1996 Stock Option Plan that were reissued under the 1997 Plan, but does not apply to new options granted under the 1997 Plan since April 11, 1997. At December 31, 1998, 81,237 shares of common stock were subject to our right of repurchase, and 258,651 shares of common stock were available for future option grants, under the 1997 Plan. 1997 SPECIAL STOCK OPTION PLAN In March 1997, our board of directors adopted, and in April 1997, our stockholders approved, the 1997 Special Stock Option Plan. A total of 1,041,056 shares of common stock were authorized for issuance under the plan. On March 18, 1997, our board of directors authorized the grant of options for the purchase of all shares of common stock authorized for issuance under the plan to 35 key employees, including Messrs. Samir Arora and David Kleinberg, who received grants to purchase 225,000 shares and 150,000 shares, respectively. The options granted under the plan generally vest 25% at the end of the first year and then monthly on a pro rata basis over the next three years. Our board of directors does not intend to grant any more options under this stock option plan. 1999 EMPLOYEE STOCK PURCHASE PLAN Our 1999 Employee Stock Purchase Plan, or ESPP, which has been adopted by our board of directors and our stockholders, will take effect upon the closing of this offering. We have reserved 300,000 shares of common stock for issuance under the ESPP. The ESPP is intended to qualify for favorable tax treatment under Section 423 of the Internal Revenue Code. The ESPP will be implemented through a series of offering periods of six months' duration, with new offering periods commencing on January 1 and July 1 of each year. We expect the first such period after the offering to commence on July 1, 1999. The ESPP will be administered by the compensation committee of our board of directors. Each employee of ours or of any majority-owned subsidiary of ours who has been employed by us or such majority-owned subsidiary for at least 90 days and for more than 20 hours per week and more than five months per year will be eligible to participate in the ESPP. The ESPP permits an eligible employee to purchase common stock through payroll deductions, which may not exceed 10% of his or her compensation, at a price equal to 85% of the lesser of the fair market value of the common stock at the beginning of the offering period and the fair market value of the common stock at the end of the offering period. Employees may terminate their participation in the ESPP at any time during the offering period, but they may not change their level of participation in the ESPP at any time during the offering period. Participation in the ESPP terminates automatically on the participant's termination of employment with us. 60 401(K) PLAN We maintain a 401(k) plan, a defined contribution plan intended to qualify under Section 401 of the Internal Revenue Code, that covers all employees who satisfy certain eligibility requirements relating to minimum age, length of service and hours worked. Under the profit-sharing portion of the plan, we may make an annual contribution for the benefit of eligible employees in an amount determined by the board of directors. We have not made any such contributions to date and currently have no plans to do so. Under the 401(k) portion of the plan, eligible employees may make pretax elective contributions of up to 15% of their compensation, subject to maximum limits on contributions prescribed by law. 61 CERTAIN TRANSACTIONS SALES OF COMMON STOCK AND PREFERRED STOCK Since our inception in November 1995, we have issued, in private placement transactions, shares of common stock and preferred stock to directors, executive officers, 5% stockholders, and certain other purchasers included in the descriptions below, as follows: We issued 600,000, 400,000, 333,333 and 250,000 shares of common stock, respectively, to Samir Arora, David Kleinberg, Clement Mok and Sal Arora (the "Founders"), respectively, on December 21, 1995. The purchase price of the shares of common stock was $0.09 per share. The Founders issued three-year promissory notes as consideration for the issuance of the shares, in the aggregate principal amount of $142,500, which bear interest at a rate of 8.00% per annum and are secured by the shares. As of December 31, 1998, the aggregate remaining principal balance of such notes was $112,500 and the term of the notes was extended for one year. See "--Transactions with Rae Technology and Studio Archetype--Rae Technology, Inc.". We issued 166,666 and 1,666,666 shares of Series A preferred stock, respectively, to Studio Archetype (formerly "Clement Mok Designs") and Rae Technology, respectively, on December 21, 1995. The purchase price of the shares was $0.90 per share. All but 651,945 of the shares were exchanged for IBM common stock and were cancelled in connection with IBM's acquisition of approximately 80% of our stock in April 1997, and remained outstanding at December 31, 1998. See also "--Transactions with Rae Technology and Studio Archetype--Rae Technology, Inc." and "--Studio Archetype." We issued an aggregate of 2,083,333 shares of Series B preferred stock to Norwest Equity Partners V, 2,233,333 shares collectively to Venrock Associates, Venrock Associates II, L.P. (and one of their affiliates), and 150,000 shares of Series B preferred stock to John Sculley, on February 2, 1996. The purchase price of the shares was $1.20 per share. All of the shares were exchanged for IBM common stock and cancelled in connection with IBM's acquisition of approximately 80% of our stock in April 1997. In December 1996, we agreed to issue warrants for the purchase of 6,863,426 shares of Series C preferred stock to a group of institutional investors led by Perseus Capital, including Perseus U.S. Investors, L.L.C., Norwest Equity Partners V, Venrock Associates and John Sculley under the terms of a secured loan agreement that provided us with additional bank financing of approximately $1 million. We also received a total of $300,000 in loans from Norwest and Venrock. Pursuant to the exercise of the warrant, we issued an aggregate of 2,330,009 shares, 477,130 shares and 462,816 shares of Series C preferred stock, respectively, to Perseus, L.L.C. and Perseus U.S. Investors, L.L.C. collectively, Norwest Equity Partners V, and Venrock Associates, L.P. and Venrock Associates II, L.P. collectively, respectively, on various dates between December 1996 and March 1997. Three of our directors are members of Perseus. The purchase price of the shares was approximately $1.82 per share. All of the shares were exchanged for IBM common stock and cancelled in connection with IBM's acquisition of approximately 80% of our stock in April 1997. As of December 31, 1998, warrants to purchase a total of 2,250,500 shares of Series C preferred stock, at an exercise price of approximately $1.82 per share, were held by Perseus, Norwest, Venrock and Mr. Sculley. These warrants will automatically be surrendered on a "net exercise" basis upon the closing of this offering, if not exercised earlier. In connection with IBM's acquisition of approximately 80% of our stock on April 11, 1997, we issued a warrant to IBM to purchase up to 3,482,838 shares of Series E preferred stock at an exercise price of approximately $6.68 per share. In October and December 1998, we also issued warrants to purchase up to 1,661,348 shares and 135,906 shares of Series E-2 preferred stock, respectively, to IBM and Perseus Capital, L.L.C., respectively, at an exercise price of approximately 62 $6.68 per share. Each share of Series E-2 preferred stock will be automatically converted into one share of common stock upon the effectiveness of the offering, but is subject to adjustments in the conversion ratio that would be triggered by our failure to complete this or a similar offering or repay the convertible notes prior to certain dates, the earliest of which is April 8, 1999. In February 1999, IBM agreed to purchase up to $3.45 million of notes and additional warrants, at our option, up to the date of closing of the offering. The warrants represent the right to purchase 308,013 shares of Series E-2 preferred stock which would be exercisable on a net basis automatically at the closing of this offering. IBM has the right to require us to repay all indebtedness under the additional convertible notes in full upon the closing of the offering. IBM's warrant to purchase shares of Series E preferred stock expires on April 11, 2000. The Series E-2 preferred stock warrants are exercisable for five years after their issuance dates. On April 11, 1997, we issued 10,495,968 shares of Series E preferred stock to IBM at a purchase price of approximately $6.68 per share. On various dates between June 30, 1997 and March 31, 1998, we issued an aggregate of 299,457, 84,622, 17,891 and 4,596 shares of Series E preferred stock, respectively, at a purchase price of approximately $6.68 per share, to Samir Arora, David Kleinberg, Clement Mok and Sal Arora, respectively. On March 14, 1997, we issued warrants to purchase 274,604, 105,511, 73,190, 109,783, 188,636 and 13,581 shares of Series F preferred stock (originally classified as Series D preferred stock), respectively, at a purchase price of $10.80 per share, to Perseus U.S. Investors, Rae Technology, LLC, Venrock Associates, L.P., Venrock Associates II, L.P., Norwest Equity Partners V and John Sculley, respectively. On December 23, 1997, we issued a warrant to purchase 83,333 shares of Series F preferred stock, at a purchase price of $10.80 per share, to IBM Credit Corp. These warrants are exercisable for three years from the date of issuance. The holders of the warrants may surrender them on a "net exercise" basis on or after the closing of this offering and prior to the expiration date. Novell purchased 333,333 shares of our Series F-2 preferred stock for $9.00 per share, pursuant to a stock purchase agreement dated October 16, 1998. Under the stock purchase agreement, Novell has "observer rights" at meetings of our board of directors so long as Novell remains the beneficial owner of not less than 1% (fully-diluted) of our stock. In addition, Christopher M. Stone, an Executive Vice President of Novell, is one of our directors. Pursuant to the stock purchase agreement, Novell also acquired a warrant for the purchase of up to 16,666 shares of Series F-2 preferred stock at an exercise price $9.00 per share. The warrant may be exercised between January 1, 2001 and December 31, 2003, but only if we have not consummated an initial public offering of our securities resulting in aggregate cash proceeds of at least $30 million by December 31, 2000. MC Silicon Valley, Inc., a subsidiary of Mitsubishi, acquired 55,555 shares of our Company's Series F-2 preferred stock at a price per share of $9.00, under the terms of a stock purchase agreement dated October 28, 1998. Mitsubishi is also our master distributor in Japan. TRANSACTIONS WITH RAE TECHNOLOGY AND STUDIO ARCHETYPE RAE TECHNOLOGY, INC. In connection with our formation, Rae Technology and we entered into a technology transfer agreement dated December 21, 1995 pursuant to which Rae Technology granted us, among other things, an exclusive, perpetual, transferable, worldwide and royalty-free license, with a right of sublicense, to use certain technologies referred to as "SOLO" for all commercial applications on commercial online networks, and all rights to the trademark "NetObjects." In exchange for our original license and other intangible property we issued 1,666,666 shares of Series A preferred stock to Rae Technology. In connection with our formation, we also purchased certain assets and equipment, and assumed certain lease obligations, of Rae Technology and subleased 90% of Rae Technology's office premises. Samir Arora, one of our founders, our Chairman, 63 Chief Executive Officer and President, is the President and Chief Executive Officer and a director of Rae Technology, and Mr. Arora, David Kleinberg, our Executive Vice President, Desktop Products and Online Services, Morris Taradalsky, our Executive Vice President, Server Products and Professional Services, and Sal Arora, Vice President, Engineering, Desktop Products and Online Services, collectively own approximately 90% of the outstanding equity interests of Rae Technology. Messrs. Arora, Kleinberg and Arora also acquired shares of common stock in connection with our formation. See "--Sales of Common Stock and Preferred Stock." In March 1997, in connection with IBM's April 1997 acquisition of approximately 80% of our stock, Rae Technology and we amended the technology transfer agreement to expand our rights to SOLO and the "NetObjects" trademark as they existed at the time and to limit Rae Technology's rights to SOLO and our modifications to it from February 2, 1996 to December 31, 1998. As a result, Rae Technology now has a non-transferable, perpetual, royalty-free non-exclusive license to create and sell single user software programs primarily intended to be used by individuals to manage personal data such as personal contacts, events, schedules, tasks, projects, notes, pictures, lists of files and other personal information. On April 10, 1997, Rae Technology and we entered into a patent transfer and license agreement under which we assigned all of our rights to four U.S. patent applications and related rights and inventions and reserved for ourselves a non-exclusive, perpetual, royalty-free, worldwide, irrevocable license to all of the transferred rights and inventions, including any patents that issue on them. Two patents have issued to date. The patent agreement was entered into in connection with Rae Technology's amendment of the technology transfer agreement in March 1997. Under the patent agreement we are entitled to receive 85% of all license revenues earned by Rae Technology and its affiliates from the transferred rights. We are obligated to reimburse Rae Technology for all patent prosecution expenses and fees that are not offset by Rae Technology's share of the licensing revenues. To date, Rae Technology has not earned any licensing revenues and we have reimbursed Rae Technology a total of approximately $ . We have the right to reacquire all of the transferred rights, including issued patents, from Rae Technology under a number of circumstances, including on April 10, 1999 and April 10, 2000 upon payment of a $5,000 transfer fee to Rae Technology, unless we otherwise determine not to reacquire such rights at that time. We also may reacquire the transferred rights and any patents upon the occurrence of events of default or Rae Technology's failure to meet certain licensing revenue thresholds once it begins earning license fees. STUDIO ARCHETYPE. In connection with our formation, Studio Archetype and we entered into a technology license agreement dated December 21, 1995, pursuant to which Studio Archetype granted to us, among other things, a non-exclusive, perpetual, transferable, worldwide and royalty-free license, with a right of sublicense, to use certain intellectual property rights and know-how referred to as the iD System. In exchange for that license agreement, we issued 1,666,666 shares of Series A preferred stock to Studio Archetype, valued at that time at approximately $150,000. IBM RELATIONSHIP Upon the effectiveness of the merger that resulted in IBM's acquisition of approximately 80% of our stock, Messrs. Dayton, Zisman and Anderegg became directors of our Company. After the offering, IBM will beneficially own approximately % of our common stock and will continue to exercise significant influence over the election of directors and other corporate matters and over other matters submitted to a vote of our stockholders. We and IBM have entered into numerous transactions and arrangements including the following: MERGER AGREEMENT. IBM acquired its controlling interest in us on April 11, 1997 pursuant to an agreement and plan of merger dated March 18, 1997 under which IBM acquired 10,495,968 shares 64 of Series E preferred stock for approximately $6.68 per share, representing at the time approximately 80% of our voting securities. Pursuant to the merger agreement, each preferred stockholder agreed, severally and not jointly, to indemnify IBM and its affiliates against any losses arising from any inaccuracy in, or any breach of, certain representations and warranties made by us in the merger agreement and any related documents. The obligations of any preferred stockholder to indemnify IBM and its affiliates were to be satisfied only from such preferred stockholder's pro rata portion of the securities and other funds held in escrow in accordance with an escrow agreement. Rae Technology agreed to indemnify IBM and its affiliates, to the extent of Rae Technology's pro rata portion, with respect to any inaccuracy in, or breach of, certain representations and warranties pertaining to intellectual property transferred by Rae Technology to us at the time of our formation. The preferred stockholders deposited all outstanding shares of, and warrants to purchase shares of, Series A preferred stock, Series C preferred stock and Series F preferred stock held by them and outstanding immediately after the effective time of the merger, and 10% of the IBM common stock issued to them under the merger agreement into an escrow to secure the payment of the indemnification obligations described above. The shares of IBM common stock held in escrow were released without claims or offset in April 1998. The remaining escrowed securities will be released to the preferred stockholders upon the closing of this offering, or April 11, 1999, if earlier. In connection with the merger agreement, IBM also paid $250,000 for a warrant to acquire 3,482,838 more shares of Series E preferred stock at an exercise price of approximately $6.68 per share. During the same time period, the parties also entered into a number of other agreements, including a stockholders agreement, a patent license agreement and a software license agreement, each of which is discussed below, and a registration rights agreement. See "Shares Eligible for Future Sale--Registration Rights." STOCKHOLDERS AGREEMENT. On March 18, 1997, NetObjects, IBM and certain of our stockholders at that time executed a stockholders agreement that, among other things, provided for "freedom of action" for IBM and its affiliates to compete with us without liability for breach of any fiduciary duty or for usurping any "corporate opportunity." Such protections extended to IBM's representatives on the board of directors. The stockholders agreement required approval by our board of directors prior to our taking a number of actions, and these restrictions were incorporated into Section 3.14 of our amended and restated bylaws. The stockholders agreement was terminated in connection with the offering, but the "freedom of action" provisions are contained in our restated certificate of incorporation. See "Risk Factors--Dependence on IBM and Potential Conflicts." PATENT LICENSE AGREEMENT. On April 10, 1997, we and IBM executed a patent license agreement that grants IBM a nonexclusive, royalty-free, perpetual license to our patents as they are issued. SOFTWARE LICENSE AGREEMENT. On March 18, 1997, we and IBM executed a 10-year software license agreement which, as amended, provides for payment of royalties by IBM to us in connection with sales of product bundles that include certain of our products and for payment to us for services performed in connection with the IBM WebSphere project. Between March 18, 1997 and December 31, 1997, IBM made nonrefundable prepayments to us totaling $10.5 million, which were recorded as deferred revenues. As a result, any payments under the agreement, which include services, royalty and internal license fee payment components, are credited against the prepaid amount. This license agreement has been amended a number of times, and licenses IBM to use certain of our products in IBM's internal operations, for which we received a license payment. Under the software license agreement we are obligated to place all of our source code into an escrow. IBM may obtain access to the source code upon certain events of default related to our failure to provide required maintenance and support or our bankruptcy or similar event of financial reorganization. IBM may use the source code that it obtains to create derivative works, which it will 65 own subject to our rights in the underlying software. See "Risk Factors--Dependence on IBM and Potential Conflicts--Dependence to Date on IBM for Financing and Significant Revenues," "Business--Sales, Marketing and Distribution" and note 3 to notes to consolidated financial statements. LOAN AND SECURITY AGREEMENT. On December 23, 1997, we and IBM Credit Corp. executed a revolving loan and security agreement, as amended, against which we have drawn approximately $19 million in total principal amount and issued convertible revolving credit notes to IBM Credit Corp. for a corresponding amount. The revolving notes bear interest at LIBOR plus 1.5%. In the event of our default under the revolving notes, IBM Credit Corp. has the right to convert the unpaid balance into shares of common stock at the lower of approximately $6.68 per share and a price determined by independent appraisal. To secure our obligations under the loan agreement, we granted a recorded first priority security interest in all of our assets, including intangible assets, to IBM Credit Corp. IBM has guaranteed our obligations under the revolving notes. We would not have been able to obtain a $19 million loan from an independent third party without the guarantee from IBM. IBM Credit Corp. We were not in compliance with a financial convenant in the loan agreement concerning the amount of our operating losses as of December 31, 1998, but on February 3, 1999, IBM Credit Corp. waived our compliance through December 31, 1998 and agreed to take no action with respect to our noncompliance through April 30, 1999. See "Risk Factors--Dependence on IBM and Potential Conflicts--Dependence to Date on IBM for Financing and Significant Revenues" and note 3 to notes to consolidated financial statements. NOTE AND WARRANT PURCHASE AGREEMENT. We and IBM are parties to a note and warrant purchase agreement dated October 8, 1998, pursuant to which we have issued the convertible notes in the aggregate principal amount of approximately $10.1 million and $825,000, respectively, to IBM and Perseus Capital, L.L.C., an affiliate of Perseus U.S. Investors L.L.C. Two of our directors are minor investors in Perseus and one of our directors is an adviser to Perseus. The principal and interest due under the convertible notes will be converted into shares of common stock upon closing of this offering. The convertible notes are secured by a security interest in all of our assets and properties that is second in priority to the security interest we granted to IBM Credit Corp. In February 1999, we and IBM amended the note and warrant purchase agreement to permit us to sell up to $3.45 million of notes and additional warrants to IBM. These notes will be payable in full upon the closing of this offering. VOTING AGREEMENT. In January 1999, we entered into the voting agreement with IBM. See "Management--Contractual Arrangements." STRATEGIC RELATIONSHIPS. We have a number of relationships with IBM and its subsidiary, Lotus, pursuant to which some of our products are offered for sale through a variety of IBM and Lotus channels. During fiscal year 1998, approximately 36% of our total revenues were derived from IBM. As long as we remain a subsidiary of IBM we may receive greater access to customers and marketing activities, including advertising, direct marketing, tradeshows and seminars, and advertising media rates that are significantly lower than those generally available to a company of our size in our industry. See "Risk Factors--Dependence on IBM and Potential Conflicts" and "Business-- NetObjects Strategy." OUTSIDE DIRECTOR OPTION GRANTS AND EXPENSES Effective on the closing of the offering, we will grant stock options to Messrs. Sculley and Stone that will entitle each of them to purchase up to 20,000 shares of common stock at an exercise price equal to the public offering price, vesting over four years. We also have granted an option to Mr. Sculley to purchase up to 50,000 shares of common stock at an exercise price of $7.50, vesting over four years, and will reimburse him for certain expenses incurred in connection with his attendance at board meetings. 66 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the common stock as of December 31, 1998, assuming conversion of all shares of preferred stock into common stock, and as adjusted to reflect the sale of shares of common stock in the offering for (i) each person known to us to own beneficially more than 5% of the common stock, (ii) each of our directors, (iii) each of the Named Executive Officers and (iv) all executive officers and directors as a group:
COMMON STOCK ---------------------------------------- NUMBER OF PERCENT OWNERSHIP SHARES ------------------------ BENEFICIALLY BEFORE AFTER NAME OWNED (1) OFFERING OFFERING - ---------------------------------------------------------- -------------- ----------- ----------- International Business Machines Corporation (2)........... 15,723,485 81.0% % New Orchard Road Armonk, NY 10504 Samir Arora (3)........................................... 1,705,456 11.9 c/o NetObjects, Inc. 301 Galveston Drive Redwood City, CA 94062 Perseus U.S. Investors L.L.C.(4).......................... 1,272,103 8.3 The Army and Navy Club Building 16271 I Street, N.W., Suite 610 Washington, D.C. 20006 David Kleinberg (5)....................................... 764,775 5.4 c/o NetObjects, Inc. 301 Galveston Drive Redwood City, CA 94062 Norwest Equity Partners V................................. 780,489 5.3 245 Lytton Avenue, Suite 250 Palo Alto, CA 94301 Venrock Associates, L.P. (6).............................. 757,071 5.1 30 Rockefeller Plaza, Room 5508 New York, NY 10112 Rae Technology, LLC (7)................................... 698,187 5.0 Rae Technology, LLC II 1072 De Anza Blvd., Suite A107 San Jose, CA 95129 Morris Taradalsky (8)..................................... 84,692 * Mark Patton (9)........................................... 68,682 * John Sculley (10)......................................... 56,192 * Michael J. Shannahan (11)................................. 40,625 * Robert G. Anderegg (12)................................... 0 * Lee A. Dayton (12)........................................ 0 * Michael D. Zisman (12).................................... 0 * All directors and executive officers as a group (12 persons) (13)............................................. 3,247,705 22.1% %
- ------------------------ * Less than 1%. (1) Beneficial ownership is determined in accordance with rules of the Commission and includes shares over which the beneficial owner exercises voting or investment power. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days of December 10, 1998 are deemed outstanding for the purpose of computing the percentage 67 ownership of the person holding the options or warrants, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Except as otherwise indicated, and subject to community property laws where applicable, we believe, based on information provided by such persons, that the persons named in the table above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. (2) Includes 3,717,506 shares of common stock issuable on exercise of outstanding warrants to purchase convertible preferred stock and 1,510,011 shares of common stock issuable on conversion of outstanding convertible notes. (3) Includes (i) 107,812 shares of common stock issuable on exercise of outstanding options and 299,457 shares owned by Information Capital LLC, wholly owned by Mr. Arora and (ii) 592,677 shares of common stock and 105,510 shares of common stock issuable on exercise of outstanding warrants to purchase convertible preferred stock owned by Rae Technology because he is its President and owns a majority of its equity interests. Mr. Arora disclaims beneficial ownership of the Rae Technology shares except to the extent of his pecuniary interest therein. Sal Arora is the brother of Samir Arora. (4) Includes (i) 1,136,198 and 12,379 shares of common stock issuable on exercise of outstanding warrants for purchase of convertible preferred stock by Perseus U.S. Investors L.L.C. and Perseus Capital L.L.C., respectively, and (ii) 123,526 shares of common stock issuable on conversion of outstanding convertible notes. Three of our directors, Messrs. Sculley, Zisman and Arora, are members of Perseus U.S. Investors L.L.C. and Perseus Capital L.L.C., and disclaim beneficial ownership of all common stock held by such entities except to the extent of their respective pecuniary interests therein. (5) Includes (i) 71,875 shares of common stock issuable on exercise of outstanding options and (ii) 176,909 shares of common stock and 31,370 shares of common stock issuable on exercise of outstanding warrants to purchase convertible preferred stock, which is Mr. Kleinberg's pro rata share of securities held by Rae Technology. (6) Includes 323,592 and 433,479 shares of common stock issuable on exercise of outstanding warrants for purchase of convertible preferred stock owned by Venrock Associates L.P. and Venrock Associates II, L.P., respectively. (7) Includes 105,510 shares of common stock issuable on exercise of outstanding warrants for purchase of convertible preferred stock. Five of our officers are members of Rae Technology. (8) Includes (i) 61,111 shares of common stock issuable on exercise of outstanding options and (ii) 20,018 shares of common stock and 3,563 shares of common stock issuable on exercise of outstanding warrants to purchase convertible preferred stock, which is Mr. Taradalsky's pro rata share of securities held by Rae Technology. (9) Includes 68,682 shares of common stock issuable on exercise of outstanding options. (10) Includes 56,192 shares of common stock issuable on exercise of outstanding warrants owned for purchase of convertible preferred stock. (11) Includes 40,625 shares of common stock issuable on exercise of outstanding options. (12) Messrs. Anderegg, Dayton and Zisman are IBM's representatives on the board of directors. (13) Includes an aggregate of 515,562 shares and 172,253 shares, respectively, of common stock issuable on exercise of outstanding options and warrants for purchase of convertible preferred stock, including securities held by Rae Technology and Studio Archetype, which entities are owned or controlled by officers of NetObjects. 68 DESCRIPTION OF CAPITAL STOCK The following description of our capital stock and certain provisions of our restated certificate of incorporation and amended and restated bylaws is a summary and is qualified by reference to our restated certificate of incorporation and the amended and restated bylaws. The descriptions of the common stock and preferred stock reflect changes to our capital structure that will occur on effectiveness of the offering in accordance with the terms of the restated certificate of incorporation. The authorized capital stock of our Company consists of 33,333,333 shares of common stock, par value $0.01 per share, and 22,816,300 shares of preferred stock, par value $0.01 per share. COMMON STOCK As of December 31, 1998, 2,088,561 shares of common stock were outstanding and held of record by 89 stockholders, assuming no exercise after December 31, 1998 of outstanding options or warrants. Each holder of common stock is entitled to one vote per share. Subject to the rights of the holders of any preferred stock that may be outstanding, holders of common stock on the applicable record date are entitled to receive such dividends as may be declared by our board of directors out of funds legally available therefor and, in the event of liquidation, to share pro rata in any distribution of our assets after payment or providing for the payment of liabilities and the liquidation preference of any outstanding preferred stock. Holders of common stock have no cumulative voting rights or preemptive rights to purchase or subscribe for any shares of our common stock or other securities. All the outstanding shares of common stock are fully paid and nonassessable. As of December 31, 1998, 2,629,575 shares of common stock were issuable upon exercise of outstanding options at a weighted average exercise price of $2.38 per share. PREFERRED STOCK Our board of directors has the authority, subject to any limitations prescribed by Delaware law, to issue shares of preferred stock in one or more series and to fix and determine the relative rights and preferences of the shares constituting any series to be established without any further vote or action by the stockholders. Any shares of preferred stock so issued may have priority over the common stock with respect to dividend, liquidation and other rights. On closing of the offering, no shares of preferred stock will be outstanding. We have no current intention to issue any shares of preferred stock. WARRANTS TO PURCHASE PREFERRED STOCK As of December 31, 1998, we had outstanding warrants to purchase 2,250,500 shares of Series C preferred stock at an exercise price of approximately $1.82 per share, warrants to purchase 3,482,838 shares of Series E preferred stock at an exercise price of approximately $6.68 per share, warrants to purchase 163,715 shares of Series E-2 preferred stock at an exercise price of approximately $6.68 per share, warrants to purchase 16,666 shares of Series F-2 preferred stock at an exercise price of approximately $9.00 per share and warrants to purchase 916,666 shares of Series F preferred stock at an exercise price of approximately $10.80 per share. The warrants to purchase shares of Series C preferred stock will terminate on closing of the offering. The warrants to purchase shares of Series E preferred stock, Series E-2 preferred stock and Series F preferred stock expire at the end of their respective exercise periods, and, following the offering, will be exercisable for an equivalent number of shares of common stock. See "Certain Transactions--Sales of Common Stock and Preferred Stock." 69 CERTAIN VOTING AND OTHER MATTERS The Board 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 acquisitions and other corporate purposes, could, under certain circumstances, have the effect of delaying, deferring or preventing a change of control of our Company. RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BYLAWS The restated certificate of incorporation contains certain provisions relating to the rights and powers of IBM that could have the effect of delaying, deferring or preventing a change in control of our Company. See "Risk Factors--Dependence on IBM and Potential Conflicts." Special meetings of the stockholders may be called only by the board of directors, the Chairman of the board of directors, the Chief Executive Officer or any holder of at least 25% of our outstanding common stock. The amended and restated bylaws provide that stockholders seeking to bring business before, or to nominate directors at, an annual meeting of stockholders must provide timely notice thereof in writing. To be timely, a stockholder's notice must be received by our Secretary not less than 120 calendar days nor more than 150 calendar days before the date of our proxy statement sent to stockholders for the prior year's annual meeting. The amended and restated bylaws also contain notice provisions in the event that no annual meeting was held in the previous year, or if the date of the applicable annual meeting has been changed by more than 30 days. The amended and restated bylaws also contain specific requirements for the form of a stockholder's notice. These provisions may preclude or deter some stockholders from bringing matters before the stockholders or from making nominations of directors, and may have the effect of delaying, deferring or preventing a change in control of our company. CONTRACTUAL AGREEMENTS Under the voting agreement, IBM has agreed, under certain circumstances, that it shall not be permitted to elect more than three of the six directors, notwithstanding its position as the majority stockholder of our Company. See "Management--Contractual Arrangements." WAIVER OF DELAWARE ANTITAKEOVER STATUTE Section 203 of the DGCL generally prohibits a publicly-held Delaware corporation from engaging in a "business combination" transaction with any "Interested Stockholder" for a period of three years after the date of the transaction in which the person became an "Interested Stockholder," unless the business combination is approved in a prescribed manner. For purposes of Section 203, a "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the Interested Stockholder, and an "Interested Stockholder" is a person who, together with affiliation and association, owns (or within three years, did own) 15% or more of a corporation's voting stock. The statute could prohibit or delay, defer or prevent a "change in control" with respect to our Company. However, we have waived the provisions of Section 203 by an amendment to our restated certificate of incorporation. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is Boston EquiServe. 70 SHARES ELIGIBLE FOR FUTURE SALE If our stockholders sell substantial amounts of our stock (including shares issued upon the exercise of outstanding options and warrants) in the public market following the offering, then the market price of our stock could fall. After the offering, shares of our stock will be outstanding, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options or warrants. Of those shares, the shares sold in the offering will be freely tradable except for any shares purchased by our "affiliates," as defined in Rule 144 under the Securities Act. The remaining restricted shares are "restricted securities," as that term is defined in Rule 144, and may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or Rule 701, which rules are summarized below. All of our officers, directors and stockholders have signed lock-up agreements pursuant to which they have agreed not to sell any shares of common stock, or any securities convertible into or exercisable or exchangeable for common stock, for 180 days after the offering without the prior written consent of BT Alex. Brown. BT Alex. Brown may, in its sole discretion, release all or any portion of the shares subject to such lock up agreements. Following expiration of the lock-up agreements, of the restricted shares will be eligible for immediate public sale under Rule 144(k), of the restricted shares will be eligible for immediate public sale under Rule 701 and the remaining restricted shares will be eligible for public sale subject to compliance with the holding period, volume and manner of sale restrictions of Rule 144, unless they are previously registered under the Securities Act. Following the offering, we intend to file a registration statement under the Securities Act covering shares of common stock reserved for issuance under the 1997 Plan, the Special Plan and the ESPP. Upon expiration of the lock-up agreements, at least shares of common stock will be subject to vested options (based on options outstanding as of December 31, 1998). Such registration statement is expected to be filed and become effective prior to expiration of the lock up agreements; accordingly, shares registered under such registration statement will, subject to Rule 144 volume limitations applicable to "affiliates," be available for sale in the open market immediately after the lock up agreements expire. In addition, shares of common stock issuable upon exercise of warrants (assuming all outstanding warrants are exercised), all of which are subject to the lock up agreements, will be eligible for sale following expiration of the lock up agreements, subject to compliance with Rule 144. Assuming the exercise of the Series E preferred stock warrant by IBM in its entirety, the conversion of all Series E preferred stock into common stock and conversion of all Series C preferred stock into common stock, the exercise of a warrant for Series F-2 preferred stock by Novell and conversion of all Series F-2 preferred stock into common stock, and the conversion of all convertible notes and exercise or conversion of the warrants issued pursuant to the note and warrant purchase agreement and conversion of all Series E-2 preferred stock, the holders of shares and certain warrants have certain demand and piggyback registration rights. The exercise of such rights could adversely affect the market price of our stock. We also expect to register all shares under our stock option plans and our ESPP in the near future. After such registration is effective, shares issued upon exercise of stock options or purchased under the ESPP will be eligible for resale in the public market without restriction. See "--Registration Rights." In general, Rule 144 provides that any person who has beneficially owned shares for at least one year, including an affiliate, is generally entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the shares of common stock then outstanding (approximately shares immediately after the offering) or the reported average weekly trading volume of the common stock during the four calendar weeks immediately preceding the 71 date on which notice of the sale is sent to the Commission. Sales under Rule 144 are subject to certain manner of sale restrictions, notice requirements and availability of current public information concerning us. A person who is not an affiliate of ours, and who has not been an affiliate within three months prior to the sale, generally may sell shares without regard to the limitations of Rule 144 provided that the person has held such shares for at least two years. 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 complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Any employee, director or officer of ours, or consultant to us, holding shares purchased pursuant to a written compensatory plan or contract (including options) entered into prior to the offering is entitled to rely on the resale provisions of Rule 701, which permit nonaffiliates to sell such shares without having to comply with the public information, holding period, volume limitation or notice requirements of Rule 144 and permit affiliates to sell their Rule 701 shares without having to comply with the holding period restrictions of Rule 144, in each case beginning 90 days after the date of this prospectus. REGISTRATION RIGHTS The second amended and restated registration rights agreement, as amended, provides certain rights to register shares under the Securities Act to certain holders of our capital stock or their permitted transferees. Under the terms of this agreement, if we propose to register any of our securities under the Securities Act in an underwritten primary registration, we must include the shares that we have been requested to register pursuant to "piggyback" rights, subject to any limitation set by the underwriters on the number of shares included in such registration. Also, IBM may require us to use our best efforts, not more than twice, to file a registration statement under the Securities Act, at our expense, with respect to certain of IBM's shares of common stock. None of the shares of any stockholder have been registered for sale in this offering. Following this offering, IBM also may require us to use our best efforts to file up to two registration statements on Form S-3, at the expense of IBM, provided that the aggregate offering price net of underwriting discounts and commissions for each registration is not less than $500,000. In addition, any holder of Series E-2 preferred stock and any holder of at least 100,000 shares of Series F-2 preferred stock may require us to use our best efforts to file registration statements on Form S-3, at our expense, to register shares of common stock acquired in connection with the exercise of such warrants. IBM may assign its registration rights to any person whom it transfers at least 1,000,000 shares of common stock. 72 UNDERWRITING Subject to the terms and conditions of the underwriting agreement, the underwriters named below, through their representatives BT Alex. Brown Incorporated, BancBoston Robertson Stephens and Piper Jaffray Inc. (the "Representatives"), have severally agreed to purchase from us the following respective numbers of shares of common stock at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus:
NUMBER OF UNDERWRITER SHARES - -------------------------------------------------------------------------------------------------- -------------- BT Alex. Brown Incorporated....................................................................... BancBoston Robertson Stephens..................................................................... Piper Jaffray Inc................................................................................. -------------- Total......................................................................................... -------------- --------------
The underwriting agreement provides that the obligations of the underwriters are subject to certain conditions precedent and that the underwriters will purchase all shares of the common stock offered hereby if any of such shares are purchased. One of the closing conditions to this offering is that KPMG LLP reissue their independent auditors' report on our consolidated financial statements as of September 30, 1997 and 1998 and for the period from November 21, 1995 (inception) to September 30, 1996, and for the two year period ended September 30, 1998. Such report shall exclude the explanatory paragraph that states that our recurring losses and net capital deficiency raise substantial doubt about our ability to continue as a going concern. We have been advised by the Representatives that the underwriters propose to offer the shares of common stock to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at such price less a concession not in excess of $ per share. The underwriters may allow, and such dealers may re-allow, a concession not in excess of $ per share to certain other dealers. After the initial public offering, the offering price and other selling terms may be changed by the Representatives. We have granted to the underwriters an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to additional shares of common stock at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus. To the extent that the underwriters exercise such option, each of the underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of common stock to be purchased by it in the above table bears to the total number of shares to be sold in the offering, and we will be obligated, pursuant to the option to sell such shares to the underwriters. The underwriters may exercise such option only to cover over-allotments made in connection with the sale of the common stock offered hereby. If purchased, the underwriters will offer such additional shares on the same terms as those on which the shares are being offered. At our request, the underwriters have reserved up to shares of common stock for sale, at the initial public offering price, to employees and friends of ours through a directed share program. The number of shares of common stock available for sale to the general public in the public offering will be reduced to the extent such persons purchase such reserved shares. 73 AMOUNTS PAYABLE TO THE UNDERWRITERS
NO EXERCISE FULL EXERCISE ------------ ------------- Per Share............................................................................ $ $ Total................................................................................ $
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933. Each of our officers, directors and a substantial majority of our stockholders have agreed not to offer, sell, contract to sell or otherwise dispose of (or enter into any transaction which is designed to, or could be expected to, result in the disposition of any portion of) any common stock for a period of 180 days after the effective date of the registration statement of which this prospectus is a part, without the prior written consent of BT Alex. Brown Incorporated, except in the case of certain transfers to charitable organizations or from certain entities to partners of such entities. Such consent may be given at any time without public notice. We have entered into a similar agreement, except that we may issue, and grant options or warrants to purchase, shares of common stock or any securities convertible into, exercisable for or exchangeable for shares of common stock, pursuant to the exercise of outstanding options and warrants and our issuance of options and stock granted under the existing stock option and stock purchase plans. The Representatives have advised us that the underwriters do not intend to confirm sales to any account over which they exercise discretionary authority. Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price for the common stock will be determined by negotiation among us and the Representatives. Among the factors considered in such negotiations are prevailing market conditions, our results of operations in recent periods, the market capitalizations and stages of development of other companies that we and the Representatives believe to be comparable to us, estimates of our business potential, the present stage of our development and other factors deemed relevant. In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the market price of the common stock. Specifically, the underwriters may over-allot shares of the common stock in connection with this offering, thereby creating a short position in the underwriters' syndicate account. Additionally, to cover such over-allotments or to stabilize the market price of the common stock, the underwriters may bid for, and purchase, shares of the common stock in the open market. Any of these activities may maintain the market price of the common stock at a level above that which might otherwise prevail in the open market. The underwriters are not required to engage in these activities, and, if commenced, any such activities may be discontinued at any time. The Representatives, on behalf of the underwriters, also may reclaim selling concessions allowed to an underwriter or dealer, if the syndicate repurchases shares distributed by that underwriter or dealer. LEGAL MATTERS The validity of the common stock being offered hereby will be passed upon for our Company by Graham & James LLP, Palo Alto, California. Partners of Graham & James LLP performing services for us directly or indirectly beneficially own 12,934 shares of the common stock. Alan Kalin, a partner in the firm of Graham & James LLP, serves as our Secretary. Certain legal matters in connection with the offering will be passed upon for the underwriters by Cravath, Swaine & Moore, New York, New York. 74 EXPERTS The consolidated financial statements and schedule of NetObjects, Inc. as of September 30, 1997 and 1998, and for the period from November 21, 1995 (inception) to September 30, 1996, and for each of the years in the two-year period ended September 30, 1998 included herein and in the registration statement are included in reliance upon the report of KPMG LLP, independent auditors, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The report of KPMG LLP covering the September 30, 1998 consolidated financial statements contains an explanatory paragraph that states that our recurring losses from operations and net capital deficiency raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. CHANGE IN AUDITORS Ernst & Young LLP was previously our principal accountant. On October 29, 1997, Ernst & Young LLP's was dismissed as principal accountants and KPMG LLP was engaged to audit our consolidated financial statements. The board of directors has approved the appointment of KPMG LLP as our principal accountants. In connection with the audit for the period from November 21, 1995 (inception) through September 30, 1996, and the subsequent interim period through October 29, 1997, there were no disagreements with Ernst & Young LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion on the subject matter of the disagreement. The audit report of Ernst & Young LLP on our consolidated financial statements as of and for the period from November 21, 1995 (inception) through September 30, 1996 contained a statement that our operating loss since inception raises substantial doubt about our ability to continue as a going concern. ADDITIONAL INFORMATION We have filed with the Commission a Registration Statement on Form S-1 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act with respect to the offer and sale of common stock pursuant to this prospectus. Prior to the offering we were not required to file reports with the Commission. This prospectus, filed as a part of the Registration Statement, does not contain all the information set forth in the Registration Statement or the exhibits thereto and schedule filed therewith in accordance with the rules and regulations of the Commission, and reference is hereby made to such omitted information. Statements made in this prospectus concerning the contents of any contract, agreement or other document filed as an exhibit to the Registration Statement are summaries of the terms of such contracts, agreements or documents and are not necessarily complete. Reference is made to each such exhibit for a more complete description of the matters involved, and such statements shall be deemed qualified by such reference. The Registration Statement and the exhibits thereto filed with the Commission may be inspected, without charge, and copies may be obtained at prescribed rates, at the SEC's Public Reference facility maintained by the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Registration Statement and other information filed by the Company with the Commission also are available at the web site maintained by the Commission on the world wide web at http://www.sec.gov. For further information pertaining to our Company and the common stock offered by this prospectus, reference is hereby made to the Registration Statement. We intend to furnish our stockholders with annual reports containing financial statements audited by our independent accountants and quarterly reports for the first three quarters of each fiscal year containing unaudited financial statements. 75 NETOBJECTS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Report.......................................................... F-2 Consolidated Balance Sheets as of September 30, 1997 and 1998 and December 31, 1998 (unaudited)......................................................................... F-3 Consolidated Statements of Operations for the period from November 21, 1995 (inception) to September 30, 1996, for the years ended September 30, 1997 and 1998 and for the three month periods ended December 31, 1997 and 1998 (unaudited)........ F-4 Consolidated Statements of Shareholders' Deficit for the period from November 21, 1995 (inception) to September 30, 1996, for the years ended September 30, 1997 and 1998 and for the three month period ended December 31, 1998 (unaudited).................. F-5 Consolidated Statements of Cash Flows for the period from November 21, 1995 (inception) to September 30, 1996, for the years ended September 30, 1997 and 1998 and for the three month periods ended December 31, 1997 and 1998 (unaudited)........ F-6 Notes to Consolidated Financial Statements............................................ F-7
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors NetObjects, Inc.: We have audited the accompanying consolidated balance sheets of NetObjects, Inc. and subsidiary (the Company), a majority owned subsidiary of IBM Corporation, as of September 30, 1997 and 1998, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the period from November 21, 1995 (inception) to September 30, 1996, and for each of the years in the two-year period ended September 30, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NetObjects, Inc. and subsidiary, a majority owned subsidiary of IBM Corporation, as of September 30, 1997 and 1998, and the results of their operations and their cash flows for the period from November 21, 1995 (inception) to September 30, 1996, and for each of the years in the two-year period ended September 30, 1998, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1(d) to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficit that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1(d). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. KPMG LLP Mountain View, California, December 21, 1998 F-2 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM CORPORATION) CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 1998 -------------------- ------------------------ 1997 1998 ACTUAL PRO FORMA(A) --------- --------- --------- ------------- (UNAUDITED) ASSETS Current assets: Cash............................................................ $ 303 $ 459 $ 1,288 $ 3,873 Accounts receivable, net of allowances of $781, $2,263, and $1,789 as of September 30, 1997 and 1998, and December 31, 1998, respectively............................................ 2,018 2,292 3,074 3,074 Prepaid expenses and other current assets....................... 448 754 1,037 1,037 --------- --------- --------- ------------- Total current assets........................................ 2,769 3,505 5,399 7,984 Property and equipment, net....................................... 1,836 1,640 2,103 2,103 --------- --------- --------- ------------- Total assets...................................................... $ 4,605 $ 5,145 $ 7,502 $ 10,087 --------- --------- --------- ------------- --------- --------- --------- ------------- LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Short-term borrowings from IBM and IBM Credit Corp.............. $ -- $ 20,666 $ 18,813 $ 18,813 Short-term borrowings........................................... 2,050 -- -- -- Accounts payable................................................ 2,518 4,723 4,461 4,461 Accrued compensation............................................ 1,041 1,690 1,322 1,322 Other accrued liabilities....................................... 684 1,066 1,294 1,294 Deferred revenue from IBM....................................... 6,228 5,121 2,316 2,316 Other deferred revenues......................................... 61 169 297 297 Current portion of capital lease obligations.................... 303 299 286 286 --------- --------- --------- ------------- Total current liabilities................................... 12,885 33,734 28,789 28,789 Capital lease obligations, less current portion................... 633 336 271 271 Convertible notes from IBM and related party...................... -- -- 7,619 -- --------- --------- --------- ------------- Total long-term obligations................................. 633 336 7,890 271 --------- --------- --------- ------------- Total liabilities........................................... 13,518 34,070 36,679 29,060 --------- --------- --------- ------------- Commitments Stockholders' deficit: Preferred stock, $0.01 par value; 20,339,666 shares authorized; 11,394,965, 11,576,937 and 11,965,826 shares issued and outstanding as of September 30, 1997 and 1998 and December 31, 1998, respectively, and none outstanding on a pro forma basis as of December 31, 1998 (aggregrate liquidation preference of $75,279,768 as of September 30, 1998)......................... 107 109 113 -- Common stock, $0.01 par value; 28,333,333 shares authorized; 1,857,449, 2,001,186, and 2,088,561 shares issued and outstanding as of September 30, 1997 and 1998 and December 31, 1998, respectively, and 18,760,231 shares issued and outstanding on a pro forma basis at December 31, 1998......... 18 20 21 182 Additional paid-in capital...................................... 15,599 18,318 26,567 36,723 Deferred stock-based compensation............................... -- (541) (441) (441) Notes receivable from stockholders.............................. (143) (113) (113) (113) Accumulated other comprehensive losses.......................... -- -- (6) (6) Accumulated deficit............................................. (24,494) (46,718) (55,318) (55,318) --------- --------- --------- ------------- Total stockholders' deficit................................. (8,913) (28,925) (29,177) (18,973) --------- --------- --------- ------------- Total liabilities and stockholders' deficit..................... $ 4,605 $ 5,145 $ 7,502 $ 10,087 --------- --------- --------- ------------- --------- --------- --------- -------------
- ------------------------------ (a) Assumes the conversion of 11,965,826 shares of preferred stock into common stock, the issuance of $2.6 million in convertible debt, the issuance of 1,654,041 shares of common stock, reflecting the conversion of convertible debt and related interest and the issuance of 3,051,803 shares of common stock upon the cashless exercise of outstanding warrants to purchase convertible preferred stock at a weighted average exercise price of $4.82 per share by surrending shares of common stock as payment of the exercise price, assuming an initial public offering price of $ per share. See accompanying notes to consolidated financial statements. F-3 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PERIOD FROM NOVEMBER 21, 1995 YEAR ENDED THREE MONTHS ENDED (INCEPTION) TO SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, ---------------------- ---------------------- 1996 1997 1998 1997 1998 -------------- ---------- ---------- ---------- ---------- (UNAUDITED) Revenues: Software license fees....................... $ -- $ 7,392 $ 9,703 $ 2,086 $ 2,622 Service revenues............................ -- -- -- -- 190 Software license fees from IBM.............. -- 175 2,700 199 1,318 Service revenues from IBM................... -- -- 2,867 -- 1,487 -------------- ---------- ---------- ---------- ---------- Total revenues............................ -- 7,567 15,270 2,285 5,617 -------------- ---------- ---------- ---------- ---------- Cost of revenues: Software license fees....................... -- 772 2,531 278 495 Service revenues............................ -- -- -- -- 184 Service revenues from IBM................... -- -- 2,562 -- 1,404 -------------- ---------- ---------- ---------- ---------- Total cost of revenues.................... -- 772 5,093 278 2,083 -------------- ---------- ---------- ---------- ---------- Gross profit.............................. -- 6,795 10,177 2,007 3,534 -------------- ---------- ---------- ---------- ---------- Operating expenses: Research and development.................... 2,765 8,436 10,231 3,070 2,204 Sales and marketing......................... 2,998 12,161 17,114 4,060 4,430 General and administrative.................. 978 3,762 3,575 769 894 Stock-based compensation.................... -- -- 227 -- 100 -------------- ---------- ---------- ---------- ---------- Total operating expenses.................. 6,741 24,359 31,147 7,899 7,628 -------------- ---------- ---------- ---------- ---------- Operating loss............................ (6,741) (17,564) (20,970) (5,892) (4,094) Interest income (expense)..................... 46 (234) (1,194) (168) (712) Nonrecurring interest charge on beneficial conversion feature of convertible debt...... -- -- -- -- (3,792) -------------- ---------- ---------- ---------- ---------- Loss before income taxes.................. (6,695) (17,798) (22,164) (6,060) (8,598) Income taxes.................................. -- 1 60 7 2 -------------- ---------- ---------- ---------- ---------- Net loss.................................. $ (6,695) $ (17,799) $ (22,224) $ (6,067) $ (8,600) Translation adjustment........................ -- -- -- -- (6) -------------- ---------- ---------- ---------- ---------- Comprehensive loss........................ $ (6,695) $ (17,799) $ (22,224) $ (6,067) $ (8,606) -------------- ---------- ---------- ---------- ---------- -------------- ---------- ---------- ---------- ---------- Basic and diluted net loss per share.......... $ (4.89) $ (10.89) $ (13.11) $ (3.72) $ (4.64) -------------- ---------- ---------- ---------- ---------- -------------- ---------- ---------- ---------- ---------- Shares used to compute basic and diluted net loss per share.............................. 1,370,216 1,633,968 1,694,614 1,632,580 1,853,707 -------------- ---------- ---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements. F-4 NETOBJECTS INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT PERIOD FROM NOVEMBER 21, 1995 (INCEPTION) TO SEPTEMBER 30, 1996 AND FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1998 AND FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1998 (UNAUDITED) (IN THOUSANDS)
PREFERRED STOCK ----------------------------------------------------------------------------------- SERIES A SERIES B SERIES C SERIES E SERIES F -------------- -------------- -------------- -------------- --------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Balances as of November 21, 1995 (inception)...................... -- $-- -- $-- -- $-- -- $-- -- $-- Exercise of stock options.......... -- -- -- -- -- -- -- -- -- -- Issuance of common stock........... -- -- -- -- -- -- -- -- -- -- Issuance of Series A preferred stock in exchange for technology....................... 1,833 -- -- -- -- -- -- -- -- -- Issuance of Series B preferred stock, net of $59 in issuance fees............................. -- -- 4,467 45 -- -- -- -- -- -- Net loss........................... -- -- -- -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Balances, September 30, 1996....... 1,833 -- 4,467 45 -- -- -- -- -- -- Exercise of stock options.......... -- -- -- -- -- -- -- -- -- -- Issuance of common stock........... -- -- -- -- -- -- -- -- -- -- Repurchase of restricted stock..... -- -- -- -- -- -- -- -- -- -- Warrants exercised................. -- -- 27 -- 4,821 48 23 -- -- -- Issuance of Series E and F warrants......................... -- -- -- -- -- -- -- -- -- -- Conversion of Series A, B, and C preferred stock to Series E preferred stock.................. (1,181) -- (4,494) (45) (4,821) (48) 10,495 105 -- -- Issuance of Series E preferred stock............................ -- -- -- -- -- -- 225 2 -- -- Net loss........................... -- -- -- -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Balances, September 30, 1997....... 652 -- -- -- -- -- 10,743 107 -- -- Exercise of stock options.......... -- -- -- -- -- -- -- -- -- -- Issuance of common stock........... -- -- -- -- -- -- -- -- -- -- Repurchase of restricted stock..... -- -- -- -- -- -- -- -- -- -- Warrant to purchase Series F preferred stock.................. -- -- -- -- -- -- -- -- -- -- Issuance of Series E preferred stock............................ -- -- -- -- -- -- 182 2 -- -- Repayment of stockholder notes receivable....................... -- -- -- -- -- -- -- -- -- -- Deferred compensation related to stock option grants.............. -- -- -- -- -- -- -- -- -- -- Amortization of stock-based compensation..................... -- -- -- -- -- -- -- -- -- -- Net loss........................... -- -- -- -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Balances, September 30, 1998....... 652 $-- -- $-- -- $-- 10,925 $109 -- $-- Exercise of stock options (unaudited)...................... -- -- -- -- -- -- -- -- -- -- Issuance of common stock (unaudited)...................... -- -- -- -- -- -- -- -- -- -- Repurchase of restricted stock (unaudited)...................... -- -- -- -- -- -- -- -- -- -- Issuance of in the money convertible debt and warrants to purchase Series E preferred stock (unaudited)...................... -- -- -- -- -- -- -- -- -- -- Issuance of Series F preferred stock net of $30 issuance costs (unaudited)...................... -- -- -- -- -- -- -- -- 389 4 Amortization of stock-based compensation (unaudited)......... -- -- -- -- -- -- -- -- -- -- Translation adjustment (unaudited)...................... -- -- -- -- -- -- -- -- -- -- Net loss (unaudited)............... -- -- -- -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Balances, December 31, 1998 (unaudited)...................... 652 $-- -- $-- -- $-- 10,925 $109 389 $ 4 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ COMMON STOCK NOTES ACCUMULATED ADDITIONAL DEFERRED RECEIVABLE OTHER --------------- PAID-IN STOCK-BASED FROM COMPREHENSIVE ACCUMULATED SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS LOSSES DEFICIT ------ ------ ---------- ------------ ------------ ------------- ----------- Balances as of November 21, 1995 (inception)...................... -- $-- -- -- -- -- -- Exercise of stock options.......... 259 3 28 -- -- -- -- Issuance of common stock........... 1,633 16 133 -- (143) -- -- Issuance of Series A preferred stock in exchange for technology....................... -- -- -- -- -- -- -- Issuance of Series B preferred stock, net of $59 in issuance fees............................. -- -- 5,256 -- -- -- -- Net loss........................... -- -- -- -- -- -- (6,695) -- ------ ------ ---------- ----- ----- ----------- Balances, September 30, 1996....... 1,892 19 5,417 -- (143) -- (6,695) Exercise of stock options.......... 127 1 15 -- -- -- -- Issuance of common stock........... 2 -- 1 -- -- -- -- Repurchase of restricted stock..... (164) (2) (18) -- -- -- -- Warrants exercised................. -- -- 8,400 -- -- -- -- Issuance of Series E and F warrants......................... -- -- 298 -- -- -- -- Conversion of Series A, B, and C preferred stock to Series E preferred stock.................. -- -- (12) -- -- -- -- Issuance of Series E preferred stock............................ -- -- 1,498 -- -- -- -- Net loss........................... -- -- -- -- -- -- (17,799) -- ------ ------ ---------- ----- ----- ----------- Balances, September 30, 1997....... 1,857 18 15,599 -- (143) -- (24,494) Exercise of stock options.......... 144 2 89 -- -- -- -- Issuance of common stock........... 18 -- 116 -- -- -- -- Repurchase of restricted stock..... (18) -- (2) -- -- -- -- Warrant to purchase Series F preferred stock.................. -- -- 535 -- -- -- -- Issuance of Series E preferred stock............................ -- -- 1,213 -- -- -- -- Repayment of stockholder notes receivable....................... -- -- -- -- 30 -- -- Deferred compensation related to stock option grants.............. -- -- 768 (768) -- -- -- Amortization of stock-based compensation..................... -- -- -- 227 -- -- -- Net loss........................... -- -- -- -- -- -- (22,224) -- ------ ------ ---------- ----- ----- ----------- Balances, September 30, 1998....... 2,001 $ 20 18,318 (541) (113) -- (46,718) Exercise of stock options (unaudited)...................... 103 1 72 -- -- -- -- Issuance of common stock (unaudited)...................... 5 -- 37 -- -- -- -- Repurchase of restricted stock (unaudited)...................... (20) -- (2) -- -- -- -- Issuance of in the money convertible debt and warrants to purchase Series E preferred stock (unaudited)...................... -- -- 4,676 -- -- -- -- Issuance of Series F preferred stock net of $30 issuance costs (unaudited)...................... -- -- 3,466 -- -- -- -- Amortization of stock-based compensation (unaudited)......... -- -- -- 100 -- -- -- Translation adjustment (unaudited)...................... -- -- -- -- -- (6) -- Net loss (unaudited)............... -- -- -- -- -- -- (8,600) -- ------ ------ ---------- ----- ----- ----------- Balances, December 31, 1998 (unaudited)...................... 2,089 $ 21 26,567 (441) (113) (6) (55,318) -- -- ------ ------ ---------- ----- ----- ----------- ------ ------ ---------- ----- ----- ----------- TOTAL STOCKHOLDERS' DEFICIT ------------- Balances as of November 21, 1995 (inception)...................... -- Exercise of stock options.......... 31 Issuance of common stock........... 6 Issuance of Series A preferred stock in exchange for technology....................... -- Issuance of Series B preferred stock, net of $59 in issuance fees............................. 5,301 Net loss........................... (6,695) ------------- Balances, September 30, 1996....... (1,357) Exercise of stock options.......... 16 Issuance of common stock........... 1 Repurchase of restricted stock..... (20) Warrants exercised................. 8,448 Issuance of Series E and F warrants......................... 298 Conversion of Series A, B, and C preferred stock to Series E preferred stock.................. -- Issuance of Series E preferred stock............................ 1,500 Net loss........................... (17,799) ------------- Balances, September 30, 1997....... (8,913) Exercise of stock options.......... 91 Issuance of common stock........... 116 Repurchase of restricted stock..... (2) Warrant to purchase Series F preferred stock.................. 535 Issuance of Series E preferred stock............................ 1,215 Repayment of stockholder notes receivable....................... 30 Deferred compensation related to stock option grants.............. -- Amortization of stock-based compensation..................... 227 Net loss........................... (22,224) ------------- Balances, September 30, 1998....... (28,925) Exercise of stock options (unaudited)...................... 73 Issuance of common stock (unaudited)...................... 37 Repurchase of restricted stock (unaudited)...................... (2) Issuance of in the money convertible debt and warrants to purchase Series E preferred stock (unaudited)...................... 4,676 Issuance of Series F preferred stock net of $30 issuance costs (unaudited)...................... 3,470 Amortization of stock-based compensation (unaudited)......... 100 Translation adjustment (unaudited)...................... (6) Net loss (unaudited)............... (8,600) ------------- Balances, December 31, 1998 (unaudited)...................... (29,177) ------------- -------------
F-5 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD FROM NOVEMBER 21, THREE MONTHS ENDED 1995 YEAR ENDED SEPTEMBER (INCEPTION) TO 30, DECEMBER 31, SEPTEMBER 30, -------------------- -------------------- 1996 1997 1998 1997 1998 --------------- --------- --------- --------- --------- (UNAUDITED) Cash flows from operating activities: Net loss......................................................... $ (6,695) $ (17,799) $ (22,224) $ (6,067) $ (8,600) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.................................. 88 697 1,104 216 240 Accretion of discount on borrowings............................ -- -- 201 -- 191 Non recurring interest charge on beneficial conversion feature of convertible debt.......................................... -- -- -- -- 3,792 Amortization of deferred stock-based compensation.............. -- -- 227 -- 100 Changes in operating assets and liabilities: Accounts receivable.......................................... -- (2,018) (275) (93) (782) Prepaid expenses and other current assets.................... (474) 27 (306) (300) (283) Accounts payable............................................. 1,759 721 2,205 662 (225) Accrued compensation......................................... 342 699 649 -- (368) Other accrued liabilities.................................... 37 685 382 281 228 Deferred revenue............................................. 102 6,186 (999) 4,693 (2,677) Interest payable............................................. -- -- -- -- 137 --------------- --------- --------- --------- --------- Net cash used in operating activities...................... (4,841) (10,802) (19,036) (608) (8,247) --------------- --------- --------- --------- --------- Cash flows used in investing activities--purchases of property and equipment........................................................ (551) (1,028) (792) (214) (703) --------------- --------- --------- --------- --------- Cash flows from financing activities: Proceeds from short-term borrowings.............................. 1,000 1,050 21,000 3,083 -- Repayments of short-term borrowings.............................. -- -- (2,050) (2,050) (2,000) Proceeds from convertible debt................................... -- -- -- -- 8,325 Payment on capital lease obligations............................. (35) (252) (300) (71) (78) Proceeds from sale and leaseback of equipment.................... 179 -- -- -- -- Proceeds from issuance of preferred stock........................ 5,301 10,246 1,215 -- 3,467 Proceeds from issuance of common stock........................... 39 17 91 2 73 Repurchases of common stock...................................... -- (20) (2) -- (2) Repayment of shareholder notes receivable........................ -- -- 30 -- -- --------------- --------- --------- --------- --------- Net cash provided by financing activities.................. 6,484 11,041 19,984 964 9,785 --------------- --------- --------- --------- --------- Effect of exchange rate changes on cash.......................... -- -- -- -- (6) --------------- --------- --------- --------- --------- Net increase (decrease) in cash.................................... 1,092 (789) 156 142 829 Cash at beginning of period........................................ -- 1,092 303 303 459 --------------- --------- --------- --------- --------- Cash at end of period.............................................. $ 1,092 303 459 445 1,288 --------------- --------- --------- --------- --------- --------------- --------- --------- --------- --------- Supplemental disclosures of cash flow information: Interest paid.................................................... $ 28 $ 293 $ 753 $ -- $ 350 --------------- --------- --------- --------- --------- --------------- --------- --------- --------- --------- Noncash investing and financing activities: Equipment recorded under capital leases........................ $ 423 $ 941 $ -- $ -- $ -- --------------- --------- --------- --------- --------- --------------- --------- --------- --------- --------- Common stock issued in exchange for notes receivable........... $ 143 $ -- $ -- $ -- $ -- --------------- --------- --------- --------- --------- --------------- --------- --------- --------- --------- Deferred stock-based compensation.............................. $ -- $ -- $ 768 $ -- $ -- --------------- --------- --------- --------- --------- --------------- --------- --------- --------- --------- Discount on borrowings......................................... $ -- $ 298 $ 535 $ 535 $ 4,676 --------------- --------- --------- --------- --------- --------------- --------- --------- --------- --------- Stock issued in exchange for services.......................... $ -- $ -- $ -- $ -- $ 37 --------------- --------- --------- --------- --------- --------------- --------- --------- --------- --------- Stock issued for property and equipment........................ $ -- $ -- $ 116 $ -- $ -- --------------- --------- --------- --------- --------- --------------- --------- --------- --------- ---------
See accompanying notes to consolidated financial statements. F-6 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) DESCRIPTION OF BUSINESS NetObjects, Inc. (the Company) was incorporated in Delaware on November 21, 1995. On March 18, 1997, the Company, and certain stockholders of the Company, entered into an agreement with International Business Machines Corporation (IBM) whereby IBM would acquire all the Company's outstanding shares of Series B and C Preferred Stock and the majority of the outstanding Series A Preferred Stock in exchange for newly issued shares of common stock of IBM (the IBM Transaction). The Series A, B and C Preferred Stock were then converted into Series E Preferred Stock of the Company. The transaction closed on April 11, 1997, and as a result, the Company became a majority owned subsidiary of IBM. The transaction did not result in a new accounting basis for financial reporting purposes of the Company. NetObjects develops and markets software applications that enable businesses to build and manage Internet and intranet web sites and applications. In fiscal 1998, the Company changed its fiscal year end from September 30 to the Saturday nearest September 30. For presentation purposes, the consolidated financial statements and notes refer to the calendar month end. (B) PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, NetObjects Limited. All intercompany accounts and transactions have been eliminated in consolidation. (C) FOREIGN CURRENCY TRANSLATION The functional currency of the Company's foreign subsidiary is their local currency. Gains and losses arising from the translation of the subsidiary financial statements are reflected as a separate component of stockholders' deficit. Foreign currency transaction losses are shown net on the consolidated statement of operations. (D) BASIS OF PRESENTATION The Company has incurred significant operating losses since inception and has significant debt and a capital deficit as of September 30, 1998 that raises substantial doubt about its ability to continue as a going concern. The Company plans to finance its operations by raising additional capital through an initial public offering of its common stock (IPO) and by generating revenues. The Company's ability to continue as a going concern is dependent upon its successfully completing the IPO. The accompanying financial statements have been prepared assuming the Company will continue as a going concern, the basis of which contemplates the realization of assets through continuing operations. No adjustments have been made to reflect potentially lower realizable values of assets should the Company be unable to continue its operations. F-7 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (E) PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets, ranging from three to five years. Leasehold improvements and assets recorded under capital leases are amortized on a straight-line basis over the lesser of the related asset's estimated useful life or the remaining lease term. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured as the difference between the carrying amount of the property and equipment and its fair value. To date, the Company has made no adjustments to the carrying values of its long-lived assets. (F) SOFTWARE DEVELOPMENT COSTS Software development costs associated with new products and enhancements to existing software products are expensed as incurred until technological feasibility is established upon completion of a working model. To date, the Company's software development has been completed concurrent with the establishment of technological feasibility, and, accordingly, no costs have been capitalized. (G) INCOME TAXES Income taxes are recorded using the asset and liability method. The Company's tax provision for all years has been calculated on a stand-alone basis. Deferred tax liabilities and assets are recognized for the expected future tax consequences attributable to differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded to reduce deferred tax assets to an amount whose realization is more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (H) CONCENTRATION OF CREDIT RISK Accounts receivable potentially subject the Company to concentrations of credit risk. The Company performs ongoing credit evaluations of its customers' financial condition and generally does not require collateral for accounts receivable. When required, the Company maintains allowances for credit losses, and to date such losses have been within management's expectations. For the years ended September 30, 1997 and 1998, software license fees to one customer were 31% and 29%, of total revenues, respectively. Accounts receivables from the customer represented 51% of accounts receivable as of September 30, 1998. See Note 3 for a discussion of software license fees and service revenues from IBM. F-8 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company's principal markets are North America, Europe and Japan. Export sales represented approximately 15% and 16% of revenues for the fiscal years ended September 30, 1997 and 1998, respectively. There were no revenues in fiscal 1996. (I) FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's cash, accounts receivable, accounts payable and short-term borrowings approximates their carrying values due to their short maturity or variable-rate structure. (J) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported results of operations during the reporting period. Actual results could differ from those estimates. (K) REVENUE RECOGNITION Through September 30, 1998, the Company recognized revenue in accordance with American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 91-1, SOFTWARE REVENUE RECOGNITION. Software license fees were generally recognized upon delivery to distributors, net of an allowance for estimated returns and price protection, provided no significant obligations of the Company remained and collection for the resulting receivable was probable. Software license fees earned from products bundled with original equipment manufacturer's (OEM) products are generally recognized upon the OEM shipping bundled products to its customer. Service revenues from maintenance agreements for support and upgrades of existing products are deferred and recognized ratably over the term of the contract, which typically is 12 months. Service revenues for training and consulting services are recognized as the services are performed. Service revenues from third parties have been immaterial for all periods presented. See Note 3(b) for a discussion of revenues from IBM. In October 1997, the AICPA issued SOP 97-2, SOFTWARE REVENUE RECOGNITION, which supersedes SOP 91-1. SOP 97-2 is effective for transactions entered into during fiscal years beginning after December 15, 1997. Under SOP 97-2, software license revenue is recognized upon delivery of the software and when persuasive evidence of an agreement exists, provided the fee is fixed, determinable and collectible and the arrangement does not involve significant customization of the software. Maintenance and service revenue are recognized in a similar manner as SOP 91-1. In addition, SOP 97-2 generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements. The fair value of an element must be based on evidence that is specific to the vendor. If a vendor does not have evidence of the fair value for all elements in a multiple-element arrangement, all revenue from the arrangement is deferred until such evidence exists or until all elements are delivered. F-9 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In February 1998, the Accounting Standards Executive Committee (AcSEC) of the AICPA issued SOP 98-4, "DEFERRAL OF THE EFFECTIVE DATE OF SOP 97-2". The SOP defers the effective date for applying the provisions regarding vendor-specific objective evidence ("VSOE") of fair value until the AcSEC can reconsider what constitutes such VSOE. In December 1998 AcSEC issued SOP 98-9 "SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN ARRANGEMENTS", which requires recognition of revenue using the "residual method" in a multiple element arrangement when fair value does not exist for one or more of the undelivered elements in the arrangement. Under the "residual method", the total fair value of the undelivered elements is deferred and subsequently recognized in accordance with SOP 97-2. On October 1, 1998 the Company adopted the provisions of SOP 97-2, SOP 98-4 and SOP 98-9. The Company modified certain aspects of its business model such that any impact from adopting SOP 97-2, SOP 98-4 and SOP 98-9 was not material. (L) STOCK-BASED COMPENSATION The Company accounts for its stock-based compensation plans using the intrinsic value method. Deferred stock-based compensation expense is recorded, if on the date of grant, the current market value of the underlying stock exceeds the exercise price. The Company amortizes deferred stock-based compensation in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 28. (M) NET LOSS PER SHARE Basic net loss per share is computed using the weighted-average number of outstanding shares of common stock. Diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding and, when dilutive, potential common shares from options and warrants to purchase common stock using the treasury stock method and from convertible securities using the if-converted basis. All potential common shares have been excluded from the computation of diluted net loss per share for all periods presented because the effect would have been antidilutive. See Notes 7 and 8 for a discussion of potential common shares. Pursuant to the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 98, common stock and convertible preferred stock issued for nominal consideration, prior to the anticipated effective date of the IPO, are included in the calculation of basic and diluted net loss per share as if they were outstanding for all periods presented. To date, the Company has not had any issuances or grants for nominal consideration. Diluted net loss per share for the year ended September 30, 1998, does not include the effect of approximately 11,576,937 (on as if converted basis) shares of convertible preferred stock outstanding, 2,472,343 stock options with a weighted-average exercise price of $1.32 per share, 6,813,719 preferred stock warrants with a weighted-average exercise price of $1.87 per share, or F-10 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 88,177 shares of common stock issued and subject to repurchase by the Company at a weighted-average price of $0.12 per share, because their effects are antidilutive. Diluted net loss per share for the three months ended December 31, 1998, does not include the effect of approximately 11,965,826 (on as if converted basis) shares of convertible preferred stock outstanding, approximately 1,246,257 shares from the assumed conversion of convertible debt, 2,629,575 stock options with a weighted-average exercise price of $2.38 per share, 6,813,719 preferred stock warrants with a weighted-average exercise price of $1.87 per share, or 74,297 shares of common stock issued and subject to repurchase by the Company at a weighted-average price of $0.12 per share, because their effects are antidilutive. (N) ACCUMULATED OTHER COMPREHENSIVE LOSSES Accumulated other comprehensive losses consist entirely of cumulative translation adjustments resulting from the Company's application of its foreign currency translation policy. The tax effects of translation adjustments were not significant. (O) UNAUDITED INTERIM FINANCIAL INFORMATION The consolidated financial information as of December 31, 1998 and for the three-months ended December 31, 1997 and 1998 is unaudited, but includes all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for the fair presentation of the financial position at such dates and the operations and cash flows for the periods then ended. Operating results for the three-months ended December 31, 1998 are not necessarily indicative of results that may be expected for the entire year. (P) RECENT ACCOUNTING PRONOUNCEMENTS The FASB recently issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. For a derivative not designated as a hedging instrument, changes in the fair value of the derivative are recognized in earnings in the period of change. The Company must adopt SFAS No. 133 by July 1, 1999. Management does not believe the adoption of SFAS No. 133 will have a material effect on the financial position of the Company. (Q) ADVERTISING EXPENSE The cost of advertising is generally expensed as incurred. Such costs are included in selling and marketing expense and totaled approximately $376,000, $4.9 million and $5.8 million, during the period from November 21, 1995 (inception) through September 30, 1996, and for the years ended September 30, 1997 and 1998, respectively. F-11 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (R) EMPLOYEE BENEFIT PLAN The Company has an Employee Savings and Retirement Plan under Section 401(k) of the Internal Revenues Code for its eligible employees (the Benefit Plan). The Benefit Plan is available to all domestic employees who meet minimum age and service requirements, and provides employees with tax deferred salary deductions and alternative investment options. Employees may contribute up to 15% of their salary, subject to certain limitations. The Benefit Plan allows for contributions by the Company at the discretion of the Company's Board of Directors. The Company has not contributed to the Benefit Plan since its inception. (2) PROPERTY AND EQUIPMENT Property and equipment consisted of the following (in thousands):
SEPTEMBER 30, -------------------- 1997 1998 --------- --------- Computer equipment and software............................................ $ 1,893 $ 2,166 Furniture and equipment.................................................... 475 559 Leasehold improvements..................................................... 253 795 --------- --------- 2,621 3,520 Less accumulated depreciation and amortization........................................................... 785 1,880 --------- --------- $ 1,836 $ 1,640 --------- --------- --------- ---------
Equipment recorded under capital leases is $1.2 million and the related accumulated amortization is $638,000 as of September 30, 1998. (3) RELATED PARTY TRANSACTIONS (A) SHORT-TERM BORROWINGS In December 1997, the Company entered into a line of credit with IBM Credit Corporation (IBM Credit Corp.), a subsidiary of IBM, for $15 million, secured by all tangible and intangible assets of the Company. IBM has guaranteed the line of credit. Subsequently, the agreement was amended to increase the line of credit to $19 million. The note is repayable on the earlier of the effective date of an IPO or December 23, 1999. Interest is charged at LIBOR plus 1.5% (6% as of September 30, 1998) per year. To maintain the line, the Company's net loss measured on a 12-month basis must not be worse than $20 million. In the event of default, IBM Credit Corp. has the right to convert amounts outstanding into shares of Series E preferred stock using the lower of $6.68 per share or a mutually agreed-upon conversion price. F-12 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (3) RELATED PARTY TRANSACTIONS (CONTINUED) In connection with the IBM Credit Corp. line of credit, the Company issued warrants to purchase up to 83,333 shares of Series F preferred stock at an exercise price of $10.80 per share. These warrants are exercisable at any time and expire on the earlier of the closing of an IPO or December 23, 2002. IBM Credit Corp. has the right to exercise the warrants without the payment of cash by surrendering the warrants and receiving shares of preferred stock equal in value at the exercise date to the value of the warrants so surrendered. The Company determined the fair value of these warrants using the Black-Scholes pricing model with the following assumptions: A risk-free interest rate of 5.6%; an expected life of five years; volatility of 65%; and no dividend yield. The resulting discount is being amortized over the term of the line of credit. As of September 30, 1998, $18.6 million was outstanding under the line of credit, net of a discount of $334,000. Additionally, as of September 30, 1998, IBM has advanced the Company $2 million pursuant to certain note agreements. See Note 8. As of September 30, 1998 the Company was not in compliance with certain financial covenants on the aforementioned credit facility. The Company has received a waiver of such non-compliance during the year ended September 30, 1998 from IBM Credit Corp. (B) LICENSE AGREEMENT On March 18, 1997, the Company entered into a Master License Agreement with IBM. A summary of the salient terms of this agreement, as amended as of September 30, 1998, is as follows (see Note 8): - IBM may sublicense the Company's software products in exchange for per unit royalty payments. - Beginning on April 1, 1997, IBM will make seven quarterly nonrefundable prepaid royalty payments of $1.5 million. - At the Company's option, the Company can request the prepaid royalty payments to be made in advance of the due date and pay 7.5% interest. - The Company will perform services as requested by IBM in order to integrate certain of the Company's software products into IBM's WebSphere software products. In consideration for such services, IBM will pay the Company for the cost of providing the services plus a mark up, however amounts to be paid shall not exceed approximately $6.0 million. Amounts owed to the Company under this arrangement can be deducted from the prepaid royalty payments. In February 1998 the Company entered into an agreement with Lotus to allow Lotus to bundle up to 200,000 units of certain Company products for a promotional period from February 1, 1998 through September 30, 1998 (the Special Promotion), in exchange for per unit royalty payments substantially discounted from the royalty rates with IBM under the Master License Agreement. The royalties earned under this arrangement were also applied to the IBM deferred revenue. F-13 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (3) RELATED PARTY TRANSACTIONS (CONTINUED) During the years ended September 30, 1997 and 1998, IBM had made payments of $6.4 million and $4.5 million, respectively, in accordance with the license agreement which have been recorded as deferred revenue until royalty and services have been earned. For the year ended September 30, 1998 the Company recognized approximately $166,000 in interest expense associated with such advance payments. During the years ended September 30, 1997 and 1998 and the three-month period ended December 31, 1998, the Company recognized approximately $175,000, $2.7 million and $1.3 million (unaudited), respectively, of the IBM prepaid royalty payments as software license fees from IBM, primarily upon IBM shipping to customers the Company's software products bundled with certain IBM products. During the year ended September 30, 1998 and the three month period ended December 31, 1998, the Company recognized approximately $2.9 million and $1.5 million (unaudited), respectively of the IBM prepaid royalty payments as service revenues from IBM in connection with the integration of certain of the Company's software with IBM's WebSphere software products. During the year ended September 30, 1998 and the three-month period ended December 31, 1998, the Company incurred $2.9 million and $1.7 million in service costs, which includes $305,000 and $259,000 in overhead costs, respectively, in connection with the arrangement. The Company is recognizing revenue using the percentage-of-completion method and is deferring the recognition of profit on this arrangement due to uncertainties related to the amount of profit ultimately expected to be realized. (C) NOTES RECEIVABLE FROM STOCKHOLDERS Upon inception, the Company received promissory notes from its founders in exchange for common stock for a total amount of $143,000. As of September 30, 1998, $30,000 was paid down by the stockholders. The notes bear interest at 8%. (D) RAE TECHNOLOGY AND STUDIO ARCHETYPE In December 1995, the Company issued 1,833,333 shares of Series A preferred stock to the stockholders of Rae Technology, Inc. (Rae) and Studio Archetype, upon formation of the Company, in exchange for the transfer of certain technology and intellectual property rights. Rae's and Studio Archetype's founders and significant shareholders also were the founders of the Company. The exchange was recorded at predecessor book value. In April 1997 the Company and Rae entered into a patent transfer and license agreement whereby the Company assigned all of its rights to four U.S. patent applications to Rae and the Company reserved a non-exclusive, perpetual, royalty free license to such patents. F-14 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (4) SHORT-TERM BORROWINGS As of September 30, 1997, the Company had $2.1 million outstanding under a line of credit granted by a financial institution. Borrowings under the line of credit bear interest at the bank's prime rate plus 1% (9.5% as of September 30, 1997). In connection with the line of credit, the financial institution has issued warrants to purchase 244,715 shares of Series C preferred stock at an exercise price of $1.82 per share. See Note 7(c). The line of credit was repaid with proceeds from the IBM Credit Corp. line of credit and, accordingly, no amounts are outstanding as of September 30, 1998. (5) COMMITMENTS The Company leases its facilities under a noncancelable operating lease, and has acquired computers and other equipment through operating and capital leases. In connection with one of the property leases, the Company sublets the space. Future minimum payments for both operating and capital leases as of September 30, 1998, are as follows (in thousands):
OPERATING SUBLEASE NET OPERATING CAPITAL YEAR ENDING SEPTEMBER 30, LEASES INCOME LEASES LEASES - ---------------------------------------------------- ----------- ----------- --------------- ----------- 1999................................................ $ 659 $ 338 $ 321 $ 338 2000................................................ 651 338 313 290 2001................................................ 181 -- 181 61 2002................................................ 83 -- 83 -- Thereafter,......................................... 34 -- 34 -- ----------- ----- ----- ----- $ 1,608 $ 676 $ 932 689 ----------- ----- ----- ----------- ----- ----- Less amount representing interest................... 54 ----- Present value minimum lease payments................ 635 Less amounts due within one year.................... 299 ----- $ 336 ----- -----
Total rent expense under the operating leases was $74,000, $341,000 and $683,000 for the period from November 21, 1995 (inception) through September 30, 1996, and for the years ended September 30, 1997 and 1998, respectively. Total rent expense paid to IBM under operating leases was $0, $12,000 and $93,000 for the period from November 21, 1995 (inception) through September 30, 1996, and for the years ended September 30, 1997 and 1998, respectively As of September 30, 1998, approximately $200,000 of the Company's cash balance is pledged as security for a lease line for furniture and fixtures. F-15 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (6) INCOME TAXES Significant components of the Company's deferred tax assets are as follows (in thousands):
SEPTEMBER 30, -------------------- 1997 1998 --------- --------- Net operating loss carryforwards....................................... $ 9,306 $ 17,506 Research and development credit carryforwards.......................... 571 1,649 Accruals and reserves not currently deductible......................... 477 1,767 Property, plant and equipment.......................................... 268 488 --------- --------- Gross deferred tax assets............................................ 10,622 21,410 Valuation allowance.................................................... (10,622) (21,410) --------- --------- Net deferred tax assets.............................................. $ -- $ -- --------- --------- --------- ---------
The Company's actual tax expense for the period from November 21, 1995 (inception) to September 30, 1996 and the years ended September 30, 1997 and 1998 differs from the benefit of the federal statutory tax rate of 34%, as follows (in thousands):
PERIOD FROM NOVEMBER 21, 1995 YEAR ENDED SEPTEMBER (INCEPTION) 30, TO SEPTEMBER -------------------- 30, 1996 1997 1998 ------------- --------- --------- Expense at: Statutory federal income tax rate......................... $ (2,292) $ (6,051) $ (7,556) Losses not benefited...................................... 2,292 6,051 7,556 State taxes............................................... -- 1 1 Foreign taxes............................................. -- -- 59 ------------- --------- --------- $ -- $ 1 $ 60 ------------- --------- --------- ------------- --------- ---------
F-16 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (6) INCOME TAXES (CONTINUED) The components of income taxes for the period from November 21, 1995 (inception) to September 30, 1996 and for the years ended September 30, 1997 and 1998, are as follows (in thousands):
PERIOD FROM NOVEMBER 21, 1995 YEAR ENDED SEPTEMBER (INCEPTION) 30, TO SEPTEMBER -------------------- 30, 1996 1997 1998 ------------- --------- --------- Current: Foreign................................................... $ -- $ -- $ 59 State..................................................... -- 1 1 ------------- --------- --------- $ -- $ 1 $ 60 ------------- --------- --------- ------------- --------- ---------
The Company has recorded a valuation allowance on its deferred tax assets due to uncertainty of future realization of such amounts. As of September 30, 1998, the Company had net operating loss carryforwards of approximately $40.9 million for both federal and state income tax purposes. The federal net operating loss carryforwards expire in the years 2012 through 2019. The state net operating loss carryforwards expire in the year 2005. As of September 30, 1998, the Company has research and development credit carryforwards for federal and state tax purposes of approximately $964,000 and $685,000, respectively. The federal research and development credit carryforwards expire in the years 2012 through 2014. The state research and development credits can be carried forward indefinitely. The Tax Reform Act of 1986 and the California Tax Conformity Act of 1987, limits the use of net operating loss carryforwards in certain situations where changes occur in the stock ownership of a company. The Company had such an ownership change, as defined, in April 1997. Accordingly, $11.5 million of the Company's federal and state net operating loss carryforwards are limited in their annual usage to $3.9 million per year on a cumulative basis. F-17 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (7) STOCKHOLDERS' DEFICIT (A) PREFERRED STOCK The Company's restated certificate of incorporation authorizes 20,339,666 shares of preferred stock. As of September 30, 1997 and 1998, and December 31, 1998 the Company has designated and issued preferred stock as follows:
OUTSTANDING SHARES -------------------------------------------- SEPTEMBER 30, DESIGNATED ---------------------------- LIQUIDATION SHARES 1997 1998 PREFERENCE ------------- ------------- ------------- DECEMBER 31, ------------- 1998 -------------- (UNAUDITED) Series A.............................. 750,000 651,945 651,945 651,945 $ 0.90 Series B.............................. 33,000 -- -- -- 1.20 Series C.............................. 2,833,333 -- -- -- 1.82 Series E.............................. 15,033,333 10,743,020 10,924,992 10,924,992 6.68 Series E-2............................ -- -- -- -- 6.68 Series F.............................. 916,666 -- -- -- 10.80 Series F-2............................ -- -- -- 388,889 9.00 ------------- ------------- ------------- -------------- 19,566,332 11,394,965 11,576,937 11,965,826 ------------- ------------- ------------- -------------- ------------- ------------- ------------- --------------
The rights, preferences, and restrictions of the Series A, B, C, E and F preferred stock are as follows: - Each share of Series A, B, C, E and F preferred stock is convertible at the option of the holder at any time into one share of common stock, subject to certain antidilution provisions. Conversion of all Series A, B, C, E and F preferred stock is automatic upon the closing of a firm underwritten commitment public offering of shares of common stock of the Company, which results in aggregate cash proceeds of at least $30 million. - Holders of Series A, B, C, E and F preferred stock are entitled to receive dividends at 8% per annum in preference to any dividend on common stock when and if declared by the Board of Directors out of legally available funds. Dividends are noncumulative. No dividends have been declared through September 30, 1998. - Series A, B, C, E and F preferred stock have a liquidation preference in the amounts listed above plus all declared but unpaid dividends on such shares plus an amount equal to an 8% annually compounded return calculated from the original issue date through the liquidation date. - Series A, B, C, E and F preferred stock have the same voting rights as the number of shares of common stock issuable upon conversion of such shares. The consent of a majority of the outstanding Series E preferred stock is required for all major corporate actions. The holders F-18 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (7) STOCKHOLDERS' DEFICIT (CONTINUED) of the Series E preferred stock have a right to elect a majority of directors of the Company until the outstanding shares of Series E preferred stock and warrants to purchase such shares represent less than 45% of the fully diluted shares of voting securities of the Company or the consummation of an IPO. (B) COMMON STOCK The Company's restated certificate of incorporation authorizes 28,333,333 shares of common stock. As of September 30, 1998, the Company has reserved shares of common stock for future issuance as follows:
SHARES ------------- Conversion of preferred stock: Series A......................................................................................... 651,945 Series C......................................................................................... 2,250,500 Series E......................................................................................... 3,482,838 Series F......................................................................................... 1,833,333
(C) PREFERRED STOCK WARRANTS In fiscal 1996, as consideration for a lease line facility from a leasing company, the Company issued warrants to purchase 33,000 shares of the Company's Series B preferred stock at an exercise price of $1.20 per share. The shares were exercised through a cashless exchange in fiscal 1997. There were no warrants outstanding as of September 30, 1998. In fiscal 1997, in consideration for a bank line of credit and an equipment lease line facility with a financial institution and leasing company, respectively (the lenders), the Company issued warrants to purchase 244,715 shares of Series C preferred stock at an exercise price of $1.82 per share, and 22,459 shares of Series E preferred stock at an exercise price of $6.68 per share. The Company determined the fair value of these warrants using the Black-Scholes pricing model with the following assumptions: A risk-free interest rate of 5.6%; an expected life of three years; volatility of 65%; and no dividend yield. The fair value of these warrants does not have a material effect on the consolidated financial statements. During fiscal 1997, the lenders exercised all warrants by foregoing the receipt of that number of shares of preferred stock, that would otherwise have been issued upon exercise, equal in value to the exercise price of all warrants exercised. During fiscal 1997, the Company issued to holders of Series B preferred stock, and a third party investor, warrants to purchase up to 6,863,426 shares of Series C preferred stock at an exercise price of $1.82 per share. The fair value of the warrants issued to existing stockholders was considered a dividend. These warrants are exercisable at anytime and expire on the earlier of the closing of an IPO or March 13, 2000. During fiscal 1997, warrants to purchase 4,612,926 shares of Series C F-19 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (7) STOCKHOLDERS' DEFICIT (CONTINUED) preferred stock were exercised. Warrants to purchase 2,250,500 shares of Series C preferred stock have not been exercised as of September 30, 1998. Each warrant holder has the right to exercise the warrant by foregoing the receipt of that number of shares of preferred stock, that would otherwise have been issued upon exercise, equal in value to the exercise price of all warrants exercised. In connection with the IBM Transaction, the Company issued warrants to purchase up to 833,333 shares of Series F preferred stock, previously Series D preferred stock, at an exercise price of $10.80 per share to the holders of the Series A, B, and C preferred stock for $48,000 in cash, net of expenses. In addition, warrants to purchase up to 3,482,838 shares of Series E preferred stock at an exercise price of $6.68 were issued to IBM for $250,000 in cash. These warrants are exercisable at anytime and expire on the earlier of the closing of an IPO or March 13, 2000. These warrants to purchase Series E and F preferred stock have not been exercised as of September 30, 1998. Each warrant holder has the right to exercise the warrant by foregoing the receipt of that number of shares of preferred stock, that would otherwise have been issued upon exercise, equal in value to the exercise price of all warrants exercised. In connection with the IBM Transaction, the Company granted to its founders, who are also employees, the right to repurchase 673,778 shares of Series E preferred stock at an exercise price of $6.68 per share in three equal installments prior to April 10, 1998. In June 1997, the four founders exercised the first installment. Had the Company valued these stock rights pursuant to SFAS No. 123 using the minimum value option pricing model, the Company's 1997 net loss would have been greater by approximately $111,000. This determination was made using the following assumptions: a risk-free interest rate of 6.5%; an expected life of one year; and no dividends. During fiscal 1998, the Company entered into a line of credit agreement with IBM Credit Corp. In connection with the line of credit, NetObjects issued warrants to purchase 83,333 shares of Series F preferred stock at an exercise price of $6.68. See Note 3. (D) STOCK OPTION PLANS Under the Company's 1996 Stock Option Plan (1996 Plan), a total of 1,658,943 shares of common stock were authorized for issuance. In connection with the IBM Transaction, the 1996 Plan was terminated and the Company established the 1997 Stock Option Plan and the 1997 Special Stock Option Plan (the 1997 Plans). A total of 2,158,943 and 1,041,056 shares of the Company's common stock have been authorized for issuance under these plans, respectively. In April 1997, the Company canceled the outstanding options under the 1996 Plan and granted replacement options under the 1997 Plans with the same terms. The cancellation and reissuance is not reflected in the stock option activity table below. Options granted under the 1997 Plans may be designated as qualified or nonqualified at the discretion of the Company's Board of Directors with exercise prices not less than the fair value at the date of grant. Options granted under the 1996 Plan, and the replacement options granted under F-20 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (7) STOCKHOLDERS' DEFICIT (CONTINUED) the 1997 Plans, are immediately exercisable upon grant, and the Company retains the right to repurchase the unvested shares held at the time of termination of employment at the original purchase price. Options generally vest 25% at the end of the first year and monthly over the next three years. Options expire ten years from the date of grant. As of September 30, 1998, 88,177 shares were subject to the Company's right of repurchase. The Company uses the intrinsic value method to account for the 1997 Plans. Accordingly, compensation cost has been recognized for its stock options in the accompanying financial statements if, on the date of grant, the current market value of the underlying common stock exceeded the exercise price of the stock options at the date of grant. During fiscal 1998, the Company granted options with a weighted-average exercise price of $2.10 per share compared to the weighted-average fair value of approximately $4.35 during the same period. For the period from November 21, 1995 (inception) to September 30, 1996 and for the year ended September 30, 1997, the weighted-average exercise price of options granted approximated the weighted-average fair value. In connection with options granted in fiscal year 1998, the Company has recorded deferred stock-based compensation of $768,000 representing the difference between the exercise price and the fair value of the Company's common stock at the date of grant. The amount is being amortized over the vesting period for the individual options. Amortization of deferred stock-based compensation of $227,000 was recognized during the fiscal year ended September 30, 1998. Pursuant to SFAS No. 123, the Company is required to disclose the pro forma effects on the operating results of the Company as if the Company has elected to use the fair value approach to account for all its stock-based employee compensation plans. Had compensation cost for the Company's 1997 Plans been determined consistent with the fair value approach enumerated in SFAS No. 123, net loss for the period from November 21, 1995 (inception) to September 30, 1996 and for the years ended September 30, 1997 and 1998 would have been greater by approximately $0, $52,000 and $193,000, respectively. The fair value of each option is estimated using the minimum value method with the following assumptions: a risk-free interest rate of 6.5%; an expected life of four years; and no dividend yield. F-21 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (7) STOCKHOLDERS' DEFICIT (CONTINUED) The following table summarizes stock option activity during the year:
PERIOD FROM NOVEMBER 21, THREE 1995 (INCEPTION) TO YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, MONTHS ENDED DECEMBER SEPTEMBER 30, 1996 1997 1998 31, 1998 -------------------------- -------------------------- -------------------------- ----------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF SHARES PRICE SHARES PRICE SHARES PRICE SHARES ----------- ------------- ----------- ------------- ----------- ------------- ----------- Shares under options outstanding at beginning of period............... -- $ -- 738,051 $ 0.12 2,517,670 $ 1.20 2,472,343 Granted................ 1,017,305 0.12 2,251,557 1.08 341,340 2.10 436,081 Exercised.............. (259,254) 0.12 (126,353) 0.12 (144,432) 0.60 (103,030) Canceled............... -- -- (365,585) 0.48 (242,235) 1.26 (175,819) ----------- ----------- ----------- ----------- Shares under options outstanding at end of period............... 758,051 0.12 2,517,670 1.20 2,472,343 1.32 2,629,575 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Shares vested at period-end........... -- 128,388 852,158 875,081 WEIGHTED- AVERAGE EXERCISE PRICE ------------- Shares under options outstanding at beginning of period............... $ 1.32 Granted................ 7.44 Exercised.............. 0.72 Canceled............... 1.38 Shares under options outstanding at end of period............... 2.38 Shares vested at period-end...........
The following table summarizes information about stock options outstanding as of September 30, 1998:
OUTSTANDING - ------------------------------------------ WEIGHTED- AVERAGE NUMBER REMAINING OF CONTRACTUAL SHARES EXERCISE PRICE SHARES LIFE VESTED - --------------- ----------- ------------ --------- $ 0.12 305,942 7.50 years 15,416 0.30 81,948 8.25 37,740 0.60 83,333 8.25 40,036 1.50 1,456,540 8.50 512,265 1.65 225,000 8.50 84,375 2.10 319,577 9.75 12,249 ----------- --------- 2,472,340 702,081 ----------- --------- ----------- ---------
(8) SUBSEQUENT EVENTS On October 8, 1998, the Company entered into Convertible Note and Warrant Purchase Agreements with IBM and a Series C preferred warrantholder, whereby the Company may borrow up to $10.9 million, of which $8.3 million was received by the Company as of December 31, 1998 and the F-22 NETOBJECTS, INC. AND SUBSIDIARY (A MAJORITY OWNED SUBSIDIARY OF IBM) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1996, 1997, AND 1998 (INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED) (8) SUBSEQUENT EVENTS (CONTINUED) remaining amount was received in January, 1999. A portion of the proceeds received has been used to repay $2 million in notes payable due to IBM. The new notes are due October 8, 2000, have a stated interest rate of 10% per annum, and are convertible (principal and accrued interest) into Series E-2 preferred stock at $6.68 per share at any time or automatically upon the completion of an IPO. The Company has recorded a $3.8 million nonrecurring interest charge during the three month period ended December 31, 1998 to account for the "in-the-money" conversion right of the convertible notes. In connection with the notes, the Company issued warrants to acquire 163,715 shares of Series E-2 preferred stock at an exercise price of $6.68 per share. The warrants are exercisable at any time before October 8, 2003. The Company determined the fair value of these warrants using the Black-Scholes pricing model with the following assumptions: A risk-free interest rate of 6%; an expected life of five years; volatility of 65%; and no dividend yield. The resulting discount is being amortized over the term of the convertible note. As of September 30, 1998, $7.6 million was outstanding under the convertible note, net of a discount of $700,000. On October 16, 1998, NetObjects entered into a Stock Purchase Agreement with a company authorizing the sale and issuance of 333,333 shares of Series F-2 preferred stock at a purchase price of $9.00 per share for an aggregate price of $3 million. The transaction closed on October 26, 1998. Warrants to acquire 16,666 shares of Series F-2 preferred stock were also issued at an exercise price of $10.80 and are exercisable between January 1, 2001 and December 31, 2003 only in the event the Company has not completed an IPO prior to December 31, 2000. On October 28, 1998, NetObjects entered into a Stock Purchase Agreement with a company authorizing the sale and issuance of 55,555 shares of Series F-2 preferred stock at a purchase price of $9.00 per share, for an aggregate price of $500,000. The transaction closed on November 10, 1998. STOCK SPLIT On December 9, 1998, the Board of Directors authorized a 1-for-6 reverse split of all the outstanding shares of the Company's preferred and common stock. Share information has been restated in the accompanying consolidated financial statements to reflect the reverse stock split for all periods presented. INITIAL PUBLIC OFFERING (UNAUDITED) On February 4, 1999, the Board of Directors authorized the filing of a registration statement with the SEC permitting the Company to sell shares of the Company's common stock in connection with a proposed IPO. If the offering is consummated under the terms presently anticipated, all currently outstanding shares of preferred stock will automatically convert into approximately F-23 (8) SUBSEQUENT EVENTS (CONTINUED) 11,965,826 shares of common stock upon the closing of the proposed IPO. The conversion of the preferred stock has been reflected in the pro forma balance sheet as of December 31, 1998. EMPLOYEE STOCK PURCHASE PLAN (UNAUDITED) The Company's Board of Directors adopted the 1999 Employee Stock Purchase Plan (the "1999 Purchase Plan") on February 4, 1999. A total of 300,000 shares of common stock are proposed to be reserved for issuance under the 1999 Purchase Plan. IBM LICENSE AGREEMENT (UNAUDITED) In January 1999 the Company and IBM amended the Master License Agreement as follows: - The Special Promotion period was extended to June 30, 1999 and the maximum number of units to be shipped under the program was increased from 200,000 to 225,000. - The maximum amount to be paid to the Company in connection with the services provided to IBM was reduced to approximately $5.3 million, and the related mark up on the services to be provided was reduced. F-24 INSIDE BACK COVER OF PROSPECTUS: TITLE: BROADENING OUR REACH INTRO PARAGRAPH: As business use of the Internet and intranets matures, products alone are not enough to fulfill customers' needs. We have built popular online resources, including eFuse.com, that target communities of business users and provide sources of information, products and services for building business web sites. We also formed our Professional Services Group in October 1998 to provide training, consulting and implementation services to our customers deploying NetObjects Authoring Server. GRAPHICS: four overlapping screen shots of web sites CAPTIONS (ONE FOR EACH SCREEN SHOT; CLOCKWISE FROM TOP): (1) eScriptZone.com: articles, tutorials, software and an online community for webmasters and web application builders (2) eFuse.com: integrated content, products, and solutions for small and medium-sized businesses (3) netobjects.com: information, products, partner solutions and support (4) eSiteStore.com: software, components, books, merchandise and online services - ------------------------------------------- ------------------------------------------- - ------------------------------------------- ------------------------------------------- YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE SALE OF COMMON STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH THE OFFER OR SOLICITATION IS UNLAWFUL. -------------- TABLE OF CONTENTS
PAGE --------- Prospectus Summary............................. 3 Risk Factors................................... 8 Use of Proceeds................................ 23 Dividend Policy................................ 23 Capitalization................................. 24 Dilution....................................... 25 Selected Consolidated Financial Data........... 26 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 28 Business....................................... 40 Management..................................... 55 Certain Transactions........................... 62 Principal Stockholders......................... 67 Description of Capital Stock................... 69 Shares Eligible for Future Sale................ 71 Underwriting................................... 73 Legal Matters.................................. 74 Experts........................................ 75 Change in Auditors............................. 75 Additional Information......................... 75 Index to Consolidated Financial Statements..... F-1
-------------- DEALER PROSPECTUS DELIVERY OBLIGATION: Until , 1999 (25 days after the date of this Prospectus), all dealers that buy, sell or trade these shares of common stock, whether or not participating in this offering, may be required to deliver a Prospectus. This is in addition to the dealers' obligation to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SHARES [LOGO] COMMON STOCK ----------------- P R O S P E C T U S ----------------- BT ALEX. BROWN BANCBOSTON ROBERTSON STEPHENS PIPER JAFFRAY INC. , 1999 - ------------------------------------------- ------------------------------------------- - ------------------------------------------- ------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Securities and Exchange Commission Registration Fee............ $ 21,100 NASD Filing Fee................................................ 8,090 Nasdaq National Market Listing Fee............................. 95,000 Legal Fees and Expenses........................................ * Accountants' Fees and Expenses................................. * Printing and Engraving Expenses................................ * Directors' and Officers' Liability Insurance................... * Transfer Agent and Registrar Fees.............................. 5,000 Miscellaneous Expenses......................................... * --------- Total........................................................ $ * --------- ---------
- ------------------------ All expenses other than the Securities and Exchange Commission Registration Fee, the NASD Filing Fee and the Nasdaq National Market Listing Fee are estimates. * To be completed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act"). As permitted by the DGCL, the Amended and Restated Bylaws of the Registrant provide that the Registrant shall indemnify its directors and officers, and may indemnify its employees and other agents, to the fullest extent permitted by law. The Amended and Restated Bylaws also permit the Registrant to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the Amended and Restated Bylaws would permit indemnification. The Registrant has obtained officer and director liability insurance with respect to liabilities arising out of certain matters, including matters arising under the Securities Act. The Registrant also has entered into agreements with its directors and executive officers that, among other things, indemnify them for certain expenses (including attorneys' fees), judgments, fines and settlement amounts incurred by them in any action or proceeding, including any action by or in the right of the Registrant, arising out of such person's services as a director or officer of the Registrant, any subsidiary of the Registrant or any other company or enterprise to which the person provides services at the request of the Registrant. Reference is also made to Section 8 of the form of Underwriting Agreement to be filed as Exhibit 1.1 to this Registration Statement for certain provisions regarding the indemnification of officers and directors of the Registrant by the underwriters. II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since November 21, 1995, the Registrant has issued and sold unregistered securities as follows: (1) An aggregate of 1,583,333 shares of common stock were issued in a private placement on December 21, 1995 to the Company's founders. The aggregate consideration received was promissory notes in the aggregate principal amount of $142,500. (2) An aggregate of 1,833,332 shares of Series A preferred stock were issued in a private placement on December 21, 1995 to Studio Archetype (formerly Clement Mok Designs) and Rae Technology. The aggregate consideration received was certain technology and intellectual property rights. (3) An aggregate of 4,466,666 shares of Series B preferred stock were issued in a private placement on February 2, 1996 to certain accredited investors. The aggregate consideration received was $5.3 million. (4) Warrants for the purchase of up to 6,863,426 shares of Series C preferred stock were issued in a private placement in December 1996 to certain institutional investors. No consideration was received in connection with the issuance of such warrants. During 1997 4,612,926 of the Series C preferred stock warrants were exercised on various dates between December 1996 and March 1997. The aggregate consideration received was approximately $8.4 million. (5) A warrant to purchase up to 3,482,838 shares of Series E preferred stock was issued in a private placement on April 11, 1997 to IBM. The aggregate consideration received in connection with the issuance of such warrant was approximately $250,000. (6) An aggregate of 10,495,968 shares of Series E preferred stock were issued in a private placement on April 11, 1997 to IBM in exchange for 1,181,388 shares of Series A preferred stock and all outstanding shares of Series B and C preferred stock. (7) An aggregate of [406,566] shares of Series E preferred stock were issued in private placements on various dates between June, 1997 and March, 1998 to the Company's founders. The aggregate consideration received was approximately $2.7 million. (8) Warrants to purchase of up to 833,333 shares of Series F preferred stock, (originally classified as Series D preferred stock) pursuant to an option agreement made in connection with IBM's acquisition of approximately 80% of our stock were issued in a private placement on March 12, 1997 to certain accredited investors. The aggregate consideration received in connection with the issuance of such warrants was $48,000, net of expenses. (9) A warrant to purchase up to 83,333 shares of Series F preferred stock was issued to IBM Credit Corp. in a private placement effective as of December 23, 1997 in connection with a $15 million (subsequently increased to $19 million) loan pursuant to a Revolving Loan and Security Agreement. (10) Units for the purchase of 10% Senior Subordinated Secured Convertible Promissory Notes ("Convertible Notes") representing the right to acquire upon conversion or exercise up to 1,633,538 shares of Series E-2 preferred stock were issued in a private placement on October 8, 1998 to IBM and Perseus Capital LLC for an aggregate consideration of $10.9 million, $2.6 million of which was received from IBM on January 5, 1999. The aggregate consideration received in connection with the issuance of such warrants was approximately $92,000. In February 1999, the Company and IBM agreed that the Company has an option to raise up to $3.45 million from the sale of notes to IBM. (11) A warrant for the purchase of up to 16,666 shares of Series F-2 preferred stock was issued in a private placement of shares of preferred stock and warrants for the purchase of preferred stock II-2 on October 16, 1998 to Novell, Inc. No additional consideration was received in connection with the issuance of such warrants. (12) As of December 31, 1998, an aggregate of 633,069 shares of common stock had been issued to employees and consultants on exercise of options. The aggregate consideration received for such shares was $242,000. No underwriters were engaged in connection with these issuances and sales. Each of the transactions noted above was made in reliance upon the exemption from registration provided by either Section 3(b) or 4(2) of the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS
NUMBER DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement 3.1 Restated Certificate of Incorporation of the Registrant 3.1.1 Form of Restated Certificate of Incorporation to be in effect at the closing of the offering made under this Registration Statement 3.2 Bylaws of the Registrant as amended through the date of this Registration Statement 3.2.1 Form of Amended and Restated Bylaws to be in effect upon the closing of the offering made under this Registration Statement 4.1** Specimen stock certificate 4.2 Form of Series C Preferred Stock Warrant 4.2.1 Amendment to Series C Preferred Stock Warrant 4.3 Form of Series E Preferred Stock Warrant 4.4 Form of Series E-2 Preferred Stock Warrant 4.5 Form of Series F Preferred Stock Warrant 5.1** Opinion of Graham & James LLP 9.1 Voting Agreement between NetObjects, Inc. and International Business Machine Corporation 10.1 NetObjects, Inc. 1997 Stock Option Plan 10.1.1 NetObjects, Inc. Amended and Restated 1997 Stock Option Plan to be in effect upon the closing of the offering made under this Registration Statement 10.1.2 Form of Stock Option Agreement under the 1997 Stock Option Plan 10.1.3 Form of Restricted Stock Purchase Agreement under the 1997 Stock Option Plan 10.1.4 Form of Restricted Stock Transfer Agreement under the 1997 Stock Option Plan 10.2 NetObjects, Inc. 1997 Special Stock Option Plan 10.3 1999 Employee Stock Purchase Plan 10.4* IBM Software License Agreement (NetObjects License Agreement #L97063) by and between NetObjects and IBM dated as of March 18, 1997 10.4.1* Amendment Number 1 to NetObjects License Agreement L97063 dated as of April 30, 1997 10.4.2 Second Amendment to NetObjects License Agreement L97063 dated as of October 7, 1997
II-3
NUMBER DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 10.4.3* Third Amendment to NetObjects License Agreement L97063 dated as of December 16, 1997 10.4.4* Fourth Amendment to NetObjects License Agreement L97063 dated as of April 27, 1998 10.4.5* Fifth Amendment to NetObjects License Agreement L97063 dated as of January 14, 1999 10.4.6* Amendment No. 6 to NetObjects License Agreement L97063 dated as of September 18, 1998 10.4.7* Seventh Amendment to NetObjects License Agreement L97063 effective January 15, 1999 10.4.8* Eighth Amendment to NetObjects License Agreement L97063 dated September 18, 1998 10.4.9* Amendment No. 9 to NetObjects License Agreement effective January 21, 1999 10.4.10 Amendment No. 10 to NetObjects License Agreement dated as of February 4, 1999 10.4.11* Letter Agreement modifying NetObjects License Agreement L97063 dated as of February 6, 1998 10.4.12* Letter Agreement modifying NetObjects License Agreement L97063 dated as of June 30, 1998 10.4.13* Letter Agreement modifying NetObjects License Agreement L97063 dated as of January 14, 1999 10.5 IBM Patent License Agreement by and between NetObjects and IBM dated as of April 10, 1997 10.6 Lease Agreement by and between NetObjects and Metropolitan Life Insurance Company dated July 24, 1998 10.7 Lease Agreement by and between NetObjects Limited and HQ Executive Offices (UK) LTD dated September 1, 1998 10.8 Revolving Loan and Security Agreement by and between NetObjects, Inc. and IBM Credit Corp. dated as of December 23, 1997 10.8.1 Amendment to Revolving Loan and Security Agreement dated July 1998 10.9 Note and Warrant Purchase Agreement by and among NetObjects and IBM and Persues dated as of October 8, 1998 10.9.1 Supplement to Note and Warrant Purchase Agreement dated as of February 4, 1999 10.10 Technology Transfer Agreement between Rae Technology, Inc. and NetObjects, Inc. dated February 2, 1996 10.10.1** Amendment to Technology Transfer Agreement by and between Rae Technology and NetObjects dated as of March 18, 1997 10.11** Patent Transfer and License Agreement by and between Rae Technology LLC and NetObjects, Inc. dated as of April 10, 1997, as amended 10.12 Technology License Agreement by and between NetObjects and Clement Mok Designs dated as of December 21, 1995 10.13* Distribution Agreement by and between Ingram Micro, Inc. and NetObjects, Inc. dated March 6, 1997
II-4
NUMBER DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 10.14* Commercial Application Partner Agreement by and between Sybase, Inc. and NetObjects, Inc. dated June 30, 1997 10.15* Master Distributor Agreement by and between Mitsubishi Corporation and NetObjects, Inc. dated September 30, 1997 10.16* Standard Inbound License Agreement by and between NetObjects and Novell effective September 30, 1998 10.17* Build-It License Agreement dated as of February 2, 1999 10.18* IBM Trademark License Agreement dated as of January 19, 1999 16.1 Letter from Ernst & Young LLP dated February 5, 1999 regarding change in certifying accountant 21.1 Subsidiaries of the Registrant 23.1 Consent of Graham & James LLP (included in its opinion to be filed as Exhibit 5.1 hereto) 23.2 Consent of KPMG LLP 24.1 Power of Attorney (included in signature page hereto) 27.1 Financial Data Schedule
- ------------------------ * Confidential treatment requested. ** To be filed by amendment. (b) FINANCIAL STATEMENT SCHEDULE Independent Auditors' Report on Schedule Schedule II--Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS 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 otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes to provide to the underwriters, at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. 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 a part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Redwood City, State of California, on February 5, 1999. NETOBJECTS, INC. By: /s/ SAMIR ARORA ----------------------------------------- Samir Arora CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY Each person whose individual signature appears below hereby authorizes and appoints Samir Arora and Michael J. Shannahan, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file, any and all amendments to this Registration Statement, including any and all post-effective amendments and amendments thereto and any registration statement relating to the same offering as this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their and his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated below on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- Chairman of the Board, /s/ SAMIR ARORA Chief Executive Officer, - ------------------------------ President (Principal February 5, 1999 Samir Arora Executive Officer) /s/ MICHAEL J. SHANNAHAN Chief Financial Officer - ------------------------------ (Principal Financial and February 5, 1999 Michael J. Shannahan Accounting Officer) /s/ JOHN SCULLEY - ------------------------------ Director February 5, 1999 John Sculley /s/ LEE A. DAYTON - ------------------------------ Director February 5, 1999 Lee A. Dayton /s/ MICHAEL D. ZISMAN - ------------------------------ Director February 5, 1999 Michael D. Zisman /s/ ROBERT G. ANDEREGG - ------------------------------ Director February 5, 1999 Robert G. Anderegg /s/ CHRISTOPHER M. STONE* - ------------------------------ Director February 5, 1999 Christopher M. Stone
* Mr. Stone will become a director of our Company on the closing date of the offering. II-6 INDEX TO EXHIBITS
NUMBER DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement 3.1 Restated Certificate of Incorporation of the Registrant 3.1.1 Form of Restated Certificate of Incorporation to be in effect at the closing of the offering made under this Registration Statement 3.2 Restated Bylaws of the Registrant as amended through the date of this Registration Statement 3.2.1 Form of Amended and Restated Bylaws to be in effect upon the closing of the offering made under this Registration Statement 4.1** Specimen stock certificate 4.2 Form of Series C Preferred Stock Warrant 4.2.1 Amendment to Series C Preferred Stock Warrant 4.3 Form of Series E Preferred Stock Warrant 4.4 Form of Series E-2 Preferred Stock Warrant 4.5 Form of Series F Preferred Stock Warrant 5.1** Opinion of Graham & James LLP 9.1 Voting Agreement between NetObjects, Inc. and International Business Machine Corporation 10.1 NetObjects, Inc. 1997 Stock Option Plan 10.1.1 NetObjects, Inc. Amended and Restated 1997 Stock Option Plan to be in effect upon the closing of the offering made under this Registration Statement 10.1.2 Form of Stock Option Agreement under the 1997 Stock Option Plan 10.1.3 Form of Restricted Stock Purchase Agreement under the 1997 Stock Option Plan 10.1.4 Form of Restricted Stock Transfer Agreement under the 1997 Stock Option Plan 10.2 NetObjects, Inc. 1997 Special Stock Option Plan 10.3 1999 Employee Stock Purchase Plan 10.4* IBM Software License Agreement (NetObjects License Agreement #L97063) by and between NetObjects and IBM dated as of March 18, 1997 10.4.1* Amendment Number 1 to NetObjects License Agreement L97063 dated as of April 30, 1997 10.4.2 Second Amendment to NetObjects License Agreement L97063 dated as of October 7, 1997 10.4.3* Third Amendment to NetObjects License Agreement L97063 dated as of December 16, 1997 10.4.4* Fourth Amendment to NetObjects License Agreement L97063 dated as of April 27, 1998 10.4.5* Fifth Amendment to NetObjects License Agreement L97063 dated as of January 14, 1999 10.4.6* Amendment No. 6 to NetObjects License Agreement L97063 dated as of September 18, 1998 10.4.7* Seventh Amendment to NetObjects License Agreement L97063 effective January 15, 1999 10.4.8* Eighth Amendment to NetObjects License Agreement L97063 dated September 18, 1998 10.4.9* Amendment No. 9 to NetObjects License Agreement effective January 21, 1999 10.4.10 Amendment No. 10 to NetObjects License Agreement dated as of February 4, 1999 10.4.11* Letter Agreement modifying NetObjects License Agreement L97063 dated as of February 6, 1998
NUMBER DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 10.4.12* Letter Agreement modifying NetObjects License Agreement L97063 dated as of June 30, 1998 10.4.13* Letter Agreement modifying NetObjects License Agreement L97063 dated as of January 14, 1999 10.5 IBM Patent License Agreement by and between NetObjects and IBM dated as of April 10, 1997 10.6 Lease Agreement by and between NetObjects and Metropolitan Life Insurance Company dated July 24, 1998 10.7 Lease Agreement by and between NetObjects Limited and HQ Executive Offices (UK) LTD dated September 1, 1998 10.8 Revolving Loan and Security Agreement by and between NetObjects, Inc. and IBM Credit Corp. dated as of December 23, 1997 10.8.1 Amendment to Revolving Loan and Security Agreement dated July 1998 10.9 Note and Warrant Purchase Agreement by and among NetObjects and IBM and Persues dated as of October 8, 1998 10.9.1 Supplement to Note and Warrant Purchase Agreement dated as of February 4, 1999 10.10 Technology Transfer Agreement between Rae Technology, Inc. and NetObjects, Inc. dated February 2, 1996 10.10.1** Amendment to Technology Transfer Agreement by and between Rae Technology and NetObjects dated as of March 18, 1997 10.11** Patent Transfer and License Agreement by and between Rae Technology LLC and NetObjects, Inc. dated as of April 10, 1997, as amended 10.12 Technology License Agreement by and between NetObjects and Clement Mok Designs dated as of December 21, 1995 10.13* Distribution Agreement by and between Ingram Micro, Inc. and NetObjects, Inc. dated March 6, 1997 10.14* Commercial Application Partner Agreement by and between Sybase, Inc. and NetObjects, Inc. dated June 30, 1997 10.15* Master Distributor Agreement by and between Mitsubishi Corporation and NetObjects, Inc. dated September 30, 1997 10.16* Standard Inbound License Agreement by and between NetObjects and Novell effective September 30, 1998 10.17* Build-It License Agreement dated as of February 2, 1999 10.18* IBM Trademark License Agreement dated as of January 19, 1999 16.1 Letter from Ernst & Young LLP dated February 5, 1999 regarding change in certifying accountant 21.1 Subsidiaries of the Registrant 23.1 Consent of Graham & James LLP (included in its opinion to be filed as Exhibit 5.1 hereto) 23.2 Consent of KPMG LLP 24.1 Power of Attorney (included in signature page hereto) 27.1 Financial Data Schedule
- ------------------------ * Confidential treatment requested. ** To be filed by amendment. INDEPENDENT AUDITORS' REPORT The Board of Directors Net Objects, Inc: Under date of December 21, 1998, we reported on the consolidated balance sheets of NetObjects, Inc. and subsidiary as of September 30, 1997 and 1998, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the period from November 21, 1995 (inception) to September 30, 1996, and for each of the years in the two-year period ended September 30, 1998, which are included in the prospectus. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules in the registration statement. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. The accompanying consolidated financial statement schedules have been prepared assuming that the Company will continue as a going concern. As discussed in note 1(d) to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in note 1(d). The consolidated financial statement schedules do not include any adjustments that might result from the outcome of this uncertainty. KPMG LLP Mountain View, California December 21, 1998 S-1 NETOBJECTS, INC. VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS-- BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COSTS AND DEDUCTIONS-- END OF FISCAL YEAR EXPENSES WRITEOFFS FISCAL YEAR ------------- ------------- -------------- ------------- Period from November 21, 1995 (inception) to September 30, 1996 Allowance for doubtful accounts, returns and price protection.................................................. -- -- -- -- Year ended September 30, 1997 Allowance for doubtful accounts, returns and price protection.................................................. -- $ 1,905,810 $ (1,150,228) $ 755,582 Year ended September 30, 1998 Allowance for doubtful accounts, returns and price protection.................................................. $ 755,582 $ 4,691,000 $ (3,183,475) $ 2,263,107
S-2 EX-1.1 2 EXHIBIT 1.1 _______________ Shares NetObjects, Inc. Common Stock ($ Par Value) UNDERWRITING AGREEMENT _______________, 1999 BT Alex. Brown Incorporated BancBoston Robertson Stephens Piper Jaffray Inc. As Representatives of the Several Underwriters c/o BT Alex. Brown Incorporated One South Street Baltimore, Maryland 21202 Ladies and Gentlemen: NetObjects, Inc., a Delaware corporation (the "Company"), proposes to sell to the several underwriters (the "Underwriters") named in Schedule I hereto for whom you are acting as Representatives (the "Representatives"), an aggregate of __________ shares of the Company's Common Stock, $_____ par value (the "Firm Shares"). The respective amounts of the Firm Shares to be so purchased by the several Underwriters are set forth opposite their names in Schedule I hereto. The Company also proposes to sell at the Underwriters' option an aggregate of up to __________ additional shares of the Company's Common Stock (the "Option Shares") as set forth below. In addition, International Business Machines Corp., a New York corporation (the "Principal Stockholder"), is a party to this Agreement for purposes of Sections 1, 6 and 10 through 14, inclusive. As the Representatives, you have advised the Company (a) that you are authorized to enter into this Agreement on behalf of the several Underwriters, and (b) that the several Underwriters are willing, acting severally and not jointly, to purchase the numbers of Firm Shares set forth opposite their respective names in Schedule I, plus their pro rata portion of the Option Shares if you elect to exercise the over-allotment option in whole or in part for the 2 accounts of the several Underwriters. The Firm Shares and the Option Shares (to the extent the aforementioned option is exercised) are herein collectively called the "Shares." In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto agree as follows: 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL STOCKHOLDER. (a) The Company represents and warrants to each of the Underwriters as follows: (i) A registration statement on Form S-1 (File No. 333-______) with respect to the Shares has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the Rules and Regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder and has been filed with the Commission. Copies of such registration statement, including any amendments thereto, the preliminary prospectuses (meeting the requirements of the Rules and Regulations) contained therein and the exhibits, financial statements and schedules, as finally amended and revised, have heretofore been delivered by the Company to you. Such registration statement (as described in the preceding sentence), together with any registration statement filed by the Company pursuant to Rule 462(b) of the Act, herein referred to as the "Registration Statement," which shall be deemed to include all information omitted therefrom in reliance upon Rule 430A and contained in the Prospectus referred to below, has become effective under the Act and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. "Prospectus" means the form of prospectus first filed with the Commission pursuant to Rule 424(b)(1). Each preliminary prospectus included in the Registration Statement prior to the time it becomes effective is herein referred to as a "Preliminary Prospectus." (ii) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own or lease its properties and conduct its business as presently conducted and as described in the Registration Statement. The sole subsidiary of the Company, NetObjects, Ltd. (the "Subsidiary"), has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own or lease its properties and conduct its business as presently conducted and as described in the Registration Statement. The Subsidiary is the only subsidiary, direct or indirect, of the Company. The Company and the Subsidiary are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification except where the failure to so qualify does not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operations of the Company and the Subsidiary taken as a whole. The outstanding shares of capital stock of the Subsidiary have been duly authorized and validly issued, are fully paid and non-assessable and are owned by the Company free and clear of all liens, encumbrances and equities and claims; and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into shares of capital stock or ownership interests in the Subsidiary are outstanding. 3 (iii) The outstanding shares of Common Stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the Shares to be issued and sold to the Underwriters by the Company have been duly authorized and when issued and paid for as contemplated herein will be validly issued, fully paid and non-assessable; and no preemptive rights of stockholders exist with respect to any of the Shares or the issue and sale thereof. Neither the filing of the Registration Statement nor the offering or sale of the Shares as contemplated by this Agreement gives rise to any rights, except as described in the Prospectus (and any amendment or supplement thereto) and other than those which have been waived or satisfied, for or relating to the registration of any shares of Common Stock. (iv) The information set forth under the caption "Capitalization" in the Prospectus is true and correct. All of the Shares conform to the description thereof contained in the Registration Statement. The form of certificates for the Shares conforms to the corporate law of the jurisdiction of the Company's incorporation. (v) The Commission has not issued an order preventing or suspending the use of any Prospectus relating to the proposed offering of the Shares or instituted proceedings for that purpose. The Registration Statement contains, and the Prospectus and any amendments or supplements thereto will contain, all statements which are required to be stated therein by, and will conform to, the requirements of the Act and the Rules and Regulations. The Registration Statement and any amendment thereto do not contain, and will not contain, any untrue statement of a material fact and do not omit, and will not omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus and any amendments and supplements thereto do not contain, and will not contain, any untrue statement of material fact; and do not omit, and will not omit, to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED, however, that the Company makes no representations or warranties as to information contained in or omitted from the Registration Statement or the Prospectus, or any such amendment or supplement, in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter through the Representatives [or by the Principal Stockholder], specifically for use in the preparation thereof. (vi) The financial statements of the Company and the Subsidiary, together with related notes and schedules as set forth in the Registration Statement, present fairly the financial position and the results of operations and cash flows of the Company and the Subsidiary, at the indicated dates and for the indicated periods. Such financial statements and related schedules have been prepared in accordance with generally accepted accounting principles, consistently applied throughout the periods involved, except as disclosed therein, and all adjustments necessary for a fair presentation of results for such periods have been made. The summary financial and statistical data included in the Registration Statement 4 present fairly the information shown therein and such data have been compiled on a basis consistent with the financial statements presented therein and the books and records of the Company. (vii) KPMG LLP, who have certified certain of the financial statements filed with the Commission as part of the Registration Statement, are independent public accountants as required by the Act. (viii) There is no action, suit, claim or proceeding pending or, to the knowledge of the Company, threatened against the Company or the Subsidiary before any court or administrative agency or otherwise which if determined adversely to the Company or the Subsidiary might result in a material adverse effect on the condition (financial or other), business, properties, net worth or results of operations of the Company and the Subsidiary taken as a whole or to prevent the consummation of the transactions contemplated hereby, except as set forth in the Registration Statement. (ix) The Company and the Subsidiary have good and marketable title to all of the properties and assets reflected in the financial statements (or as described in the Registration Statement) hereinabove described, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those reflected in such financial statements (or as described in the Registration Statement) or which are not material in amount. The Company or the Subsidiary occupies their leased properties under valid and binding leases. (x) The Company and the Subsidiary have filed all federal, state, local and foreign tax returns which have been required to be filed and have paid all taxes indicated by said returns and all assessments received by them or any of them to the extent that such taxes have become due or are being contested in good faith and for which an adequate reserve for accrual has been established in accordance with generally accepted accounting principles. All tax liabilities have been adequately provided for in the financial statements of the Company, and the Company does not know of any actual or proposed additional material tax assessments. (xi) Since the respective dates as of which information is given in the Registration Statement, as it may be amended or supplemented, there has not been any material adverse change or any development involving a material adverse effect on the condition (financial or other), business, properties, net worth or results of operations of the Company and the Subsidiary taken as a whole whether or not occurring in the ordinary course of business, and there has not been any material transaction entered into or any material transaction that is probable of being entered into by the Company or the Subsidiary, other than transactions in the ordinary course of business and changes and transactions described in the Registration Statement, as it may be amended or supplemented. The Company and the Subsidiary have no material contingent obligations which are not disclosed in the Company's financial statements that are included in the Registration Statement. 5 (xii) Neither the Company nor the Subsidiary is, or with the giving of notice or lapse of time or both will be, in violation of or in default under its Restated Certificate of Incorporation or Restated Bylaws or under any agreement, lease, contract, indenture or other instrument or obligation to which it is a party or by which it, or any of its properties, is bound and which default is of material significance in respect of the condition, financial or otherwise, of the Company and the Subsidiary taken as a whole or the business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiary taken as a whole. The execution and delivery of this Agreement and the consummation of the transactions herein contemplated and the fulfillment of the terms hereof will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or the Subsidiary is a party, or of the Restated Certificate of Incorporation or Restated Bylaws of the Company or any order, rule or regulation applicable to the Company or the Subsidiary of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction. (xiii) Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated (except such additional steps as may be required by the Commission, the National Association of Securities Dealers, Inc. (the "NASD") or such additional steps as may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws) has been obtained or made and is in full force and effect. (xiv) The Company and the Subsidiary hold all material licenses, certificates and permits from governmental authorities which are necessary to the conduct of their businesses as described in the Registration Statement; and neither the Company nor the Subsidiary has infringed any patents, patent rights, trade names, trademarks or copyrights, which infringement is material to the business, as described in the Registration Statement, of the Company and the Subsidiary taken as a whole. Except as otherwise disclosed in writing to the Underwriters, the Company knows of no material infringement by others of patents, patent rights, trade names, trademarks or copyrights owned by or licensed to the Company. (xv) Neither the Company, nor to the Company's knowledge, any of its affiliates, has taken or may take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of Common Stock to facilitate the sale or resale of the Shares. The Company acknowledges that the Underwriters may engage in passive market making transactions in the Shares on The Nasdaq Stock Market in accordance 6 with Regulation M under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (xvi) Neither the Company nor the Subsidiary is an "investment company" within the meaning of such term under the Investment Company Act of 1940, (as amended, the A1940 Act@) and the rules and regulations of the Commission thereunder. (xvii) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (xviii) The Company and the Subsidiary carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses as described in the Registration Statement and the value of their respective properties and as is customary for companies engaged in similar industries. (xix) To the Company=s knowledge, there are no affiliations or associations between any member of the NASD and any of the Company=s officers, directors or 5% or greater securityholders, except as set forth in the Registration Statement. (xx) The Company and the Subsidiary have implemented procedures to analyze and address the risk that the computer hardware and software used by them may be unable to recognize and properly execute date-sensitive functions involving certain dates after December 31, 1999 (the "Year 2000 Problem"), and has determined, to the best of its knowledge, that such risk will be remedied on a timely basis without material expense and will not have a material adverse effect upon the financial condition and results of operations of the Company and the Subsidiary, taken as a whole; and the Company believes, after due inquiry, that each supplier, vendor, customer or financial service organization used or serviced by the Company and the Subsidiary has remedied or will remedy on a timely basis the Year 2000 Problem, except to the extent that a failure to remedy by any such supplier, vendor, customer or financial service organization would not have a material adverse effect on the Company and the Subsidiary, taken as a whole. (b) The Principal Stockholder represents and warrants to each of the Underwriters as follows: (i) Without having undertaken to determine independently the accuracy or completeness of either the representations and warranties of the Company contained herein 7 or the information contained in the Registration Statement, except as provided for in Section 1(b)(ii) and 1(b)(iii) below, the Principal Stockholder has no reason to believe that the representations and warranties of the Company contained in this Section 1(a) are not true and correct. (ii) Each Preliminary Prospectus did not, and the Registration Statement and the Prospectus and any amendments or supplements thereto, when they become effective or are filed with the Commission, as the case may be, did not and will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (iii) The information related to the Principal Stockholder, including information related to the Principal Stockholder set forth under the captions "Relationship with IBM", "Risk Factors--Dependence on IBM and Potential Conflicts", "Management's Discussion and Analysis of Financial Condition and Results of Operation", "Business", "Management", "Certain Transactions" and "Principal Stockholders" in the Prospectus is complete and accurate in all material respects, and the Prospectus fairly describes in all material respects the relationship between the Company and the Principal Stockholder, including the investment risks associated therewith as described under the caption "Risk Factors--Dependence on IBM Relationship and Potential Conflicts." 2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES. (a) On the basis of the representations, warranties and covenants herein contained, and subject to the conditions herein set forth, the Company agrees to sell to the Underwriters and each Underwriter agrees, severally and not jointly, to purchase, at a price of $_____ per share, the number of Firm Shares set forth opposite the name of each Underwriter in Schedule I hereof, subject to adjustments in accordance with Section 9 hereof. (b) Payment for the Firm Shares to be sold hereunder is to be made by wire transfer in Federal (same day) funds against delivery of certificates therefor to the Representatives for the several accounts of the Underwriters. Such payment and delivery are to be made through the facilities of the Depository Trust Company, New York, New York at 10:00 a.m., New York time, on the third business day after the date of this Agreement or at such other time and date not later than five business days thereafter as you and the Company shall agree upon, such time and date being herein referred to as the "Closing Date." If the Representatives so elect, delivery of the Firm Shares may be made by credits through full fast transfer to the accounts at the Depositary Trust Company designated by the Representatives. (As used herein, "business day" means a day on which the New York Stock Exchange is open for trading and on which banks in New York are open for business and are not permitted by law or executive order to be closed.) 8 (c) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the several Underwriters to purchase the Option Shares at the price per share as set forth in the first paragraph of this Section 2. The option granted hereby may be exercised in whole or in part by giving written notice (i) at any time before the Closing Date and (ii) only once thereafter within 30 days after the date of this Agreement, by you, as Representatives of the several Underwriters, to the Company setting forth the number of Option Shares as to which the several Underwriters are exercising the option, the names and denominations in which the Option Shares are to be registered and the time and date at which such certificates are to be delivered. The time and date at which the Option Shares are to be delivered shall be determined by the Representatives but shall not be earlier than three nor later than 10 full business days after the exercise of such option, nor in any event prior to the Closing Date (such time and date being herein referred to as the "Option Closing Date"). If the date of exercise of the option is three or more days before the Closing Date, the notice of exercise shall set the Closing Date as the Option Closing Date. The number of Option Shares to be purchased by each Underwriter shall be in the same proportion to the total number of Option Shares being purchased as the number of Firm Shares being purchased by such Underwriter bears to the total number of Firm Shares purchased by the Underwriters, adjusted by you in such manner as to avoid fractional shares. The option with respect to the Option Shares granted hereunder may be exercised only to cover over-allotments in the sale of the Firm Shares by the Underwriters. You, as Representatives of the several Underwriters, may cancel such option at any time prior to its expiration by giving written notice of such cancelation to the Company. To the extent, if any, that the option is exercised, payment for the Option Shares shall be made on the Option Closing Date, by wire transfer, in Federal (same day funds) through the facilities of the Depository Trust Company in New York, New York drawn to the order of the Company. 3. OFFERING BY THE UNDERWRITERS. It is understood that the several Underwriters are to make a public offering of the Firm Shares as soon as the Representatives deem it advisable to do so. The Firm Shares are to be initially offered to the public at the initial public offering price set forth in the Prospectus. The Representatives may from time to time thereafter change the public offering price and other selling terms. To the extent, if at all, that any Option Shares are purchased pursuant to Section 2 hereof, the Underwriters will offer them to the public on the foregoing terms. It is further understood that you will act as the Representatives for the Underwriters in the offering and sale of the Shares in accordance with a Master Agreement Among Underwriters entered into by you and the several other Underwriters. 4. COVENANTS OF THE COMPANY. 9 The Company covenants and agrees with the several Underwriters that: (a) The Company will (A) use its best efforts to cause the Registration Statement to become effective or, if the procedure in Rule 430A of the Rules and Regulations is followed, to prepare and timely file with the Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form approved by the Representatives containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rule 430A of the Rules and Regulations and (B) not file any amendment to the Registration Statement or supplement to the Prospectus of which the Representatives shall not previously have been advised and furnished with a copy or to which the Representatives shall have reasonably objected in writing or which is not in compliance with the Rules and Regulations. (b) The Company will advise the Representatives promptly (A) when the Registration Statement or any post-effective amendment thereto shall have become effective, (B) of receipt of any comments from the Commission, (C) of any request of the Commission for amendment of the Registration Statement or for supplement to the Prospectus or for any additional information, and (D) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus or of the institution of any proceedings for that purpose. The Company will use its best efforts to prevent the issuance of any such stop order preventing or suspending the use of the Prospectus and to obtain as soon as possible the lifting thereof, if issued. (c) The Company will cooperate with the Representatives in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions as the Representatives may reasonably have designated in writing and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, PROVIDED the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent. The Company will, from time to time, prepare and file such statements, reports, and other documents, as are or may be required to continue such qualifications in effect for so long a period as the Representatives may reasonably request for distribution of the Shares. (d) The Company will deliver to, or upon the order of, the Representatives, from time to time, as many copies of any Preliminary Prospectus as the Representatives may reasonably request. The Company will deliver to, or upon the order of, the Representatives during the period when delivery of a Prospectus is required under the Act, as many copies of the Prospectus in final form, or as thereafter amended or supplemented, as the Representatives may reasonably request. The Company will deliver to the Representatives at or before the Closing Date, four signed copies of the Registration Statement and all amendments thereto including all exhibits filed therewith, and will deliver to the Representatives such number of copies of the Registration Statement (including such number 10 of copies of the exhibits filed therewith that may reasonably be requested), and of all amendments thereto, as the Representatives may reasonably request. (e) The Company will comply with the Act and the Rules and Regulations, and the Exchange Act and the rules and regulations of the Commission thereunder, so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and the Prospectus. If during the period in which a prospectus is required by law to be delivered by an Underwriter or dealer, any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading, or, if it is necessary at any time to amend or supplement the Prospectus to comply with any law, the Company promptly will prepare and file with the Commission an appropriate amendment to the Registration Statement or supplement to the Prospectus so that the Prospectus as so amended or supplemented will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with the law. (f) The Company will make generally available to its security holders, as soon as it is practicable to do so, but in any event not later than 15 months after the effective date of the Registration Statement, an earnings statement (which need not be audited) in reasonable detail, covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement, which earning statement shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you in writing when such statement has been so made available. (g) Prior to the Closing Date, if available, the Company will furnish to the Underwriters, as soon as they have been prepared by or are available to the Company, a copy of any unaudited interim financial statements of the Company for any period subsequent to the period covered by the most recent financial statements appearing in the Registration Statement and the Prospectus. (h) No offering, sale, short sale or other disposition of any shares of Common Stock of the Company or other securities convertible into or exchangeable or exercisable for shares of Common Stock or derivative of Common Stock (or agreement for such) will be made for a period of 180 days after the date of this Agreement, directly or indirectly, by the Company otherwise than hereunder or with the prior written consent of BT Alex. Brown Incorporated. (i) The Company will use its best efforts to list, subject to notice of issuance, the Shares on the Nasdaq Stock Market. (j) The Company has caused each officer and director and certain stockholders of the Company to furnish to you, on or prior to the date of this agreement, a letter or letters, 11 in form and substance satisfactory to the Underwriters, pursuant to which each such person shall agree (the "Lockup Agreements") that, without the prior written consent of BT Alex. Brown, he or she shall not, directly or indirectly offer, sell, pledge, contract to sell (including any short sale), grant any option to purchase or otherwise dispose of any shares of Common Stock (including, without limitation, Shares which may be deemed to be beneficially owned on the date hereof in accordance with the rules and regulations of the Securities and Exchange Commission and shares of Common Stock which may be issued upon exercise of a stock option or warrant) or enter into any Hedging Transaction (as defined below) relating to the Shares (each of the foregoing referred to as a "Disposition") for a period of 180 days after the effective date of the registration statement relating to the Public Offering (the "Lock-Up Period"). The foregoing restriction is expressly intended to preclude such person from engaging in any Hedging Transaction or other transaction which is designed to or reasonably expected to lead to or result in a Disposition during the Lock-Up Period even if the securities would be disposed of by someone other than such officer, director and stockholder. "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. Notwithstanding the foregoing, such officer, director or stockholder may transfer any or all of the Shares by gift (including a gift to a "charitable organization" as described in section 501(c)(3) of the Internal Revenue Code of 1986, as amended), will or intestacy. Notwithstanding the foregoing, a stockholder which is a venture capital fund may distribute its Shares to any of its then-current or former partners. It shall be a condition to any such permitted transfer by gift, will, or intestacy or distribution by a venture capital fund that the transferee execute an agreement obliging such person to hold the transferred Shares subject to the provisions of the Lockup Agreement. (k) The Company shall apply the net proceeds of its sale of the Shares as set forth in the Prospectus, including payments to [the Principal Stockholder and its affiliates] [IBM Credit Corp., a wholly owned subsidiary of the Principal Stockholder], and shall file such reports with the Commission with respect to the sale of the Shares and the application of the proceeds therefrom as may be required in accordance with Rule 463 under the Act. (l) The Company shall not invest, or otherwise use, the proceeds received by the Company from its sale of the Shares in such a manner as would require the Company or the Subsidiary to register as an investment company under the 1940 Act. (m) The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar for the Common Stock. (n) The Company will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company. 12 (o) KPMG LLP shall have reissued their independent auditors' report on the Company's consolidated financial statements as of September 30, 1997 and 1998 and for the period from November 21, 1995 (inception) to September 30, 1996, and for the two year period ended September 30, 1998. Such report shall include the explanatory paragraph that states that the Company's recurring losses and net capital deficiency raise substantial doubt about our ability to continue as a going concern. (p) The Company shall deliver all other certificates and documents reasonably requested by the Underwriters or their counsel. (q) The Company shall have the Underwriters named as additional insureds on the directors' and officers liability insurance policy and such insurance shall remain in effect for three years and two months. 5. COSTS AND EXPENSES. The Company will pay all costs, expenses and fees incident to the performance of the obligations of the Company under this Agreement, including, without limiting the generality of the foregoing, the following: accounting fees of the Company; the fees and disbursements of counsel for the Company; the cost of printing and delivering to, or as requested by, the Underwriters copies of the Registration Statement, Preliminary Prospectuses, the Prospectus, this Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation Letter, the Listing Application, the Blue Sky Survey and any supplements or amendments thereto; the filing fees of the Commission; the filing fees and expenses (including legal fees and disbursements) incident to securing any required review by the National Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Shares; the Listing Fee of the Nasdaq Stock Market; and the expenses, including the fees and disbursements of counsel for the Underwriters, incurred in connection with the qualification of the Shares under state securities or Blue Sky laws. The Company agrees to pay all costs and expenses of the Underwriters incident to the offer and sale of directed shares of the Common Stock by the Underwriters to employees and persons having business relationships with the Company and the Subsidiary. The Company shall not, however, be required to pay for any of the Underwriters' expenses (other than those related to qualification under NASD regulation and State securities or Blue Sky laws) except that, if this Agreement shall not be consummated because the conditions in Section 6 hereof are not satisfied, or because this Agreement is terminated by the Representatives pursuant to Section 11 hereof, or by reason of any failure, refusal or inability on the part of the Company to perform any undertaking or satisfy any condition of this Agreement or to comply with any of the terms hereof on its part to be performed, unless such failure to satisfy said condition or to comply with said terms be due to the default or omission of any Underwriter, then the Company shall reimburse the several Underwriters for reasonable out-of-pocket expenses, including fees and disbursements of counsel, reasonably incurred in connection with investigating, marketing and proposing to market the Shares or in contemplation of performing their obligations hereunder; but the Company shall not in any event be liable to any of the several Underwriters for damages on account of loss of anticipated profits from the sale by them of the Shares. 6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. 13 The several obligations of the Underwriters to purchase the Firm Shares on the Closing Date and the Option Shares, if any, on the Option Closing Date are subject to the accuracy, as of the Closing Date or the Option Closing Date, as the case may be, of the representations and warranties of the Company and the Principal Stockholder contained herein, and to the performance by the Company of its covenants and obligations hereunder and to the following additional conditions: (a) The Registration Statement and all post-effective amendments thereto shall have become effective and any and all filings required by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and any request of the Commission for additional information (to be included in the Registration Statement or otherwise) shall have been disclosed to the Representatives and complied with to their reasonable satisfaction. No stop order suspending the effectiveness of the Registration Statement, as amended from time to time, shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company, are contemplated by the Commission and no injunction, restraining order, or order of any nature by a federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance of the Shares. (b) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Graham & James LLP, counsel for the Company, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters (and stating that it may be relied upon by counsel to the Underwriters) to the effect that: (i) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own or lease its properties and conduct its business as presently conducted and as described in the Registration Statement; the Subsidiary has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own or lease its properties and conduct its business as presently conducted and as described in the Registration Statement; the Company and the Subsidiary are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification, or in which the failure to qualify would have a materially adverse effect upon the business of the Company and the Subsidiary taken as a whole; and the outstanding shares of capital stock of the Subsidiary have been duly authorized and validly issued and are fully paid and non-assessable and are owned by the Company; and, to the best of such counsel's knowledge, the outstanding shares of capital stock of the Subsidiary are owned free and clear of all liens, encumbrances and equities and claims, and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into any shares of capital stock or of ownership interests in the Subsidiary are outstanding. 14 (ii) The Company has authorized and outstanding capital stock as set forth under the caption "Capitalization" in the Prospectus; the authorized shares of the Company's Common Stock have been duly authorized; the outstanding shares of the Company's Common Stock have been duly authorized and validly issued and are fully paid and non-assessable; all of the Shares conform to the description thereof contained in the Prospectus; the certificates for the Shares, assuming they are in the form filed with the Commission, are in due and proper form; the shares of Common Stock, including the Option Shares, if any, to be sold by the Company pursuant to this Agreement have been duly authorized and will be validly issued, fully paid and non-assessable when issued and paid for as contemplated by this Agreement (iii) Except as described in or contemplated by the Prospectus, to the knowledge of such counsel, there are no outstanding securities of the Company convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of capital stock of the Company and there are no outstanding or authorized options, warrants or rights of any character obligating the Company to issue any shares of its capital stock or any securities convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of such stock; and except as described in the Prospectus, to the knowledge of such counsel, no holder of any securities of the Company or any other person has the right, contractual or otherwise, which has not been satisfied or effectively waived, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, any of the Shares or the right to have any Common Shares or other securities of the Company included in the Registration Statement or the right, as a result of the filing of the Registration Statement, to require registration under the Act of any shares of Common Stock or other securities of the Company. (iv) The Registration Statement has become effective under the Act and, to the best of the knowledge of such counsel, no stop order proceedings with respect thereto have been instituted or are pending or threatened under the Act. (v) The Registration Statement, the Prospectus and each amendment or supplement thereto comply as to form in all material respects with the requirements of the Act and the applicable rules and regulations thereunder (except that such counsel need express no opinion as to the financial statements and related schedules therein). (vi) The statements under the captions "____________," "___________," "Description of Capital Stock" and "Shares Eligible for Future Sale" in the Prospectus, insofar as such statements constitute a summary of documents referred to therein or matters of law, fairly summarize in all material respects the information called for with respect to such documents and matters. 15 (vii) Such counsel does not know of any contracts or documents required to be filed as exhibits to the Registration Statement or described in the Registration Statement or the Prospectus which are not so filed or described as required, and such contracts and documents as are summarized in the Registration Statement or the Prospectus are fairly summarized in all material respects. (viii) Such counsel knows of no material legal or governmental proceedings pending or threatened against the Company or the Subsidiary except as set forth in the Prospectus. (ix) The execution and delivery of this Agreement and the consummation of the transactions herein contemplated do not and will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, the Restated Certificate of Incorporation or Restated Bylaws of the Company, or any agreement or instrument known to such counsel to which the Company or the Subsidiary is a party or by which the Company or the Subsidiary may be bound. (x) This Agreement has been duly authorized, executed and delivered by the Company. (xi) No approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body is necessary in connection with the execution and delivery of this Agreement and the consummation of the transactions herein contemplated (other than as may be required by the NASD or as required by state securities and Blue Sky laws as to which such counsel need express no opinion) except such as have been obtained or made, specifying the same. (xii) The Company is not, and will not become, as a result of the consummation of the transactions contemplated by this Agreement and application of the net proceeds therefrom as described in the Prospectus, required to register as an investment company under the 1940 Act. (xiii) To the knowledge of such counsel and except as described in the Prospectus (and any amendments or supplement thereto), the Company and the Subsidiary hold all material licenses, certificates and permits from governmental authorities which are necessary to the conduct of their businesses as described in the Registration Statement. To the knowledge of such counsel and except as described in the Prospectus (and any amendments or supplement thereto), neither the Company nor the Subsidiary has infringed any patents, patent rights, trade names, trademarks 16 or copyrights, which infringement is material to the business of the Company and the Subsidiary taken as a whole as described int he Registration Statement. In rendering such opinion Graham & James LLP may rely as to matters governed by the laws of states other than Delaware or California or Federal laws on local counsel in such jurisdictions, PROVIDED that in each case Graham & James LLP shall state that they believe that they and the Underwriters are justified in relying on such other counsel. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that (i) the Registration Statement, at the time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading (except that such counsel need express no view as to financial statements, schedules and statistical information therein). With respect to such statement, Graham & James may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (c) The Representatives shall have received from Cravath, Swaine & Moore, counsel for the Underwriters, an opinion dated the Closing Date or the Option Closing Date, as the case may be, substantially to the effect specified in subparagraphs (ii), (iii), (iv) and (ix) of Paragraph (b) of this Section 6, and that the Company is a duly organized and validly existing corporation under the laws of the State of Delaware. In rendering such opinion Cravath, Swaine & Moore may rely as to all matters governed other than by the laws of the States of Delaware or New York or Federal laws on the opinion of counsel referred to in Paragraph (b) of this Section 6. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that (i) the Registration Statement, or any amendment thereto, as of the time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading (except that such counsel need 17 express no view as to financial statements, schedules and statistical information therein). With respect to such statement, Cravath, Swaine & Moore may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (d) The Representatives shall have received at or prior to the Closing Date from Cravath, Swaine & Moore a memorandum or summary, in form and substance satisfactory to the Representatives, with respect to the qualification for offering and sale by the Underwriters of the Shares under the state securities or Blue Sky laws of such jurisdictions as the Representatives may reasonably have designated to the Company. (e) You shall have received, on each of the dates hereof, the Closing Date and the Option Closing Date, as the case may be, a letter dated the date hereof, the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to you, of KPMG LLP confirming that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating that in their opinion the financial statements and schedules examined by them and included in the Registration Statement comply in form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; and containing such other statements and information as is ordinarily included in accountants' "comfort letters" to Underwriters with respect to the financial statements and certain financial and statistical information contained in the Registration Statement and Prospectus, including a report with respect to a review of unaudited interim financial information of the Company for the eight quarters ended December 31, 1998 in accordance with Statement on Auditing Standards No. 71. (f) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, a certificate or certificates of the Chief Executive Officer and the Chief Financial Officer of the Company to the effect that, as of the Closing Date or the Option Closing Date, as the case may be, each of them severally represents as follows: (i) The Registration Statement has become effective under the Act and no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for such purpose have been taken or are, to his knowledge, contemplated by the Commission; (ii) The representations and warranties of the Company contained in Section 1 hereof are true and correct as of the Closing Date or the Option Closing Date, as the case may be; (iii) All filings required to have been made pursuant to Rules 424 or 430A under the Act have been made; 18 (iv) He or she has carefully examined the Registration Statement and the Prospectus (and any amendments or supplements thereto) and, in his or her opinion, as of the effective date of the Registration Statement, the statements contained in the Registration Statement were true and correct, and such Registration Statement and Prospectus did not omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, and since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement to or an amendment of the Prospectus which has not been so set forth in such supplement or amendment; and (v) Since the respective dates as of which information is given in the Registration Statement and Prospectus (and any amendments or supplements thereto), there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and the Subsidiary taken as a whole or the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiary taken as a whole, whether or not arising in the ordinary course of business. (g) The Company shall have furnished to the Representatives such further certificates and documents confirming the representations and warranties, covenants and conditions contained herein and related matters as the Representatives may reasonably have requested. (h) The Firm Shares and Option Shares, if any, shall have been approved for designation upon notice of issuance on the Nasdaq Stock Market. (i) The Lockup Agreements described in Section 4 (j) shall be in full force and effect. If any of the conditions hereinabove provided for in this Section 6 shall not have been fulfilled when and as required by this Agreement to be fulfilled, the obligations of the Underwriters hereunder may be terminated by the Representatives by notifying the Company of such termination in writing or by telegram at or prior to the Closing Date or the Option Closing Date, as the case may be. In such event, the Company and the Underwriters shall not be under any obligation to each other (except to the extent provided in Sections 5 and 8 hereof). 7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligations of the Company to sell and deliver the portion of the Shares required to be delivered as and when specified in this Agreement are subject to the conditions that at the Closing Date or the Option Closing Date, as the case may be, no stop order 19 suspending the effectiveness of the Registration Statement shall have been issued and in effect or proceedings therefor initiated or threatened. 8. INDEMNIFICATION. (a) The Company agrees: (1) to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act, against any losses, claims, damages or liabilities to which such Underwriter or any such controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any alleged act or failure to act by any Underwriter in connection with, or relating in any manner to, the Shares or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon matters covered by clause (i) or (ii) above (PROVIDED, that the Company shall not be liable under this clause (iii) to the extent that it is determined in a final judgment by a court of competent jurisdiction that such loss, claim, damage, liability or action resulted directly from any such acts or failures to act undertaken or omitted to be taken by such Underwriter through its gross negligence or willful misconduct); 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 an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof. (2) to reimburse each Underwriter and each such controlling person upon demand for any legal or other out-of-pocket expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage or liability, action or proceeding or in responding to a subpoena or governmental inquiry related to the offering of the Shares, whether or not such Underwriter or controlling person is a party to any action or proceeding. In the event that it is finally judicially determined that the Underwriters were not entitled to receive payments for legal and other expenses pursuant to this subparagraph, the Underwriters will promptly return all sums that had been advanced pursuant hereto. 20 (b) Each Underwriter severally and not jointly will indemnify and hold harmless the Company, each of its directors and each of its officers who have signed the Registration Statement, and each person, if any, who controls the Company within the meaning of the Act, against any losses, claims, damages or liabilities to which the Company, or any such director, officer, or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and will reimburse any legal or other expenses reasonably incurred by the Company, or any such director, officer, or controlling person upon demand in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; PROVIDED, however, that each Underwriter will be liable in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission has been made in the Registration Statement, any Preliminary Prospectus, the Prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 8, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing. No indemnification provided for in Section 8(a) or (b) shall be available to any party who shall fail to give notice as provided in this Section 8(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of the provisions of Section 8(a) or (b). In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or within 30 days of presentation) the fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and 21 representation of both parties by the same counsel would beinappropriate due to actual or potential differing interests between them or (iii) the indemnifying party shall have failed to assume the defense and employ counsel reasonably satisfactory to the indemnified party within a reasonable period of time after notice of commencement of the action. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be designated in writing by BT Alex. Brown Incorporated in the case of parties indemnified pursuant to Section 8(a), and by the Company in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. In addition, the indemnifying party will not, without the prior written consent of the indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding of which indemnification may be sought hereunder (whether or not any indemnified party is an actual or potential party to such claim, action or proceeding) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action or proceeding. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other 22 and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 8(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this Section 8(d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) In any proceeding relating to the Registration Statement, any Preliminary Prospectus, the Prospectus or any supplement or amendment thereto, each party against whom contribution may be sought under this Section 8 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. (f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 8 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 8 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers or any persons controlling the Company, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 8. 9. DEFAULT BY UNDERWRITERS. 23 If on the Closing Date or the Option Closing Date, as the case may be, any Underwriter shall fail to purchase and pay for the portion of the Shares which such Underwriter has agreed to purchase and pay for on such date (otherwise than by reason of any default on the part of the Company), you, as Representatives of the Underwriters, shall use your reasonable efforts to procure within 36 hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company such amounts as may be agreed upon and upon the terms set forth herein, the Firm Shares or Option Shares, as the case may be, which the defaulting Underwriter or Underwriters failed to purchase. If during such 36 hours you, as such Representatives, shall not have procured such other Underwriters, or any others, to purchase the Firm Shares or Option Shares, as the case may be, agreed to be purchased by the defaulting Underwriter or Underwriters, then (a) if the aggregate number of shares with respect to which such default shall occur does not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the other Underwriters shall be obligated, severally, in proportion to the respective numbers of Firm Shares or Option Shares, as the case may be, which they are obligated to purchase hereunder, to purchase the Firm Shares or Option Shares, as the case may be, which such defaulting Underwriter or Underwriters failed to purchase, or (b) if the aggregate number of shares of Firm Shares or Option Shares, as the case may be, with respect to which such default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the Company or you as the Representatives of the Underwriters will have the right, by written notice given within the next 36-hour period to the parties to this Agreement, to terminate this Agreement without liability on the part of the non-defaulting Underwriters or of the Company except to the extent provided in Section 8 hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or Option Closing Date, as the case may be, may be postponed for such period, not exceeding seven days, as you, as Representatives, and the Company may determine in order that the required changes in the Registration Statement or in the Prospectus or in any other documents or arrangements may be effected. The term "Underwriter" includes any person substituted for a defaulting Underwriter. Any action taken under this Section 9 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 10. NOTICES. All communications hereunder shall be in writing and, except as otherwise provided herein, will be mailed, delivered, telecopied or telegraphed and confirmed as follows: if to the Underwriters, to BT Alex. Brown Incorporated, One South Street, Baltimore, Maryland 21202, Attention: Daniel E. McIntyre; with a copy to BT Alex. Brown Incorporated, One Bankers Trust Plaza, 130 Liberty Street, New York, New York 10006, Attention: General Counsel; if to the Company, to NetObjects, Inc., 301 Galveston Drive, Redwood City, California 94063, Attention: General Counsel; if to the Principal Stockholder, to International Business Machines Corp., New Orchard Road, Armonk, New York 10504, Attention: Archie W. Colburn, Corp. Development Executive and Andrew Bonzani, Senior Counsel. 24 11. TERMINATION. (a) This Agreement may be terminated by you by notice to the Company at any time prior to the Closing Date if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and the Subsidiary taken as a whole or the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiary taken as a whole, whether or not arising in the ordinary course of business, (ii) any outbreak or escalation of hostilities or declaration of war or national emergency or other national or international calamity or crisis or change in economic or political conditions if the effect of such outbreak, escalation, declaration, emergency, calamity, crisis or change on the financial markets of the United States would, in your reasonable judgment, make it impracticable or inadvisable to market the Shares or to enforce contracts for the sale of the Shares, or (iii) suspension of trading in securities generally on the New York Stock Exchange or the American Stock Exchange or limitation on prices (other than limitations on hours or numbers of days of trading) for securities on either such Exchange, (iv) the enactment, publication, decree or other promulgation of any statute, regulation, rule or order of any court or other governmental authority which in your opinion materially and adversely affects or may materially and adversely affect the business or operations of the Company, (v) declaration of a banking moratorium by United States or New York State authorities, (vi) the suspension of trading of the Company's common stock by the Nasdaq Stock Market, the Commission, or any other governmental authority or (vii) the taking of any action by any governmental body or agency in respect of its monetary or fiscal affais which in your reasonable opinion has a material adverse effect on the securities markets in the United States; or (b) as provided in Sections 6 and 9 of this Agreement. 12. SUCCESSORS. This Agreement has been and is made solely for the benefit of the Underwriters, the Company and the Principal Stockholder and their respective successors, executors, administrators, heirs and assigns, and the officers, directors and controlling persons referred to herein, and no other person will have any right or obligation hereunder. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign merely because of such purchase. 13. INFORMATION PROVIDED BY UNDERWRITERS. The Company and the Underwriters acknowledge and agree that the only information furnished or to be furnished by any Underwriter to the Company for inclusion in any Prospectus or the Registration Statement consists of the information set forth in the last 25 paragraph on the front cover page (insofar as such information relates to the Underwriters), legends required by Item 502(d) of Regulation S-K under the Act and the information under the caption "Underwriting" in the Prospectus. 14. MISCELLANEOUS. The reimbursement, indemnification and contribution agreements contained in this Agreement and the representations, warranties and covenants in this Agreement shall remain in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of any Underwriter or controlling person thereof, or by or on behalf of the Company or its directors or officers and (c) delivery of and payment for the Shares under this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Maryland. 26 If the foregoing letter is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company, the Principal Stockholder as to Sections 1, 6 and 10 through 14, inclusive, and the several Underwriters in accordance with its terms. Very truly yours, NETOBJECTS, INC. By: ------------------------------------- Name: Title: INTERNATIONAL BUSINESS MACHINES CORP. By: ------------------------------------- Name: Title: 27 The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. BT ALEX. BROWN INCORPORATED BANCBOSTON ROBERTSON STEPHENS PIPER JAFFRAY INC. - ------------------------------------- As Representatives of the several Underwriters listed on Schedule I By: BT ALEX. BROWN INCORPORATED By: ---------------------------------- Authorized Officer 28 SCHEDULE I SCHEDULE OF UNDERWRITERS
Number of Firm Shares Underwriter to be Purchased ----------- --------------------- BT Alex. Brown Incorporated .............. BancBoston Robertson Stephens ............ Piper Jaffray Inc. ....................... --------- Total ---------
EX-3.1 3 EXHIBIT 3.1 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION NetObjects, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is NetObjects, Inc. NetObjects, Inc. was originally incorporated under the same name, and the original Certificate of Incorporation of the corporation was filed with the Secretary of the State of Delaware on November 21, 1995. 2. Pursuant to Section 245 of the General Corporation Law of the State of Delaware, this Restated Certificate of Incorporation merely restates and integrates the provisions of the Certificate of Incorporation of this corporation. 3. The text of the Restated Certificate of Incorporation as heretofore amended or supplemented is hereby restated and integrated to read in its entirety as set forth in Appendix I attached hereto. IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been signed by its President and attested to by its Secretary on December 14, 1998. /s/ Samir Arora ---------------------------- Samir Arora, President /s/ Alan B. Kalin - ---------------------------- Alan B. Kalin, Secretary APPENDIX I RESTATED CERTIFICATE OF INCORPORATION of NETOBJECTS, INC. ARTICLE I CORPORATE NAME The name of the corporation is NetObjects, Inc. (the "CORPORATION"). ARTICLE II REGISTERED OFFICE The address of the Corporation's registered office in the State of Delaware is: 1013 Centre Road, City of Wilmington, County of New Castle. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. ARTICLE III CORPORATE PURPOSE The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "DGCL"). ARTICLE IV CAPITAL STOCK SECTION 1. CLASSES OF STOCK. The Corporation is authorized to issue two classes of stock, designated "COMMON STOCK" and "PREFERRED STOCK," respectively. The total number of shares of Common Stock, par value $0.00000001 per share, the Corporation shall have authority to issue is 200,000,000, and the total number of shares of Preferred Stock, par value $0.00000001 per share, the Corporation shall have authority to issue is 136,898,000. 4,500,000 shares of Preferred Stock shall be designated Series A Preferred Stock (the "SERIES A PREFERRED STOCK"), 198,000 shares of Preferred Stock shall be designated Series B Preferred Stock (the "SERIES B PREFERRED STOCK"), 17,000,000 shares of Preferred Stock shall be designated Series C Preferred Stock (the "SERIES C PREFERRED STOCK"), 90,200,000 shares of Preferred Stock shall be designated Series E Preferred Stock (the "SERIES E PREFERRED STOCK"), 12,000,000 shares of Preferred Stock shall be designated Series E-2 Preferred Stock (the "SERIES E-2 PREFERRED STOCK") which shall be issued only upon conversion of Senior Subordinated Secured Convertible Promissory Notes ("Senior Notes") or exercise of the Warrants issued pursuant to the Note and Warrant Purchase Agreement dated as of October 8, 1998 (the "Note and Warrant Purchase Agreement"), 5,500,000 shares of Preferred Stock shall be designated Series F Preferred Stock (the "SERIES F PREFERRED STOCK"), and 2,500,000 shares of Preferred Stock shall be designated Series F-2 Preferred Stock (the "SERIES F-2 PREFERRED STOCK"). Each series of Preferred Stock is referred to herein as a "SERIES". In addition, the Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article IV, to provide for the issuance of the shares of Preferred Stock in one or more new Series (each, a "NEW SERIES"), to establish from time to time the number of shares to be included in each such Series by filing a certificate pursuant to the applicable law of the State of Delaware and to fix the designation, powers, preferences and rights of the shares of each such Series and the qualifications, limitations, or restrictions thereof. The authority of the Board of Directors with respect to each Series shall include, but not be limited to, determination of the following: (i) the number of shares constituting that Series and the distinctive designation of that Series; (ii) the dividend rate on the shares of that Series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that Series; (iii) whether that Series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (iv) whether that Series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (v) whether or not the shares of that Series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (vi) whether that Series shall have a sinking fund for the redemption or purchase of shares of that Series, and, if so, the terms and amount of such sinking fund; 2 (vii) the rights of the shares of that Series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that Series; (viii) how the relative rights, preferences and limitations of that Series will apply and relate to the provisions set forth in Article V with respect to the other Series of Preferred Stock (including, without limitation, how the ranking, dividend payment priority, liquidation preference priority and conversion provisions will operate after giving effect to the issuance of shares of that Series); and (ix) any other relative rights, preferences and limitations of that Series. SECTION 2. RESERVATION OF SHARES. (a) The Corporation shall at all times reserve and keep available, free and clear of preemptive and subscription rights, out of its authorized but unissued shares of Common Stock the full number of shares deliverable upon the conversion of all outstanding shares of Preferred Stock. For this purpose, the number of shares of Common Stock deliverable upon conversion of all outstanding shares of Preferred Stock shall be computed as if at the time of computation all shares outstanding were held by a single holder. (b) If at any time the number of shares of Common Stock or Preferred Stock reserved hereunder is insufficient to effect the issuances and conversions referred to in this Section, the Corporation will take such corporate action as is necessary to increase its authorized but unissued shares of Common Stock and Preferred Stock to such number of shares as shall be sufficient for such purposes. (c) The number of shares reserved pursuant to this Section shall be adjusted proportionately for stock splits, stock combinations and stock dividends. The number of shares reserved pursuant to this Section shall also be adjusted for any dilutive event for which an adjustment to the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price, the Series E Conversion Price, the Series E-2 Conversion Price, the Series F Conversion Price, or the Series F-2 Conversion Price is made in Article V. ARTICLE V PREFERRED STOCK SECTION 1. RANK. The Preferred Stock shall, with respect to dividend rights and rights on liquidation, dissolution or winding up, rank prior to the Common Stock and to any other capital stock of the Corporation. 3 SECTION 2. DIVIDENDS. Holders of Preferred Stock shall be entitled to receive dividends, out of any funds legally available therefor, prior and in preference to any declaration or payment of any dividend on the Common Stock, at the per annum rate of (t) $0.15 per share of Series A Preferred Stock, (u) $0.016 per share of Series B Preferred Stock, (v) $0.024 per share of Series C Preferred Stock, (w) $0.089 per share of Series E Preferred Stock, (x) $0.089 per share of Series E-2 Preferred Stock, (y) $0.144 per share of Series F Preferred Stock, and (z) $0.144 per share of Series F-2 Preferred Stock, when and as declared with respect to each Series of Preferred Stock by the Board of Directors. The right to such dividends shall not be cumulative, and no right shall accrue to holders of Preferred Stock by reason of the fact that dividends on such shares are not declared or paid in any prior year. In the event that any dividend is declared at less than the full rates provided herein, or if, on any dividend payment date, the Corporation does not have funds legally available to pay such dividend at the full rates provided herein, then on such dividend payment date dividends shall be paid FIRST, on all outstanding shares of Series E Preferred Stock, Series E-2 Preferred Stock and Series C Preferred Stock, pro rata based on the applicable foregoing dividend rates to the extent such dividends have been declared or funds are legally available therefor, SECOND, on all outstanding shares of Series B Preferred Stock, pro rata based on the applicable foregoing dividend rate to the extent such dividend has been declared or funds are legally available therefor, THIRD, on all outstanding shares of Series A Preferred Stock, pro rata based on the applicable foregoing dividend rate to the extent such dividend has been declared or funds are legally available therefor, FOURTH, on all outstanding shares of Series F, pro rata based on the applicable foregoing dividend rate to the extent such dividend has been declared or funds are legally available therefor, and FIFTH, on all outstanding shares of Series F-2, pro rata based on the applicable foregoing dividend rate to the extent such dividend has been declared or funds are legally available therefor. SECTION 3. LIQUIDATION. (a) The Preferred Stock shall rank prior to the Common Stock and the shares of any other class of capital stock of the Corporation, so that in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to its stockholders, whether from capital, surplus or earnings, before any distribution is made to holders of Common Stock or shares of any other such junior stock, an amount equal to the Liquidation Preference. (b) The Series A Preferred Stock shall be entitled to a liquidation preference equal to the sum of (A) $0.15 per share plus (B) an amount per share equal to 8% per annum on the amount in clause (A) calculated from the Original Issue Date of the Series A Preferred Stock through the Liquidation Date (the "SERIES A LIQUIDATION PREFERENCE"). The Series B Preferred Stock shall be entitled to a liquidation preference equal to the sum of (A) $0.20 4 per share plus (B) an amount per share equal to 8% per annum on the amount in clause (A) calculated from the Original Issue Date of the Series B Preferred Stock through the Liquidation Date (the "SERIES B LIQUIDATION PREFERENCE"). The Series C Preferred Stock shall be entitled to a liquidation preference equal to the sum of (a) $0.3035413 per share plus (B) an amount per share equal to 8% per annum on the amount in clause (A) calculated from the Original Issue Date of the Series C Preferred Stock through the Liquidation Date (the "SERIES C LIQUIDATION PREFERENCE"). The Series E Preferred Stock shall be entitled to a liquidation preference equal to the sum of (A) $1.1131258 per share plus (B) an amount per share equal to 8% per annum on the amount in clause (A) calculated from the Original Issue Date of the Series E Preferred Stock through the Liquidation Date (the "SERIES E LIQUIDATION PREFERENCE"). The Series E-2 Preferred Stock shall be entitled to a liquidation preference equal to the sum of (A) $1.1131258 per share plus (B) an amount per share equal to 8% per annum on the amount in clause (A) from the Original Issue Date of the Series E-2 Preferred Stock through the Liquidation Date (the "SERIES E-2 LIQUIDATION PREFERENCE"). The Series F Preferred Stock shall be entitled to a liquidation preference equal to the sum of (A) $1.80 per share plus (B) an amount per share equal to 8% per annum on the amount in clause (A) calculated from the Original Issue Date of the Series F Preferred Stock through the Liquidation Date (the "SERIES F LIQUIDATION PREFERENCE"). The Series F-2 Preferred Stock shall be entitled to a liquidation preference equal to the sum of (A) $1.50 per share plus (B) an amount per share equal to 8% per annum on the amount in clause (A) calculated from the Original Issue Date of the Series F-2 Preferred Stock through the Liquidation Date (the "SERIES F-2 LIQUIDATION PREFERENCE"). The Series A Liquidation Preference, the Series B Liquidation Preference, the Series C Liquidation Preference, the Series E Liquidation Preference, the Series E-2 Liquidation Preference, the Series F Liquidation Preference, and the Series F-2 Liquidation Preference are collectively referred to herein as the "LIQUIDATION PREFERENCE"). As used herein, the "ORIGINAL ISSUE DATE" with respect to any Series of Preferred Stock shall mean the first date as of which the Corporation issues any shares of the series of Preferred Stock and THE "LIQUIDATION DATE" shall mean the date of effectiveness of a certificate of dissolution under Section 275(f) of the DGCL or upon the effective date of any Control Transaction treated as a liquidation, dissolution or winding up pursuant to Section 3(e). The Series A Liquidation Preference, the Series B Liquidation Preference, the Series C Liquidation Preference, the Series E Liquidation Preference, the Series E-2 Liquidation Preference, the Series F Liquidation Preference, and the Series F-2 Liquidation Preference shall be adjusted for any combinations, consolidations or stock contributions or dividends with respect to such shares and shall be increased by an amount per share equal to all dividends declared and unpaid on the Preferred Stock to the date of the final distribution (in the case of the Series E-2 Liquidation Preference, such adjustments shall be made with respect to any of the foregoing events that occur on or after September 30, 1998 even if no shares of Series E-2 Preferred Stock had been issued as of the date of such event). 5 (c) In the event that the assets of the Corporation are insufficient to pay the full Liquidation Preference, the assets available for distribution shall be allocated first among the holders of the Series E Preferred Stock and the Series E-2 Preferred Stock in the ratio that the aggregate liquidation preference attributable to each respective series (based on shares outstanding) bears to their aggregate Liquidation Preference. After the Series E Liquidation Preference and the Series E-2 Liquidation Preference shall have been paid in full, the remaining assets available for distribution shall be allocated among the holders of the Series B Preferred Stock and the Series C Preferred Stock in the ratio that the aggregate liquidation preference attributable to each respective series (based on shares outstanding) bears to their aggregate Liquidation Preference. After the Liquidation Preference shall have been paid in full to the holders of Series B Preferred Stock and Series C Preferred Stock, the remaining assets of the Corporation shall be allocated to the holders of the Series A Preferred Stock until the Series A Liquidation Preference shall have been paid in full. After the Series A Liquidation Preference shall have been paid in full, the remaining assets of the Corporation shall be allocated to the holders of the Series F Preferred Stock and the Series F-2 Preferred Stock in the ratio that the aggregate liquidation preference attributable to each respective series (based on shares outstanding) bears to their aggregate Liquidation Preference, until the Series F Liquidation Preference and the Series F-2 Liquidation Preference shall have been paid in full. (d) After the Liquidation Preference has been paid in full to the holders of Preferred Stock, the remaining assets of the Corporation shall be distributed ratably to the holders of Common Stock. (e) For purposes of this Section 3, a Control Transaction shall be treated as a liquidation, dissolution or winding up of the Corporation if the holders of a majority of the outstanding Preferred Stock so elect by giving written notice to the Corporation before such Control Transaction becomes effective. If no such notice is given, such Control Transaction shall not be so treated and the applicable provisions of Section 4(d) shall apply to such Control Transaction (subject to any applicable requirement pursuant to Section 6(c) for the consent of the holders of Series E Preferred Stock to such Control Transaction). SECTION 4. CONVERSION. (a) GENERAL. On the terms and subject to the conditions of this Section 4, the holder of a share of Preferred Stock shall have the right, at its option, at any time, to convert such share into that number of shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) obtained by dividing (i) (A) in the case of the Series A Preferred Stock, $0.15, (B) in the case of the Series B Preferred, Stock $0.20, (C) in the case of Series C Preferred Stock, $0.3035414, (D) in the case of the Series E Preferred Stock, 6 $1.1131258, (E) in the case of the Series E-2 Preferred Stock, $1.1131258, (F) in the case of the Series F Preferred Stock, $1.80, and (G) in the case of Series F-2 Preferred Stock, $1.50, by (ii) the Applicable Conversion Price (as hereinafter defined) for the respective Series of Preferred Stock and by surrender of such share pursuant to Section 4(b) (the Common Stock issuable upon such conversion being called "CONVERSION SHARES"). Upon conversion, the holder of a share of Preferred Stock shall receive, in addition to the Conversion Shares, a number of shares of any other security distributed pro rata to all the holders of the Common Stock at any time after the Effective Time and prior to conversion of such Preferred Stock equal to the number of shares of such security that a holder of the Conversion Shares would have been entitled to had it held the Conversion Shares prior to the conversion, if such securities were not previously distributed to the holders of Preferred Stock. (b) CONVERSION PROCEDURES. In order to exercise the conversion privilege set forth in Section 4(a), the holder of each share of Preferred Stock to be converted shall surrender the certificate representing such share at the office of the Corporation, with a written notice stating that such holder elects to convert all or a specified whole number of such shares pursuant to this Section 4 and specifying the name or names in which such holder wishes the certificate or certificates for Conversion Shares to be issued. Unless the Conversion Shares are to be issued in the same name as the name in which such Preferred Stock is registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder or its duly authorized attorney-in-fact. Upon conversion of any Preferred Stock, the holder thereof shall be entitled to receive an amount equal to all declared and unpaid dividends on such shares through the date of such conversion. No payment or adjustment shall be made on conversion for dividends on Conversion Shares. As promptly as practicable after such surrender of certificates for Preferred Stock, and in any event within five business days (i) the Corporation shall issue and deliver at such office to such holder, or on such holder's written order, (A) a certificate or certificates for the applicable number of full Conversion Shares and (B) if less than the full number of shares of Preferred Stock evidenced by the surrendered certificate or certificates is being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificates less the number of shares being converted and (ii) the Corporation shall deliver at such office to such holder, or on such holder's written order, (A) the cash payment in settlement of fractional Conversion Shares provided for in Section 4(c) and (B) payment for any such declared and unpaid dividends in cash, by wire transfer of immediately available funds or by certified or bank check. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificate for the Preferred Stock is surrendered and such notice received by the Corporation 7 as aforesaid, and the Person or Persons in whose name or names any certificate or certificates for Conversion Shares are issuable shall be deemed to have become the holder or holders of record of such Conversion Shares at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date, unless the stock transfer books of the Corporation are closed on that date, in which event such Person or Persons shall be deemed to have become such holder or holders of record at the close of business on the next day on which such stock transfer books are open (PROVIDED that, if such books shall remain closed for five days, such fifth day shall be the date any such Person shall become a holder), but such conversion shall be at the Conversion Price in effect on the date upon which such shares were surrendered and such notice was received. Upon delivery, all Conversion Shares shall be duly authorized, validly issued, fully paid, nonassessable, free of all liens and charges and not subject to any preemptive or subscription rights. (c) SETTLEMENT OF FRACTIONAL CONVERSION SHARES. No fractional shares or scrip representing fractions of Conversion Shares shall be issued upon conversion of Preferred Stock. Instead of any fractional Conversion Share otherwise deliverable, the Corporation shall pay to the holder of the converted share an amount in cash equal to the Current Market Price of such fractional Conversion Share on the day on which such converted share is deemed to have been converted. If more than one share is surrendered for conversion at one time by the same holder, the number of full Conversion Shares shall be computed on the basis of the aggregate number of shares so surrendered. The "CURRENT MARKET PRICE" per share of Common Stock on any day is the average of the Daily Market Prices for the 20 consecutive Trading Days immediately prior to the day in question. The "DAILY MARKET PRICE" of a share of Common Stock is the price of a share of Common Stock on the relevant day, determined on the basis of the last reported sale price, regular way, of the Common Stock as reported on the composite tape, or similar reporting system, for issues listed or admitted to trading on the New York Stock Exchange (or, if the Common Stock is not then listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which the Common Stock is then listed or admitted to trading) or, if there is no such reported sale on the day in question, on the basis of the average of the closing bid and asked quotations as so reported or, if the Common Stock is not then listed or admitted to trading on any national securities exchange, on the basis of the average of the high bid and low asked quotations on the day in question in the over-the-counter market as reported by the National Association of Securities Dealers' Automated Quotations System or, if not so quoted, as reported by National Quotation Bureau, Incorporated, or a similar organization. If the Current Market Price is not determinable as aforesaid, it shall be determined in good faith by the Board of Directors of the Corporation (the "BOARD") and evidence of such determination shall be filed with the minutes of the Corporation. A "TRADING DAY" is a day on which the principal national securities exchange on which the Common Stock is 8 listed or admitted to trading is open for the transaction of business or, if the Common Stock is not then listed or admitted to trading on any national securities exchange, any day other than a Saturday, Sunday or Federal holiday. (d) CONVERSION PRICE. The "SERIES A CONVERSION PRICE" shall mean the amount of $0.15; the "SERIES B CONVERSION PRICE" shall mean the amount of $0.20, the "SERIES C CONVERSION PRICE" shall mean the amount of $0.3035413; the "SERIES E CONVERSION PRICE" shall mean the amount of $1.1131258; the "SERIES E-2 CONVERSION PRICE" shall mean the amount of $1.1131258, the "SERIES F CONVERSION PRICE" shall mean the amount of $1.80, and the "SERIES F-2 CONVERSION PRICE" shall mean the amount of $1.50, as used herein, the "APPLICABLE CONVERSION PRICE" shall mean, with respect to any Series, the conversion price applicable to such Series, in each case as adjusted pursuant to this Section 4 (it being understood that the Applicable Conversion Price shall be calculated on the date of any conversion as if the Applicable Conversion Price as of such date had been the original Applicable Conversion Price on the Effective Time and as if all adjustments required pursuant to this Section 4 for events occurring after the Effective Time had been made to such original Applicable Conversion Price from time to time as required and the Series E-2 Conversion Price shall be adjusted to reflect all adjustments required pursuant to this Section 4 for events occurring on or after September 30, 1998 even if no shares of Series E-2 Preferred Stock had been issued as of the date of such event; provided that, notwithstanding anything in this Restated Certificate of Incorporation to the contrary, (x) no adjustment shall be made to the Series F Conversion Price except as provided in Section 4(d)(i)), and (y) no adjustment shall be made to the Series E-2 Conversion Price pursuant to Section 4(d)(ii) if at the time such adjustment would be made the Series E-2 Conversion Price has already been reduced pursuant to Section 4(d)(xvi) and the Series E-2 Conversion Price as adjusted pursuant to the terms of Section 4(d)(xvi) is less than the Series E-2 Conversion Price would be if adjusted pursuant to Section 4(d)(ii)). The Applicable Conversion Price (and the kind and amount of consideration receivable by holders of each Series of Preferred Stock upon conversion) shall be adjusted from time to time as follows: (i) If the Corporation (A) pays a dividend or makes a distribution on the Common Stock in Common Stock, (B) subdivides or combines its outstanding shares of Common Stock into a greater or smaller number of shares or (C) issues by reclassification of the Common Stock any shares of capital stock of the Corporation, the Applicable Conversion Price in effect immediately prior to such action shall be adjusted so that the holder of such Series of Preferred Stock thereafter surrendered for conversion shall be entitled to receive, at the time of such conversion, the number of shares of Common Stock or other capital stock of the Corporation that it would have owned or been 9 entitled to receive immediately following such action had such share been converted immediately prior thereto or on the record date therefor, whichever is earlier. Such adjustment shall become effective immediately after the record date, in the case of a dividend or distribution, or immediately after the effective date, in the case of a subdivision, combination or reclassification. (ii) If the Corporation issues any Additional Shares for a consideration per share less than the Applicable Conversion Price in effect immediately prior to such issuance (determined on a Share Equivalent basis), the Applicable Conversion Price shall be adjusted by multiplying the Applicable Conversion Price in effect immediately prior to such issuance by a fraction (A) the numerator of which shall be the number of shares of Common Stock and Share Equivalents outstanding immediately prior to the issuance of such Additional Shares plus the number of shares of Common Stock that the aggregate consideration for such Additional Shares would purchase at a consideration per share equal to the Applicable Conversion Price and (B) the denominator of which shall be the number of shares of Common Stock and Share Equivalents outstanding immediately prior to the issuance of such Additional Shares plus the number of Additional Shares so issued. "ADDITIONAL SHARES" shall mean any Voting Securities, except (i) Common Stock, warrants or options that qualify as Permitted Issuances to the extent that any such Permitted Issuance does not trigger the antidilution protection of any security issued by the Company, (ii) Common Stock issuable upon the exercise of warrants and options which are outstanding as of the date hereof, (iii) Common Stock issuable upon the conversion of Preferred Stock, and (iv) Series E-2 Preferred Stock and Common Stock issuable upon the conversion of Series E-2 Preferred Stock. "SHARE EQUIVALENTS" shall mean the Common Stock deliverable upon conversion or exercise of all outstanding Preferred Stock, convertible securities, options, warrants and rights of the Corporation. Such adjustment shall become effective immediately after the issuance of such Additional Shares. For purposes hereof, the issuance of any Additional Shares or other securities, warrants, options or rights includes any reissuance or resale. "VOTING SECURITIES" shall mean the Common Stock and any other securities of the Corporation entitled to vote generally in the election of directors of the Corporation and any other securities (including rights, warrants, options and convertible debt) convertible into, exchangeable for or exercisable for any Common Stock or other securities referred to above (whether or not presently convertible, exchangeable or exercisable), including the Preferred Stock. 10 "PERMITTED ISSUANCES" shall mean (x) shares of Common Stock issued upon exercise of options granted pursuant to the Stock Option Plans and options granted and issued pursuant to the Stock Options Plans, to the extent that the total number of shares subject to outstanding options granted under the Stock Option Plans plus the number of outstanding shares issued upon exercise of options granted under the Stock Option Plans does not exceed 19,200,000* at any time, and (y) shares of Common Stock owned by lending institutions that were acquired in connection with loans to the Corporation and by equipment leasing companies that were acquired in connection with financing for the Corporation and warrants for Common Stock issued or to be issued to the foregoing entities in connection with such transactions, to the extent that all such warrants and shares issued and exercised were approved by the Board of Directors. The number of shares of Common Stock referenced in the foregoing sentence shall be adjusted proportionately for stock splits, combinations and stock dividends subsequent to April 11, 1997. In no event shall any options granted and issued pursuant to the Stock Option Plans prior to August 31, 1997, or any share issuable pursuant to any such options, constitute Additional Shares or trigger any adjustment in the Applicable Conversion Price of any Series of Preferred Stock under this Restated Certificate. * Except as may be provided by subsequent amendment, the preceding paragraph is intended to reflect the understanding of International Business Machines Corporation ("IBM") and the Corporation that: Additional Shares do not include (i) any of the 16,200,000 shares designated as "New Options" in the Agreement and Plan of Merger dated as of March 18, 1997 (the "Merger Agreement"), (which consisted of 6,246,338 shares reserved for issuance under the Corporation's Special Stock Option Plan and 9,953,662 shares reserved for issuance under the Corporation's 1997 Stock Option Plan), or (ii) any of the 3,000,000 additional shares reserved for issuance under the 1997 Stock Option Plan pursuant to the approval of the Board of Directors and the stockholders effective as of April 16, 1997. Furthermore, as contemplated by IBM and the Corporation, the resulting total of 19,200,000 shares is also equal to the sum of (A) 15,424,566 shares taken into account in determining the "Share Price" (as defined in the Merger Agreement), plus (B) 775,434 shares, (which is the difference remaining, after subtracting the amount in (A), (15,424,566), from 16,200,000 shares (determined by adding 9,000,000 shares reserved for issuance under the Corporation's 1996 Stock Option Plan and 7,200,000 additional shares intended for issuance in connection with the Merger Agreement)), plus (C) 3,000,000 additional shares reserved for issuance as of April 16, 1997. "STOCK OPTION PLANS" shall mean the Corporation's 1997 Stock Option Plan and the Corporation's Special Stock Option Plan. 11 (iii) If the Corporation issues any warrants, options or other rights entitling the holders thereof to subscribe for or purchase either any Additional Shares or evidences of debt, shares of stock or other securities that are convertible into or exchangeable for, with or without payment of additional consideration, Additional Shares (such warrants, options or other rights being called "RIGHTS" and such convertible or exchangeable evidences of debt, shares of stock or other securities being called "CONVERTIBLE SECURITIES"), and the consideration per share for which Additional Shares may at any time thereafter be issuable pursuant to such Rights or pursuant to such Convertible Securities (when added to the consideration per share of Common Stock, if any, received for such Rights), is less than the Applicable Conversion Price, the Applicable Conversion Price shall be adjusted as provided in Section 4(d)(ii) on the basis that (A) the maximum number of Additional Shares issuable pursuant to all such Rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and (B) the aggregate consideration (plus the consideration, if any, received for such Rights) for such maximum number of Additional Shares shall be deemed to be the consideration received and receivable by the Corporation for the issuance of such Additional Shares pursuant to such Rights or Convertible Securities as set forth in Section 4(d)(viii). (iv) If the Corporation issues Convertible Securities and the consideration per share for which Additional Shares may at any time thereafter be issuable pursuant to such Convertible Securities is less than the Applicable Conversion Price, the Applicable Conversion Price shall be adjusted as provided in Section 4(d)(ii) on the basis that (A) the maximum number of Additional Shares necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and (B) the aggregate consideration for such maximum number of Additional Shares shall be deemed to be the consideration received and receivable by the Corporation for the issuance of such Additional Shares pursuant to such Convertible Securities as set forth in Section 4(d)(viii). No adjustment of the Applicable Conversion Price shall be made under this Section 4(d)(iv) upon the issuance of any Convertible Securities issued pursuant to the exercise of any Rights to the extent that such adjustment was previously made upon the issuance of such Rights pursuant to Section 4(d)(iii). (v) For purposes of Sections 4(d)(iii) and 4(d)(iv), the relevant Applicable Conversion Price shall be the Applicable Conversion Price in effect immediately prior to the earlier of (A) the record date for the holders of Common Stock entitled to receive the Rights or Convertible Securities and (B) the initial issuance of the Rights or Convertible Securities, and the adjustment provided for in either such Section shall become effective immediately after the earlier of the times specified in subclauses (A) and (B) of this Section 4(d)(v). 12 (vi) No adjustment of the Applicable Conversion Price shall be made under Section 4(d)(ii) upon the issuance of any Additional Shares pursuant to the exercise of any Rights or any conversion or exchange rights pursuant to any Convertible Securities, if such adjustment was previously made in connection with the issuance of such Rights or Convertible Securities (or in connection with the issuance of any Rights therefor) pursuant to Section 4(d)(iii) or 4(d)(iv). (vii) If any Rights (or any portions thereof) that gave rise to an adjustment pursuant to Section 4(d)(iii) or any conversion or exchange rights pursuant to any Convertible Securities that gave rise to an adjustment pursuant to Section 4(d)(iii) or 4(d)(iv) expire or terminate without the exercise thereof and/or if by reason of such Rights or Convertible Securities there has been any increase, with the passage of time or otherwise, in the consideration payable upon the exercise thereof, the Applicable Conversion Price shall be readjusted (but to no greater extent than previously adjusted as a result of the issuance of such Rights or Convertible Securities) on the basis of (A) eliminating from the computation Additional Shares corresponding to such expired or terminated Rights or conversion or exchange rights, (B) treating the Additional Shares, if any, actually issued or issuable pursuant to the previous exercise of such Rights or conversion or exchange rights as having been issued for the consideration actually received and receivable therefor and (C) treating any such Rights or conversion or exchange rights that remain outstanding as being subject to exercise on the basis of the consideration payable upon the exercise thereof as in effect at such time; PROVIDED, HOWEVER, that any consideration actually received by the Corporation in connection with the issuance of such Rights or such Convertible Securities shall form part of the readjustment computation even though such Rights or such conversion or exchange rights expired without being exercised. The Applicable Conversion Price shall be adjusted as provided in Section 4(d)(ii) and any applicable provisions of Section 4(d)(iii) and 4(d)(iv) as a result of any increase in the number of Additional Shares issuable, or any decrease in the consideration payable upon any issuance of Additional Shares, pursuant to any antidilution provisions of any Rights or Convertible Securities. (viii) (A) If any Additional Shares, Convertible Securities or Rights are issued for cash, the consideration received therefor shall be deemed to be the amount of cash received. (B) If any Additional Shares, Convertible Securities or Rights are offered by the Corporation for subscription, the consideration received therefor shall be deemed to be the subscription price. (C) If any Additional Shares, Convertible Securities or Rights are sold to underwriters or dealers for public offering without a 13 subscription offering, the consideration received therefor shall be deemed to be the public offering price. (D) In any case covered by Section 4(d)(viii)(B) or (C), in determining the amount of any consideration received by the Corporation in whole or in part other than in cash, the amount of such consideration shall be deemed to be the fair market value of such consideration as determined in good faith by the Board, and evidence of such determination shall be filed with the minutes of the Corporation. If Additional Shares are issued as part of a unit with Rights, the consideration received for the Rights shall be deemed to be the portion of the consideration received for such unit determined in good faith at the time of issuance by the Board, and evidence of such determination shall be filed with the minutes of the Corporation. If the Board does not make any such determination prior to the due date for adjustment of the Applicable Conversion Price, the consideration received for the Rights shall be deemed to be zero. In either event, the consideration received for the Additional Shares shall be deemed to be the consideration received for such unit less the consideration deemed to have been received for the Rights. (E) In any case covered by Section 4(d)(viii)(A), (B), (C) or (D), in determining the amount of consideration received by the Corporation, (I) any amounts paid or receivable for accrued interest or accrued dividends shall be excluded and (II) any compensation, underwriting commissions or concessions or expenses paid or incurred in connection therewith shall not be deducted. (F) In any case covered by Section 4(d)(viii)(A), (B), (C) or (D), there shall be added to the consideration received by the Corporation at the time of issuance or sale (I) the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of Rights that relate to Convertible Securities and (II) the minimum aggregate amount of consideration payable upon the conversion or exchange thereof. (G) If any Additional Shares, Convertible Securities or Rights are issued in connection with any merger, consolidation or other reorganization in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair market value, as determined in good faith by the Board, of such portion of the assets and business of the non-surviving Person or Persons as the Board determines to be attributable to such Additional Shares, Convertible Securities or Rights, and evidence of such determination shall be filed with the minutes of the Corporation. (ix) If the Corporation effects any consolidation, merger or other reorganization to which the Corporation is a party (other than a merger or consolidation in which the Corporation is the surviving corporation), any sale or 14 conveyance to another Person of all or substantially all the assets of the Corporation or any statutory exchange of securities with another Person (including any exchange effected in connection with a merger of a third Person into the Corporation), the holder of each share of such Series of Preferred Stock then outstanding shall have the right thereafter to convert such share into the kind and amount of consideration receivable pursuant to such transaction by a holder of the number of shares of Common Stock into which such share of Preferred Stock might have been converted immediately prior to such transaction, assuming such holder of Common Stock failed to exercise its rights of election, if any, as to the kind or amount of consideration receivable upon such transaction (PROVIDED that, if the kind or amount of consideration receivable pursuant to such transaction is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("NONELECTING SHARE"), then, for purposes of this Section 4(d)(ix), the kind and amount of consideration receivable pursuant to such transaction for each Nonelecting Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Nonelecting Shares). Thereafter, the holders of such Series of Preferred Stock shall be entitled to appropriate adjustments with respect to their conversion rights to the end that the provisions set forth in this Section 4 shall correspondingly be made applicable, as nearly as may reasonably be, to any consideration thereafter deliverable on conversion of such Series of Preferred Stock. Notwithstanding the foregoing, this Section 4(d)(ix) shall not apply to any event which is treated as a liquidation, dissolution or winding up of the Corporation pursuant to Section 3. (x) If a purchase, tender or exchange offer is made to the holders of outstanding Common Stock and, upon the consummation of such offer, the Person having made such offer (together with its affiliates) beneficially owns 50% or more of the outstanding Common Stock, the Corporation shall not effect any consolidation, merger or other reorganization with, or sale, lease or other disposition of material assets to, or issuance of securities to, the Person having made such offer or any affiliate of such Person, unless prior to the consummation thereof each holder of such Series of Preferred Stock shall have been given a reasonable opportunity to elect to receive, upon conversion of such Series of Preferred Stock then held by such holder (in lieu of the kind and amount of consideration otherwise receivable upon conversion pursuant to the provisions of this Section 4(d)), the consideration that would have been received pursuant to such offer by a holder of that number of shares of Common Stock into which one share of such Series of Preferred Stock might then be converted if all such shares had been tendered and accepted pursuant to such offer. Notwithstanding the foregoing, this Section 4(d)(x) shall not apply to any event which is treated as a liquidation, dissolution or winding up of the Corporation pursuant to Section 3. 15 (xi) If the Corporation distributes generally to holders of its outstanding Common Stock or any other securities entitled generally to participate in the earnings or assets of the Corporation ("COMMON EQUITY") but not to holders of such Series of Preferred Stock (on an as converted to Common Stock basis) evidences of its debt, securities or other assets (excluding any cash dividend and excluding any dividends or distributions payable in Rights or Convertible Securities for which adjustment is otherwise made pursuant to this Section 4(d)), the Applicable Conversion Price shall be adjusted by multiplying the Applicable Conversion Price in effect immediately prior to the record date for such dividend or distribution by a fraction of which (A) the numerator shall be the Current Market Price per share of the Common Equity (determined, if the Common Equity is not Common Stock, in the same way that the current market price for Common Stock is determined) on such record date less the then fair market value, as determined in good faith by the Board, of the portion of the evidences of debt, securities or other assets so distributed or applicable to the holder of one share of Common Equity and (B) the denominator shall be such Current Market Price per share of the Common Equity, and evidence of such determination shall be filed with the minutes of the Corporation. Such adjustment shall become effective immediately after the record date for such dividend or distribution and will be rescinded if such dividend or distribution is not paid or made. (xii) If a state of facts not specifically controlled by the provisions of this Section 4(d) occurs or is proposed that would result in the conversion provisions of the such Series of Preferred Stock not being fairly protected in accordance with the essential intent and principles of such provisions, the Board shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such conversion provisions, and evidence of the Board's determination of such adjustment shall be filed with the minutes of the Corporation. (xiii) No adjustment in the Applicable Conversion Price shall be required to be made unless it would require an increase or decrease of at least one cent, but any adjustments not made because of this Section 4(d)(xiii) shall be carried forward and taken into account in any subsequent adjustment otherwise required. All calculations under this Section 4(d) shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. All adjustments with respect to a transaction or event shall apply to subsequent such transactions and events. Anything in this Section 4(d) to the contrary notwithstanding, the Board shall be entitled to make such irrevocable reduction in the Applicable Conversion Price, in addition to the adjustments required by this Section 4(d), as in its discretion it shall determine to be advisable in order to avoid or diminish any income deemed to be received for Federal income tax purposes by any holder of Common Stock or Preferred Stock resulting from any event or occurrence giving rise to an adjustment pursuant to this Section 4(d) or 16 from any similar event or occurrence, and evidence of the Board's determination of such adjustment shall be filed with the minutes of the Corporation. (xiv) Whenever the Applicable Conversion Price is adjusted pursuant to this Section 4(d), (A) the Corporation shall promptly file with the minutes of the Corporation a certificate setting forth the Applicable Conversion Price (and any change in the kind or amount of consideration to be received by holders of shares of such Series of Preferred Stock upon conversion) after such adjustment and setting forth a brief statement of the facts requiring such adjustment and the manner of computing the same and (B) the Corporation shall forthwith mail a notice stating that the Applicable Conversion Price has been adjusted, stating the effective date of such adjustment and enclosing such certificate, to the holders of such Series of Preferred Stock at their addresses as shown on the stock books of the Corporation. (xv) If as a result of an adjustment pursuant to this Section 4(d) the holder of such Series of Preferred Stock converts into any consideration other than Common Stock, (A) the Applicable Conversion Price with respect to such other consideration shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in this Section 4(d) and (B) in the case such consideration shall consist of Common Stock and some other kind of consideration or of two or more kinds of consideration, the Board shall determine in good faith the fair allocation of the adjusted Applicable Conversion Price between or among such types of consideration, and evidence of such determination shall be filed with the minutes of the Corporation. (xvi) The Series E-2 Conversion Price shall be reduced to the Applicable Conversion Price set forth below if the Corporation has not consummated a Qualified Financing or repaid all amounts due under the Senior Notes issued under the Note and Warrant Purchase Agreement by the applicable date specified below:
Series E-2 Preferred Applicable Conversion Date Price --------------- --------------------- April 8, 1999 $0.891 October 8, 1999 $0.669 April 8, 2000 $0.447
The Applicable Conversion Price computed in accordance with this Section 4(d)(xvi) shall be further adjusted to reflect all adjustments required by this Section 4 for all events occurring on or after September 30, 1998 17 even if no shares of Series E Preferred Stock had been issued as of the date of such event. "Qualified Financing" means the sale by the Corporation of any Voting Securities in (x) a public offering or (y) cumulatively, in one or more private placements to accredited investors (as defined in Rule 501(a) of Regulation D of under the Securities Act of 1933, as amended), but excluding sales pursuant to Rule 701 under such Act, which, in either case, result in the Corporation's receipt of aggregate net proceeds of at least $20 million at a price per share not less than the Series E-2 Conversion Price in effect as of the date the Qualified Financing shall be deemed to occur (computed without regard to the adjustments set forth in Section 4(d)(ii) or this Section 4(d)(xvi)). The transaction price per share shall be computed as a weighted average in case there is more than one private placement. The Qualified Financing shall be deemed to occur as of the earliest date on which either of the tests set forth in the preceding sentence has been satisfied by the Corporation. By way of example, a Qualified Financing would be deemed to have occurred if the Corporation receives $12.6 million of net proceeds from the sale of 7,000,000 shares of a newly authorized series of Preferred Stock to one accredited investor at $1.80 per share in one transaction when the Applicable Conversion Price of Series E-2 Preferred Stock is $1.1131258, and seven months later receives $8 million of net proceeds from the sale of 10,000,000 shares of another newly authorized series of Preferred Stock to 20 accredited investors at $0.80 per share when the Applicable Conversion Price of the Series E-2 Preferred Stock is $0.896 per share. In this example, the Corporation has received net proceeds of $20.6 million at a weighted average price of $1.212 per share; and the Qualified Financing would be deemed to occur upon the closing of the second transaction. (d) NOTICE OF SPECIFIED EVENTS. For purposes of this Section 4(e), a "SPECIFIED EVENT" occurs if (i) the Corporation takes any action that would require any adjustment in any conversion price pursuant to Section 4(d), (ii) the Corporation authorizes the granting to the holders of the Common Stock of any Rights or of any other rights, (iii) there is any capital stock reorganization or reclassification of the Common Stock (other than a subdivision or combination of the outstanding Common Stock and other than a change in the par value of the Common Stock), or any consolidation, merger or other reorganization to which the Corporation is a party or any statutory exchange of securities with another Person and for which approval of any stockholders of the Corporation is required, or any sale or transfer of all or substantially all the assets of the Corporation, (iv) there is any other Control Transaction or (v) there is a voluntary liquidation, dissolution or winding up of the Corporation. If a Specified Event occurs, the Corporation shall cause to be filed with the minutes of the Corporation, and shall cause to be mailed to the holders of the Preferred Stock 18 at their addresses as shown on the stock books of the Corporation, at least 10 days prior to the applicable date specified below, a notice describing the Specified Event and stating (A) the record date for any distribution or Rights relating to such Specified Event or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such distribution or Rights are to be determined or (B) the date on which the capital stock reorganization, reclassification, consolidation, merger, other reorganization, statutory exchange, sale, transfer, other Control Transaction, dissolution, liquidation or winding up relating to such Specified Event is expected to become effective and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such Specified Event. (e) LISTING. The Corporation shall use its best efforts to list any securities required to be delivered upon conversion of the Preferred Stock prior to such delivery upon each securities exchange, if any, upon which such securities are listed at the time of such delivery. Prior to the delivery of any such securities, the Corporation shall use its best efforts to comply with all laws and regulations thereunder requiring any registration of such securities with or consent to the delivery thereof by, or any approval of, notice to or filing with, any governmental authority. (f) TAXES. The Corporation shall pay all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of securities on conversion of Preferred Stock. (g) MANDATORY CONVERSION. Immediately upon the consummation of the Initial Public Offering: (i) All authorized and unissued shares of Preferred Stock shall be converted (without further action by the Corporation) into that number of authorized shares of Common Stock into which such Preferred Stock would then be convertible under this Section 4 if such shares were issued and outstanding at the time; and (ii) all issued and outstanding shares of Preferred Stock shall be deemed to have been converted into, and shall (without any action of the holder thereof) become, that number of fully paid and nonassessable shares of Common Stock into which such Preferred Stock is then convertible in accordance with the provisions of this Section 4. "INITIAL PUBLIC OFFERING" shall mean a sale by the Corporation of Common Stock, in a bona fide public offering on an underwritten firm commitment basis pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission pursuant to the Securities Act of 1933 and the rules and regulations thereunder, which public offering results in aggregate cash proceeds of at least $30 million. 19 SECTION 5. CONVERSION OR REDEMPTION OF PREFERRED STOCK. Upon any conversion or any redemption, repurchase or other acquisition by the Corporation of Preferred Stock, the Preferred Stock so converted, redeemed, repurchased or acquired shall be retired and canceled and shall not be available for reissuance. SECTION 6. VOTING. (a) The holders of Preferred Stock shall have the following voting rights set forth in this Section 6 and in Article VIII hereof, in addition to any voting rights to which they may be entitled under the DGCL. (b) The holders of Preferred Stock shall have the right to vote, together with the holders of all outstanding shares of Common Stock and not by classes (except as otherwise provided herein or by applicable law), on all matters on which holders of Common Stock have the right to vote. Each holder of Preferred Stock shall have the right, for each share of Preferred Stock held by such holder on the applicable record date, to cast that number of votes on each such matter equal to the number of shares of Common Stock into which such Preferred Stock might be converted as of such record date multiplied by the number of votes per share which the holders of Common Stock then have with respect to such matter. (c) The consent of a majority of the outstanding shares of Series E Preferred Stock shall be required before the Corporation shall (or shall permit any of its subsidiaries to): (i) either directly or indirectly or through merger, consolidation or other reorganization with any other Person, (A) increase or decrease the aggregate number of authorized shares of Preferred Stock; (B) increase or decrease the par value of the Preferred Stock; (C) effect an exchange, reclassification, or cancellation of all or part of the Preferred Stock; (D) effect an exchange, or create a right of exchange, of all or any part of the shares of another class into Preferred Stock; (E) change the designations, preferences, limitations or relative rights of the Preferred Stock; (F) change the Preferred Stock into the same or different number of shares, either with or without par value, of the same class or another class; (G) create a new class of shares having rights and preferences substantially equal to or prior or superior to the Preferred Stock or increase the rights and preferences or the number of authorized shares of any class having rights and preferences substantially equal to or prior or superior to the Preferred Stock; (H) divide the Preferred Stock into series and fix and determine the designation of such series and the variations in the relative rights and preferences between the shares of such series, or authorize the Board so to do; (I) cancel or otherwise affect dividends on the Preferred Stock which have been declared; (J) authorize the issuance of any shares of any equity security of the Corporation other than Permitted Issuances; 20 (K) amend, alter or repeal any of the provisions of the Certificate of Incorporation; or (L) amend, alter or repeal the Corporation's By-laws; (ii) enter into any Control Transaction with any Person; or (iii) voluntarily liquidate, dissolve or wind up the Corporation. "CONTROL TRANSACTION" shall mean (A) any transaction or series of transactions, in which all stockholders of the Corporation are entitled to participate and pursuant to which shares representing more than fifty percent (50%) of the Corporation's outstanding Voting Securities are purchased by a Person not controlled by, in control of or under common control with any holder of Preferred Stock, (B) the merger or consolidation of the Corporation with another entity (other than a merger or consolidation in which the holders of Voting Securities of the Corporation immediately before the merger or consolidation own, immediately after the merger or consolidation, Voting Securities of the surviving or acquiring corporation or of a parent party of such surviving or acquiring corporation, possessing more than fifty percent (50%) of the voting power of the surviving or acquiring corporation or parent party) resulting in the exchange of the outstanding shares of capital stock of the Corporation for cash, securities or other property or (C) any merger, sale, lease, license, exchange or other disposition (whether in one transaction or a series of related transactions) of more than fifty percent (50%) of the assets of the Corporation. ARTICLE VI DIRECTORS' LIABILITY AND INDEMNIFICATION OF AGENTS SECTION 1. LIMITATION OF DIRECTORS' LIABILITY. The liability of the directors of the Corporation for monetary damages (or breach of fiduciary duty as directors) shall be eliminated to the fullest extent permissible under Section 102(b)(7) of the DGCL as now or hereafter in effect. SECTION 2. REPEAL OR MODIFICATION. Any repeal or modification of the foregoing provisions of this Article VI shall not adversely affect any limitation of liability of an agent of the Corporation relating to acts or omissions occurring prior to such repeal or modification. ARTICLE VII STOCKHOLDER MATTERS SECTION 1. GENERAL. In anticipation that IBM will be a substantial stockholder of the Corporation, and in recognition that the Corporation and such stockholder may engage in the same or similar activities or lines of business and 21 have an interest in the same area of corporate opportunities, and in further recognition of the benefits to be derived by the Corporation through its continued contractual, corporate and business relations with such stockholder (including service of employees and former employees of such stockholder as directors of the Corporation), the provisions of this Article VII are set forth to regulate and define the conduct of certain affairs of the Corporation as they may involve such stockholder and its officers and employees, and the powers, rights, duties and liabilities of the Corporation and its officers, directors and stockholders in connection therewith. SECTION 2. FREEDOM OF ACTION. IBM shall not have any duty to refrain from any of the following: (a) engaging in the same or similar activities or lines of business as the Corporation or developing or marketing products or services that compete, directly or indirectly, with those of the Corporation; (b) doing business with any client or customer of the Corporation; (c) investing (publicly or privately) in, or developing other relationships with, other Persons or entities in the same or similar businesses as that of the Corporation; and (d) employing or otherwise engaging any officer or employee or former officer or employee of the Corporation. Neither IBM nor any officer, director or employee of IBM shall have any obligation, or be liable, to the Corporation or its stockholders (i) for or arising out of the conduct described in (a), (b), (c) and (d) above, (ii) for exercising its rights under the Stockholders Agreement or any other agreement contemplated thereby to which it is or will be a party, (iii) for exercising or failing to exercise its rights as a stockholder of the Corporation or (iv) for breach of any fiduciary or other duty to the Corporation or its stockholders by reason of the conduct described in (i), (ii) or (iii) above or such officers', directors' or employees' participation therein or such employees actions as directors of the Corporation. SECTION 3. CORPORATE OPPORTUNITIES. In the event that IBM or any officer, director or employee of IBM acquires knowledge of a potential transaction or matter which may be a corporate opportunity for both IBM and the Corporation, neither IBM nor its officers, directors or employees shall have any duty to communicate or offer such corporate opportunity to the Corporation and neither IBM nor its officers, directors or employees shall be liable to the Corporation or its stockholders for breach of any fiduciary or other duty, as a stockholder or otherwise, by reason of the fact that IBM pursues or acquires such corporate opportunity for itself, directs such corporate opportunity to another Person or entity, or does not communicate such corporate opportunity or information regarding such corporate opportunity to the Corporation. SECTION 4. CONSENT AND WAIVER. Any Person or other entity purchasing or otherwise acquiring any interest in shares of the capital stock of the Corporation shall be deemed to have consented to the provisions of this Article VII. The waivers set forth in this Article VII shall be effective to the maximum extent permitted by law. 22 SECTION 5. DEFINITIONS. Any reference to "IBM" in this Article VII shall mean IBM and its Affiliates. "Affiliate" shall mean, when used with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified. ARTICLE VIII BOARD OF DIRECTORS The number of directors of the Corporation shall be between five and seven, as specified from time to time by the Board of Directors. The holders of the outstanding shares of Series E Preferred Stock shall at all times until the earlier to occur of (i) the date of consummation of an Initial Public Offering and (ii) the date on which the outstanding shares of Series E Preferred Stock and the outstanding warrants to purchase shares of Series E Preferred Stock fail to represent at least 45% of the Fully Diluted Shares of Voting Securities of the Company, be entitled, voting together as a separate series, to elect four directors of the Corporation by majority vote at each election of directors. The remaining members of the Board of Directors shall be elected by the holders of the Common Stock and the Preferred Stock, voting together as a single class. ARTICLE IX DEFINITIONS AND CONSTRUCTION SECTION 1. CERTAIN DEFINITIONS. As used in this Certificate of Incorporation: (a) The definitions in Sections 1 and 2 shall apply equally to both the singular and plural forms of the terms defined and whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. (b) Any reference to "BUSINESS DAY" means any day (other than a day which is a Saturday, Sunday or legal holiday in the State of New York) on which banks are open for business in New York, New York. (c) "EFFECTIVE TIME" means the effective time of the Merger of Net Acquisition Corp. with and into the Corporation pursuant to the Merger Agreement. (d) Any reference to "HEREIN", "HEREOF", "HEREUNDER" and other like words mean or refer, when used herein, to this Certificate of Incorporation in its entirety. (e) "IBM" means International Business Machines Corporation, a New York corporation. 23 (f) Any reference to "INCLUDE" or "INCLUDING" shall be deemed to be followed by the phrase "WITHOUT LIMITATION". (g) Any reference to "OUTSTANDING", when used with reference to shares of stock, means issued shares, excluding shares held by the Corporation or a subsidiary. (h) "PERSON" means any individual, firm, corporation, partnership, trust, joint venture, Governmental Authority or other entity, and shall include any successor (by merger or otherwise) of such entity. (i) "MERGER AGREEMENT" means the Agreement and Plan of Merger dated as of March 18, 1997 among the Corporation, IBM, Net Acquisition Corp. and the stockholders listed on the signature pages thereto. (j) "STOCKHOLDERS AGREEMENT" means the Stockholders Agreement dated as of March 18, 1997 among IBM, the Corporation and the stockholders listed on the signature pages thereof. (k) "FULLY DILUTED SHARES" shall mean the number of fully diluted shares of Voting Securities (including without limitation upon exercise of all outstanding warrants, options, convertible securities and other rights to purchase Voting Securities). (l) References to Certificate and Sections are to Certificate and Sections of this Restated Certificate of Incorporation. (m) Headings are for convenience of reference only and shall not define, limit or affect any of the provisions hereof. SECTION 2. ADDITIONAL DEFINITIONS.
DEFINED TERM SECTION DEFINED IN "Additional Shares" Art. V Sec. 4(d)(ii) "Affiliate" Art. VII Sec. 5 "Board" Art. V Sec. 4(c) "Common Equity" Art. V Sec. 4(d)(xi) "Common Stock" Art. IV Sec. 1 "Control Transaction" Art. V Sec. 6(c)(iii) "Conversion Shares" Art. V Sec. 4(a) "Convertible Securities" Art. V Sec. 4(d)(iii) "Corporation" Art. I "Current Market Price" Art. V Sec. 4(c) "Daily Market Price" Art. V Sec. 4(c) "DGCL" Art. III 24 "Fully Diluted Shares" Art. VIII "Initial Public Offering" Art. V Sec. 4(h) "Liquidation Preference" Art. V Sec. 3(b) "Liquidation Date" Art. V Sec. 3(b) "Nonelecting Share" Art. V Sec. 4(d)(ix) "Note and Warrant Purchase Art. V Sec. 1 Agreement "Original Issue Date" Art. V Sec. 3(b) "Participating Dividends" Art. V Sec. 2 "Permitted Issuances" Art. V Sec. 4(d)(ii) "Preferred Stock" Art. IV Sec. 1 "Qualified Financing" Art. V Sec. 4(d)(xvi) "Rights" Art. V Sec. 4(d)(iii) "Senior Notes" Art. V Sec. 1 "Series A Conversion Price" Art. V Sec. 4(d) "Series A Liquidation Art. V Sec. 3(b) Preference" "Series A Preferred Stock" Art. IV Sec. 1 "Series B Conversion Price" Art. V Sec. 4(d) "Series B Liquidation Art. V Sec. 3(b) Preference" "Series B Preferred Stock" Art. IV Sec. 1 "Series C Conversion Price" Art. V Sec. 4(d) "Series C Liquidation Art. V Sec. 3(b) Preference" "Series C Preferred Stock" Art. IV Sec. 1 "Series E Conversion Price" Art. V Sec. 4(d) "Series E Liquidation Art. V Sec. 3(b) Preference" "Series E Preferred Stock" Art. IV Sec. 1 "Series E-2 Conversion Price" Art. V Sec. 4(d) "Series E-2 Liquidation Art. V Sec. 3(b) Preference" "Series E-2 Preferred Stock" Art. IV Sec. 1 "Series F Conversion Price" Art. V Sec. 4(d) "Share Equivalents" Art. V Sec. 4(d)(ii) "Series F Liquidation Art. V Sec. 3(b) Preference" "Series F Preferred Stock" Art. IV Sec. 1 "Series F-2 Conversion Price" Art. V Sec. 4(d) "Series F-2 Liquidation Art. V Sec. 3(b) Preference" "Series F-2 Preferred Stock" Art. IV Sec. 1 "Specified Event" Art. V Sec. 4(i) 25 "Stock Option Plans" Art. V Sec. 4(d)(ii) "Trading Day" Art. V Sec. 4(c) "Voting Securities" Art. V Sec. 4(d)(ii)
26 EX-3.1-1 4 EXHIBIT 3.1.1 Exhibit 3.1.1 RESTATED CERTIFICATE OF INCORPORATION NetObjects, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: The name of the corporation is NetObjects, Inc. NetObjects, Inc. was originally incorporated under the same name, and the original Certificate of Incorporation of the corporation was filed with the Secretary of the State of Delaware on November 21, 1995. NetObjects, Inc. intends to undertake an "Initial Public Offering," which is hereby defined to mean a sale by NetObjects, Inc. of its Common Stock, in a bona fide public offering on an underwritten firm commitment basis pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission ("SEC") pursuant to the Securities Act of 1933 and the rules and regulations thereunder ("Securities Act"), which public offering results in aggregate cash proceeds of at least $30 million. Pursuant to Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware, the Restated Certificate of Incorporation set forth in Appendix I attached hereto restates and integrates and further amends the provisions of the Restated Certificate of Incorporation of this corporation. Effective on the same date as the closing of the sale of Common Stock to underwriters in the Initial Public Offering, the Restated Certificate of Incorporation of NetObjects, Inc. in effect at the time immediately prior thereto shall be amended and restated in its entirety as set forth in Appendix I attached hereto. IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been signed by its President and attested to by its Secretary on _____________ ____, 1999. ------------------------------ Samir Arora, President - ---------------------------- Alan B. Kalin, Secretary RESTATED CERTIFICATE OF INCORPORATION OF NETOBJECTS, INC. ARTICLE I The name of the corporation is NetObjects, Inc. (the "Corporation"). ARTICLE II The address of the Corporation's registered office in the State of Delaware is: 1013 Centre Road, City of Wilmington, County of New Castle. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV SECTION 1. The total number of shares of all classes of stock which the Corporation has authority to issue is Sixty-Six Million (66,000,000) shares, consisting of two classes: Sixty Million (60,000,000) shares of Common Stock, $0.01 par value per share, and Six Million (6,000,000) shares of Preferred Stock, $0.01 par value per share. SECTION 2. The board of directors ("Board of Directors") is authorized, subject to any limitations prescribed by the law of the State of Delaware, to provide for the issuance of the shares of Preferred Stock in one or more series, and, by filing a certificate of designation pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof, and to increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding). The number of authorized shares of Preferred Stock may also be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, unless a vote of any other holders is required pursuant to a certificate or certificates establishing a series of Preferred Stock. Except as otherwise expressly provided in any certificate of designation designating any series of Preferred Stock pursuant to the foregoing provisions of this Article IV, any new series of Preferred Stock may be designated, fixed and determined as provided herein by the Board of Directors without approval of the holders of Common Stock or the holders of Preferred Stock, or any series thereof, and any such new series may have powers, preferences and rights, including, without limitation, voting rights, dividend rights, liquidation rights, redemption rights and conversion rights, senior to, junior to or pari passu with the rights of the Common Stock, the Preferred Stock, or any future class or series of Preferred Stock or Common Stock. SECTION 3. Upon the effectiveness of this Restated Certificate of Incorporation following its filing with the Secretary of State of the State of Delaware, every six shares of issued and outstanding Common Stock, par value $.00000001 per share, of the Corporation, shall be changed and reclassified into one share of Common Stock, par value $.01 per share, of the Corporation, thereby giving effect to a one-for-six reverse stock split. The total number of shares of authorized capital stock of the Corporation set forth in Section 1 of this Article IV sets forth the total authorized stock of the corporation after giving effect to this one-for-six reverse stock split. No fractional shares resulting from the reverse split of Common Stock shall be issued; instead, the Corporation shall pay to the holder of each fractional share an amount in cash as determined by the Board of Directors, in its sole discretion. ARTICLE V During the term of the Voting Agreement dated as of February __, 1999 between the Corporation and International Business Machines Corporation ("IBM"), a vacancy on the Board of Directors created by the death or resignation of an "IBM Representative," as defined in such Voting Agreement, shall be filled by the approval of the remaining directors only with an IBM Representative designated in writing by IBM, notwithstanding any other provision in the bylaws of the Corporation to the contrary. ARTICLE VI In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the bylaws of the Corporation. ARTICLE VII SECTION 1. To the fullest extent permitted by the General Corporation Law of Delaware as the same exists or as may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Neither any amendment nor repeal of this Article, nor the adoption of any provision of this 2 Amended and Restated Certificate of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. SECTION 2. To the extent permitted by applicable law, this Corporation is also authorized to provide indemnification of (and advancement of expenses to) agents (and any other persons to which Delaware law permits this Corporation to provide indemnification) through bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the Delaware General Corporation Law, subject only to limits created by applicable Delaware law (statutory or non-statutory), with respect to actions for breach of duty to the Corporation, its stockholders, and others. SECTION 3. Neither any amendment nor repeal of any of the foregoing provisions of this Article VII, nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this Article VII, shall eliminate, reduce or otherwise adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such amendment, repeal or adoption of such an inconsistent provision. ARTICLE VIII The Corporation shall not be subject to or governed by the provisions of Section 203 of the General Corporation Law of Delaware, or any amendment or successor provisions thereto, with respect to business combinations between the Corporation and interested stockholders. ARTICLE IX The Corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Restated Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this article. ARTICLE X SECTION 1. In recognition that IBM is a substantial stockholder of the Corporation, and that the Corporation and such stockholder may engage in the 3 same or similar activities or lines of business and have an interest in the same area of corporate opportunities, and in further recognition of the benefits to be derived by the Corporation through its continued contractual, corporate and business relations with such stockholder (including service of employees and former employees of such stockholder as directors of the Corporation), the provisions of this Article X are set forth to regulate and define the conduct of certain affairs of the Corporation as they may involve such stockholder and its officers and employees, and the powers, rights, duties and liabilities of the Corporation and its officers, directors and stockholders in connection therewith. SECTION 2. IBM shall not have any duty to refrain from any of the following: (a) engaging in the same or similar activities or lines of business as the Corporation or developing or marketing products or services that compete, directly or indirectly, with those of the Corporation; (b) doing business with any client or customer of the Corporation; (c) investing (publicly or privately) in, or developing other relationships with, other Persons (as defined in Section 6 below) or entities in the same or similar businesses as that of the Corporation; and (d) employing or otherwise engaging any officer or employee or former officer or employee of the Corporation. Neither IBM nor any officer, director or employee of IBM shall have any obligation, or be liable, to the Corporation or its stockholders (i) for or arising out of the conduct described in (a), (b), (c) and (d) above, (ii) for exercising its rights under the Voting Agreement or any other agreement to which it is a party or (iii) for breach of any fiduciary or other duty to the Corporation or its stockholders by reason of the conduct described in (i) or (ii) above or such officers', directors' or employees' participation therein or such employees' actions as directors of the Corporation. SECTION 3. In the event that IBM or any officer, director or employee of IBM acquires knowledge of a potential transaction or matter which may be a corporate opportunity for both IBM and the Corporation, neither IBM nor its officers, directors or employees shall have any duty to communicate or offer such corporate opportunity to the Corporation and neither IBM nor its officers, directors or employees shall be liable to the Corporation or its stockholders for breach of any fiduciary or other duty, as a stockholder or otherwise, by reason of the fact that IBM pursues or acquires such corporate opportunity for itself, directs such corporate opportunity to another Person or entity, or does not communicate such corporate opportunity or information regarding such corporate opportunity to the Corporation. SECTION 4. No action taken by the Board of Directors of the Corporation shall be void or voidable or give rise to any liability for breach of fiduciary duty or otherwise solely by reason of the fact that (i) a majority of the members of such Board of Directors are affiliated with IBM and/or its Affiliates (as defined in Section 6 below) and/or (ii) such action shall be, or shall be deemed to be, beneficial to IBM, provided, however, that the stockholders shall not be deemed to have 4 waived any claim that would otherwise arise from any action of the Board of Directors that results in a transfer of tangible assets or an assignment of intellectual property rights of the Corporation to IBM or any Affiliate of IBM on other than on commercially reasonable terms. SECTION 5. Any Person or other entity purchasing or otherwise acquiring any interest in shares of the capital stock of the Corporation shall be deemed to have consented to the provisions of this Article X. The provisions and the waivers set forth in this Article IX shall be effective to the maximum extent permitted by law. SECTION 6. Any reference to "IBM" shall mean IBM and its Affiliates. "Affiliate" shall mean any Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with IBM. "Person" in this Article X shall mean any individual, firm, corporation, partnership, trust, joint venture, governmental authority or other entity, and shall include any successor (by merger or otherwise) of such entity. SECTION 7. This Article X may be amended only by the affirmative vote of the holders of at least ninety percent (90%) of the Corporation's outstanding Voting Securities. All provisions and waivers of this Article X shall terminate and be of no further force and effect at such time as the Voting Securities of the Corporation held directly or indirectly by IBM represent less than ten percent (10%) of all Voting Securities of the Corporation on a Fully Diluted basis. Once so terminated, Article X shall not automatically revive if IBM's share of Voting Securities of the Corporation shall thereafter or from time to time rise above ten percent (10%). If terminated, the provisions and waivers of this Article X nonetheless shall remain effective as to all events arising prior to the time of such termination. "Voting Securities" shall mean the Common Stock and any other securities of the Corporation entitled to vote generally in the election of directors of the Corporation and any other securities (including rights, warrants, options and convertible debt) convertible into, exchangeable for or exercisable for any Common Stock or other securities referred to above (whether or not presently convertible, exchangeable or exercisable, including preferred stock of the Corporation). "Fully Diluted" shall mean the number of fully diluted shares of Voting Securities (including without limitation upon exercise of all outstanding warrants, options, convertible securities and other rights to purchase Voting Securities). 5 EX-3.2 5 EXHIBIT 3.2 EXHIBIT 3.2 RESTATED BYLAWS OF NETOBJECTS, INC. A DELAWARE CORPORATION ADOPTED APRIL 11, 1997 TABLE OF CONTENTS
PAGE ---- ARTICLE I CORPORATE OFFICES . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Registered Office . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . 1 2.1 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . 1 2.3 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . 1 2.4 Notice of Stockholders' Meetings . . . . . . . . . . . . . . . 2 2.5 Manner of Giving Notice; Affidavit of Notice . . . . . . . . . 2 2.6 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.7 Adjourned Meeting; Notice . . . . . . . . . . . . . . . . . . . 2 2.8 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . 2 2.9 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.10 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . 3 2.11 Stockholder Action by Written Consent Without a Meeting . . . . 3 2.12 Record Date for Stockholder Notice; Voting; Giving Consents . . 3 2.13 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.14 List of Stockholders Entitled to Vote . . . . . . . . . . . . . 4 ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.1 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.2 Number of Directors . . . . . . . . . . . . . . . . . . . . . . 4 3.3 Election, Qualification and Term of Office of Directors . . . . 5 3.4 Resignation and Vacancies . . . . . . . . . . . . . . . . . . . 5 3.5 Place of Meetings; Meetings by Telephone . . . . . . . . . . . 6 3.6 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . 6 3.7 Special Meetings; Notice . . . . . . . . . . . . . . . . . . . 6 3.8 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.9 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . 7 3.10 Board Action by Written Consent Without a Meeting . . . . . . . 7 3.11 Fees and Compensation of Directors . . . . . . . . . . . . . . 7 3.12 Approval of Loans to Officers . . . . . . . . . . . . . . . . . 7 3.13 Removal of Directors . . . . . . . . . . . . . . . . . . . . . 7 i TABLE OF CONTENTS (CONT'D) PAGE ---- ARTICLE IV COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 4.1 Committees of Directors . . . . . . . . . . . . . . . . . . . . 7 4.2 Committee Minutes . . . . . . . . . . . . . . . . . . . . . . . 8 4.3 Meetings and Action of Committees . . . . . . . . . . . . . . . 8 ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 5.1 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 5.2 Appointment of Officers . . . . . . . . . . . . . . . . . . . . 9 5.3 Subordinate Officers . . . . . . . . . . . . . . . . . . . . . 9 5.4 Removal and Resignation of Officers . . . . . . . . . . . . . . 9 5.5 Vacancies in Offices . . . . . . . . . . . . . . . . . . . . . 9 5.6 Chairman of the Board . . . . . . . . . . . . . . . . . . . . . 9 5.7 President . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.8 Chief Creative Officer . . . . . . . . . . . . . . . . . . . . 9 5.9 Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . 10 5.10 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5.11 Chief Financial Officer . . . . . . . . . . . . . . . . . . . . 10 5.12 Assistant Secretary . . . . . . . . . . . . . . . . . . . . . . 11 5.13 Assistant Treasurer . . . . . . . . . . . . . . . . . . . . . . 11 5.14 Representation of Shares of Other Corporations . . . . . . . . 11 5.15 Authority and Duties of Officers . . . . . . . . . . . . . . . 11 ARTICLE VI INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 6.1 Third Party Actions . . . . . . . . . . . . . . . . . . . . . . 11 6.2 Actions by or in the Right of the Corporation . . . . . . . . . 12 6.3 Successful Defense . . . . . . . . . . . . . . . . . . . . . . 12 6.4 Determination of Conduct . . . . . . . . . . . . . . . . . . . 12 6.5 Payment of Expenses in Advance . . . . . . . . . . . . . . . . 12 6.6 Indemnity Not Exclusive . . . . . . . . . . . . . . . . . . . . 13 6.7 Insurance Indemnification . . . . . . . . . . . . . . . . . . . 13 6.8 The Corporation . . . . . . . . . . . . . . . . . . . . . . . . 13 6.9 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 13 6.10 Indemnity Fund . . . . . . . . . . . . . . . . . . . . . . . . 13 6.11 Indemnification of Other Persons . . . . . . . . . . . . . . . 14 6.12 Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . 14 6.13 Continuation of Indemnification and Advancement of Expenses . . 14 ii TABLE OF CONTENTS (CONT'D) PAGE ---- ARTICLE VII RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . 14 7.1 Maintenance and Inspection of Records . . . . . . . . . . . . . 14 7.2 Inspection by Directors . . . . . . . . . . . . . . . . . . . . 15 7.3 Annual Statement to Stockholders . . . . . . . . . . . . . . . 15 ARTICLE VIII GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . 15 8.1 Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 8.2 Execution of Corporate Contracts and Instruments . . . . . . . 15 8.3 Stock Certificates; Partly Paid Shares . . . . . . . . . . . . 15 8.4 Special Designation on Certificates . . . . . . . . . . . . . . 16 8.5 Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . 16 8.6 Construction; Definitions . . . . . . . . . . . . . . . . . . . 16 8.7 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.8 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.9 Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.10 Transfer of Stock . . . . . . . . . . . . . . . . . . . . . . . 17 8.11 Stock Transfer Agreements . . . . . . . . . . . . . . . . . . . 17 8.12 Registered Stockholders . . . . . . . . . . . . . . . . . . . . 17 ARTICLE IX AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 17
iii BYLAWS OF NETOBJECTS, INC. A DELAWARE CORPORATION ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE. The registered office of the corporation shall be in the City of Wilmington, County of Newcastle, State of Delaware. The name of the registered agent of the corporation at such location is The Prentice-Hall Corporation System, Inc. 1.2 OTHER OFFICES. The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation. 2.2 ANNUAL MEETINGS. The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. At the meeting, directors shall be elected and any other proper business may be transacted. 2.3 SPECIAL MEETINGS. A special meeting of the stockholders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. If a special meeting is called by any person or persons other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons who called the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the board of directors may be held. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings of stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. Written notice may also be given by facsimile, in which case notice shall be deemed given upon the earlier of receipt or twenty four (24) hours after transmission. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.6 QUORUM. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. 2.7 ADJOURNED MEETING; NOTICE. When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.8 CONDUCT OF BUSINESS. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business. 2 2.9 VOTING. The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 of these bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as provided in the last paragraph of this Section 2.9, or as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. 2.10 WAIVER OF NOTICE. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless otherwise provided in the certificate of incorporation, any action required by this article to be taken at any annual or special meeting of stockholders of the corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. 2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of 3 any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the board of directors does not so fix a record date: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (ii) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed. (iii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 2.13 PROXIES. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(c) of the General Corporation Law of Delaware. 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any 4 stockholder who is present. Such list shall presumptively determine the identify of the stockholders entitled to vote at the meeting and the number of shares held by each of them. ARTICLE III DIRECTORS 3.1 POWERS. Subject to the provisions of the General Corporation Law of Delaware and any limitation in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS. The corporation shall have the number of directors specified in the certificate of incorporation of the corporation. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS. Except as provided in Section 3.4 of these bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Elections of directors need not be by written ballot. 3.4 RESIGNATION AND VACANCIES. Any director may resign at any time upon written notice to the attention of the secretary of the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Unless otherwise provided in the certificate of incorporation or these bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or 5 series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or any executor, administrator, trust or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. The board of directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 REGULAR MEETINGS. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 3.7 SPECIAL MEETINGS; NOTICE. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two (2) directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or facsimile, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by facsimile, it shall be delivered 6 personally or by telephone or to the facsimile telephone number at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 QUORUM. At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor other purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. 3.11 FEES AND COMPENSATION OF DIRECTORS. Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors. 3.12 APPROVAL OF LOANS TO OFFICERS. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a director of 7 the corporation or its subsidiaries, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing contained in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.13 REMOVAL OF DIRECTORS. Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to elect such director. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designation and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (v) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the 8 issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 COMMITTEE MINUTES. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS 5.1 OFFICERS. The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, a chief creative officer, one or more vice presidents, one or more assistant vice presidents, one or more assistant secretaries, and one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. 5.2 APPOINTMENT OF OFFICERS. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall be appointed by the board of directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS. The board of directors may appoint, or empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by 9 the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. 5.6 CHAIRMAN OF THE BOARD. The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 PRESIDENT. Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. 5.8 CHIEF CREATIVE OFFICER. The chief creative officer of the Company shall be responsible for the creative development, identity and implementation of the Company's software products and marketing communication materials and programs. With respect to product development, the chief creative officer shall be responsible for the creative implementation of the Company's software products, including structure templates and clip content products. With respect to marketing and public relations, the chief creative officer shall be responsible for the creative aspects and implementation of the Company's marketing communication materials. The chief creative officer shall have such other powers and perform such other duties as from time to time may be prescribed by the board of directors, these bylaws, the president or the chairman of the board. 5.9 VICE PRESIDENTS. In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the 10 duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 5.10 SECRETARY. The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.11 CHIEF FINANCIAL OFFICER. The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all his transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. The chief financial officer shall be the treasurer of the corporation. 11 5.12 ASSISTANT SECRETARY. The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as may be prescribed by the board of directors or these bylaws. 5.13 ASSISTANT TREASURER. The assistant treasurer, or, if there is more than one, the assistant treasurers, in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the chief financial officer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the chief financial officer and shall perform such other duties and have such other powers as may be prescribed by the board of directors or these bylaws. 5.14 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of the board, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. 5.15 AUTHORITY AND DUTIES OF OFFICERS. In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors or the stockholders. ARTICLE VI INDEMNITY 6.1 THIRD PARTY ACTIONS. Subject to the provisions of this Article VI, the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the corporation, which approval shall not be unreasonably withheld) actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable 12 cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. Subject to the provisions of this Article VI, the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer or employee of the corporation, or is or was serving at the request of the corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. Notwithstanding any other provision of this Article VI, no person shall be indemnified hereunder for any expenses or amounts paid in settlement with respect to any action to recover short-swing profits under Section 16(b) of the Securities Exchange Act of 1934, as amended. 6.3 SUCCESSFUL DEFENSE. To the extent that a director, officer or employee of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. 6.4 DETERMINATION OF CONDUCT. Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that the indemnification of the director, officer or employee is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding or (ii) if such quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. Notwithstanding the foregoing, a director, officer or employee of the corporation shall be entitled to contest any determination that the director, officer or employee has not met the applicable standard 13 of conduct set forth in Sections 6.1 and 6.2 by petitioning a court of competent jurisdiction. 6.5 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending a civil or criminal action, suit or proceeding, by an individual who may be entitled to indemnification pursuant to Section 6.1 or 6.2, shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer or employee to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article VI. 6.6 INDEMNITY NOT EXCLUSIVE. The indemnification and advancement of expenses provided by or granted pursuant to the other sections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. 6.7 INSURANCE INDEMNIFICATION. The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer or employee of the corporation, or is or was serving at the request of the corporation, as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. 6.8 THE CORPORATION. For purposes of this Article VI, references to the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors and officers, so that any person who is or was a director, officer or employee of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article VI (including, without limitation, the provisions of Section 6.4) with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. 6.9 EMPLOYEE BENEFIT PLANS. For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer or employee of the corporation which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and 14 in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article VI. 6.10 INDEMNITY FUND. Upon resolution passed by the Board, the corporation may establish a trust or other designated account, grant a security interest or use other means (including, without limitation, a letter of credit), to ensure the payment of certain of its obligations arising under this Article VI and/or agreements which may be entered into between the corporation and its officers and directors from time to time. 6.11 INDEMNIFICATION OF OTHER PERSONS. The provisions of this Article VI shall not be deemed to preclude the indemnification of any person who is not a director or officer of the corporation or is not serving at the request of the corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, but whom the corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware or otherwise. The corporation may, in its sole discretion, indemnify an employee, trustee or other agent as permitted by the General Corporation Law of the State of Delaware. The corporation shall indemnify an employee, trustee or other agent where required by law. 6.12 SAVINGS CLAUSE. If this Article VI or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each person entitled to indemnification hereunder against expenses (including attorney's fees), judgments, fines and amounts paid in settlement with respect to any action, suit, proceeding or investigation, whether civil, criminal or administrative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated, or by any other applicable law. 6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS. The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the 15 usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent in the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent so to act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 7.2 INSPECTION BY DIRECTORS. Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 ANNUAL STATEMENT TO STOCKHOLDERS. The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. ARTICLE VIII GENERAL MATTERS 8.1 CHECKS. From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. The board of directors, except as otherwise provided in these bylaws, may authorize any officer or 16 officers, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES. The shares of the corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the board of directors, or the president or vice president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of the corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES. If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face of back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the 17 powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.5 LOST CERTIFICATES. Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 CONSTRUCTION; DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.7 DIVIDENDS. The directors of the corporation, subject to any restrictions contained in (i) the General Corporation Law of Delaware or (ii) the corporation's certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. 8.8 FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. 8.9 SEAL. The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the board of directors, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. 8.10 TRANSFER OF STOCK. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 18 8.11 STOCK TRANSFER AGREEMENTS. The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.12 REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX AMENDMENTS The bylaws of the corporation may be adopted, amended or repealed by an affirmative vote of the holders of a majority of the outstanding shares of Preferred Stock and Common Stock voting as a single class. 19 CERTIFICATE OF ADOPTION OF AMENDMENT OF BYLAWS OF NETOBJECTS, INC., A DELAWARE CORPORATION Certificate by Secretary of Amendment of Bylaws: The undersigned hereby certifies that he is the duly elected, qualified, and acting Secretary of NetObjects, Inc., a Delaware Corporation and that the foregoing bylaws, comprising eighteen (18) pages, including this page, were adopted as the Bylaws of the corporation as of April 11, 1997, by the stockholders of the corporation. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the corporate seal as of April 11, 1997, /s/ Alan B. Kalin ------------------------------ Alan B. Kalin, Secretary 20 Exhibit A to Amended Bylaws 3.14 Matters Requiring Board Approval. The corporation may not take any of the following actions without the affirmative vote of a majority of the members of the board of directors of the corporation: (1) hiring or termination of any officer of the corporation or any substantial change in the title, function or duties of any officer of the corporation; (2) amendment of or waiver by the corporation of its rights under any Operative Agreement (as defined in the Agreement and Plan of Merger dated as of March 18, 1997, among international Business Machines Corporation, Net Acquisition Corp., NetObjects, Inc. and the holders listed on the signature pages thereto (the "Merger Agreements")); (3) sale, transfer, exchange, lease, license, assignment, mortgage, pledge, hypothecation or other disposition of any software, patents or know-how of the corporation (other than in the ordinary course of business); (4) sale, transfer, exchange, lease, license, assignment, mortgage, pledge, hypothecation or other disposition of assets (tangible or intangible) of the corporation not covered in the preceding clause (3) having a value exceeding $500,000 in any one transaction or series of related transaction (exclusive of licenses granted in the ordinary course of business), or any such transaction not in the ordinary course of business; (5) acquisition of tangible capital assets by the corporation for an acquisition price exceeding $500,000 in any transaction or series of related transactions; (6) any investment or series of related investments by the corporation exceeding $500,000, including acquisitions or sales of securities (other than normal bank deposits/short term liquid assets); (7) incurrence by the corporation of (a) obligations for borrowed money (whether secured or unsecured), (b) obligations representing the deferred purchase price of property or services other than accounts payable arising in the ordinary course of business, (c) obligations that would be shown as a liability on a balance sheet of the corporation under generally accepted accounting principles in respect of leases of property that would be capitalized on such balance sheet, (d) obligations evidenced by any bond, note, debenture or other evidence of indebtedness and (e) obligations under guarantees (direct or indirect and however denominated) in respect of any obligations of third parties referred to in clauses (a) through (d), if the aggregate of such obligations incurred during any fiscal year exceeds $100,000; 1 (8) entry by the corporation into any other contract or the incurrence of any other obligation of a type not otherwise described in clauses (3) through (7) above other than in the ordinary course of business or involving payments or other consideration in excess of $500,000 in any one transaction or series or related transactions (including the purchase, lease, license or other acquisition of personal property or purchase of services); (9) purchase or other acquisition of any real property or interest therein or the entry into any lease respecting real property; (10) acquisition by the corporation of an existing business from another entity, the entry by the corporation into a partnership or formal joint venture or the creation by the corporation of any subsidiary or the taking of any action to cause any other person to become a stockholder in any subsidiary; (11) approval of the annual budget of the corporation and each annual and any long-range or other business plan of the corporation; (12) any material change to, or deviation from, the most recently approved annual business plan and any expenditures not contemplated by such business plan aggregating more than 5% of the annual expense budget of the corporation for the then current fiscal year; (13) declaration or payment of any dividend or other distribution by the corporation (whether in cash or by issuance of shares of capital stock) on any shares of capital stock of the corporation, or the direct or indirect redemption, retirement, purchase or other acquisition of any capital stock of the corporation (other than the redemption, retirement, purchase or other acquisition of capital stock pursuant to any incentive compensation plan previously approved pursuant to paragraph (15)); (14) commencement (including the filing of a counterclaim) or settlement of any claim or litigation, regulatory proceeding or arbitration; (15) adoption of or revision to any employee incentive compensation program, including programs relating to bonuses, profit sharing or deferred compensation, or any stock option, restricted stock, phantom stock, stock appreciation rights or similar employee stock plan or the increase in the number of shares or share equivalents available thereunder; (16) adoption of or revision to any form of employment agreement, employee noncompetition agreement or confidentiality agreement utilized by the corporation; (17) adoption, amendment or termination of any collectors bargaining agreement; 2 (18) appointment, engagement or removal of public accountants, auditors or outside counsel by the corporation; (19) appointment or termination of the general counsel of the corporation; (20) any increase or decrease in the compensation (including the payment of any discretionary cash bonuses) of any officer of the corporation or of any other employee of the corporation whose base cash compensation is or would become greater than $100,000 (exclusive of the value of any award pursuant to any stock based incentive or bonus program previously approved by the board of directors); (21) award or issuance of stock-based bonuses or any share, share equivalents, options or rights pursuant to any program or plan previously approved by the board of directors; (22) entry into any material product development, marketing or distribution agreements, including any subcontracting agreement but excluding any agreement with an original equipment manufacturer consistent with the most recently adopted annual business plan; (23) adoption or revision of any accounting or tax principle, policy or procedure to be employed by the corporation; (24) adoption or revision of any policy or practice relating to the protection of intellectual property (including patents); (25) giving of any notice of default (howsoever called) by the corporation under any Operative Agreement or the termination by the corporation of any Operative Agreement for the breach by another party of such Operative Agreement; (26) filings with, or public comments to, Governmental Authorities (as defined in the Merger Agreement), other than routine permits, licenses and filings in the ordinary course of business; and (27) political and charitable contributions. In each instance where an amount or a time period is set forth in this Section 3.14, such amount or time period is subject to change by the board of directors by a majority vote of all the members or the board of directors. 3 EX-3.2-1 6 EXHIBIT 3.2.1 AMENDED AND RESTATED BYLAWS OF NETOBJECTS, INC. A DELAWARE CORPORATION ADOPTED EFFECTIVE AS OF __________ ___, 1999 TABLE OF CONTENTS
Page ---- ARTICLE I CORPORATE OFFICES..................................................1 1.1 Registered Office....................................................1 1.2 Other Offices........................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS..........................................1 2.1 Place of Meetings....................................................1 2.2 Annual Meetings......................................................1 2.3 Special Meetings.....................................................1 2.4 Notice of Stockholders' Meetings.....................................2 2.5 Manner of Giving Notice; Affidavit of Notice.........................2 2.6 Items of Business at Meetings........................................2 2.7 Quorum...............................................................4 2.8 Adjourned Meeting; Notice............................................4 2.9 Conduct of Business..................................................4 2.10 Voting..............................................................4 2.11 Waiver of Notice....................................................4 2.12 Stockholder Action by Written Consent Without a Meeting.............5 2.13 Record Date for Stockholder Notice; Voting; Giving Consents.........5 2.14 Proxies.............................................................6 2.15 List of Stockholders Entitled to Vote...............................6 ARTICLE III DIRECTORS........................................................6 3.1 Powers...............................................................6 3.2 Number, Election.....................................................7 3.3 Qualification and Term of Office of Directors........................7 3.4 Resignation and Vacancies............................................7 3.5 Place of Meetings; Meetings by Telephone.............................8 3.6 Regular Meetings.....................................................8 3.7 Special Meetings; Notice.............................................8 3.8 Quorum...............................................................9 3.9 Waiver of Notice.....................................................9 3.10 Board Action by Written Consent Without a Meeting...................9 3.11 Fees and Compensation of Directors..................................9 3.12 Approval of Loans to Officers.......................................9 3.13 Removal of Directors...............................................10 ARTICLE IV COMMITTEES.......................................................10 4.1 Committees of Directors.............................................10 4.2 Committee Minutes...................................................11 4.3 Meetings and Action of Committees...................................11 i ARTICLE V OFFICERS..........................................................11 5.1 Officers............................................................11 5.2 Appointment of Officers.............................................11 5.3 Subordinate Officers................................................11 5.4 Removal and Resignation of Officers.................................11 5.5 Vacancies in Offices................................................12 5.6 Chairman of the Board...............................................12 5.7 President...........................................................12 5.8 Vice Presidents.....................................................12 5.9 Secretary...........................................................12 5.10 Chief Financial Officer............................................13 5.11 Assistant Secretary................................................13 5.12 Assistant Treasurer................................................13 5.13 Representation of Shares of Other Corporations.....................14 5.14 Authority and Duties of Officers...................................14 ARTICLE VI INDEMNITY........................................................14 6.1 Third Party Actions.................................................14 6.2 Actions by or in the Right of the Corporation.......................14 6.3 Successful Defense..................................................15 6.4 Determination of Conduct............................................15 6.5 Payment of Expenses in Advance......................................15 6.6 Indemnity Not Exclusive.............................................16 6.7 Insurance Indemnification...........................................16 6.8 The Corporation.....................................................16 6.9 Employee Benefit Plans..............................................16 6.10 Indemnity Fund.....................................................17 6.11 Indemnification of Other Persons...................................17 6.12 Savings Clause.....................................................17 6.13 Continuation of Indemnification and Advancement of Expenses........17 ARTICLE VII RECORDS AND REPORTS.............................................17 7.1 Maintenance and Inspection of Records...............................17 7.2 Inspection by Directors.............................................18 ARTICLE VIII GENERAL MATTERS................................................18 8.1 Checks..............................................................18 8.2 Execution of Corporate Contracts and Instruments....................18 8.3 Stock Certificates; Partly Paid Shares..............................18 8.4 Special Designation on Certificates.................................19 ii 8.5 Lost Certificates...................................................19 8.6 Construction; Definitions...........................................20 8.7 Dividends...........................................................20 8.8 Fiscal Year.........................................................20 8.9 Seal 20 8.10 Transfer of Stock..................................................20 8.11 Stock Transfer Agreements..........................................20 8.12 Registered Stockholders............................................21 ARTICLE IX AMENDMENTS.......................................................21
iii BYLAWS OF NETOBJECTS, INC. A DELAWARE CORPORATION ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE. The registered office of the Corporation shall be in the City of Wilmington, County of Newcastle, State of Delaware. The name of the registered agent of the Corporation at such location is The Prentice-Hall Corporation System, Inc. 1.2 OTHER OFFICES. The Board of Directors may at any time establish other offices at any place or places where the Corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board of Directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the Corporation. 2.2 ANNUAL MEETINGS. The annual meeting of stockholders shall be held each year on a date and at a time designated by the Board of Directors. At the meeting, directors shall be elected and any other proper business may be transacted. 2.3 SPECIAL MEETINGS. Special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption), the Chairman of the Board of Directors, the Chief Executive Officer or any individual holder of twenty five percent (25%) of the outstanding Common Stock of the Corporation. If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board, the President or the Secretary of the Corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons who called the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings of stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Written notice may also be given by facsimile, in which case notice shall be deemed given upon the earlier of receipt or twenty four (24) hours after transmission. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.6 ITEMS OF BUSINESS AT MEETINGS. Items of business at all meetings of the stockholders shall be, insofar as applicable, as follows: - Call to order. - Proof of notice of meeting or waiver thereof. - Appointment of inspectors of election, if necessary. - A quorum being present. - Reports. - Election of directors. - Other business specified in the notice of the meeting. - Voting. - Adjournment. Any items of business not referred to in the foregoing may be taken up at the meeting as the chairman of the meeting shall determine. 2 No other business shall be transacted at any annual meeting of stockholders, except business as may be: (i) specified in the notice of meeting (including stockholder proposals included in the Corporation's proxy materials under Rule 14a-8 of Regulation 14A under the Securities Exchange Act of 1934), (ii) otherwise brought before the meeting by or at the direction of the Board of Directors, or (iii) a proper subject for the meeting which is timely submitted by a stockholder of the Corporation entitled to vote at such meeting who complies with the notice requirements set forth below. For business to be properly submitted by a stockholder before any annual meeting under subparagraph (iii) above, a stockholder must give timely notice in writing of such business to the Secretary of the Corporation. To be considered timely, a stockholder's notice must be received by the Secretary at the principal executive offices of the Corporation not less than 120 calendar days nor more than 150 calendar days before the date of the Corporation's proxy statement released to stockholders in connection with the prior year's annual meeting. However, if no annual meeting was held in the previous year, or if the date of the applicable annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year's proxy statement, a stockholder's notice must be received by the Secretary not later than 60 days before the date the Corporation commences mailing of its proxy materials in connection with the applicable annual meeting. A stockholder's notice to the Secretary to submit business to an annual meeting of stockholders shall set forth: (i) the name and address of the stockholder, (ii) the number of shares of stock held of record and beneficially by such stockholder, (iii) the name in which all such shares of stock are registered on the stock transfer books of the Corporation, (iv) a representation that the stockholder intends to appear at the meeting in person or by proxy to submit the business specified in such notice, (v) a brief description of the business desired to be submitted to the annual meeting, including the complete text of any resolutions intended to be presented at the annual meeting, and the reasons for conducting such business at the annual meeting, (vi) any personal or other material interest of the stockholder in the business to be submitted, and (vii) all other information relating to the proposed business which may be required to be disclosed under applicable law. In addition, a stockholder seeking to submit such business at the meeting shall promptly provide any other information reasonably requested by the Corporation. The chairman of the meeting shall determine all matters relating to the efficient conduct of the meeting, including, but not limited to, the items of business, as well as the maintenance of order and decorum. The chairman shall, if the facts warrant, determine and declare that any putative business was not properly brought before the meeting in accordance with the procedures described by this Section 2.6, in which case such business shall not be transacted. 3 Notwithstanding the foregoing provisions of this Section 2.6, a stockholder who seeks to have any proposal included in the Corporation's proxy materials shall comply with the requirements of Rule 14a-8 under Regulation 14A of the Securities Exchange Act of 1934, as amended. 2.7 QUORUM. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation of the Corporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. 2.8 ADJOURNED MEETING; NOTICE. When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.9 CONDUCT OF BUSINESS. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business. 2.10 VOTING. The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.13 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as provided in the preceding paragraph of this Section 2.10, or as may be otherwise provided in the Certificate of Incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. 2.11 WAIVER OF NOTICE. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of 4 objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. 2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless otherwise provided in the Certificate of Incorporation, any action required by this article to be taken at any annual or special meeting of stockholders of the Corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. 2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall be sixty (60) days shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If the Board of Directors does not so fix a record date: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (ii) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the 5 Board of Directors is necessary, shall be the day on which the first written consent is expressed. (iii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the adjourned meeting. 2.14 PROXIES. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the Secretary of the Corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. Furthermore, the Secretary of the Corporation may determine in the interests of the Corporation to accept proxies granting authority by the methods approved by Section 212(c) of the General Corporation Law of Delaware. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. 2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Such list shall presumptively determine the identify of the stockholders entitled to vote at the meeting and the number of shares held by each of them. ARTICLE III DIRECTORS 3.1 POWERS. Subject to the provisions of the General Corporation Law of Delaware and any limitation in the Certificate of Incorporation or these Bylaws relating 6 to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. 3.2 NUMBER, ELECTION. The number of directors of the Corporation shall be six (6). Except as provided in Section 3.4 of these Bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. 3.3 QUALIFICATION AND TERM OF OFFICE OF DIRECTORS. All of the directors shall be of legal age. Directors need not be stockholders unless so required by the Certificate of Incorporation or these Bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Elections of directors need not be by written ballot. 3.4 RESIGNATION AND VACANCIES. Any director may resign at any time upon written notice to the attention of the Secretary of the Corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Unless otherwise provided in the Certificate of Incorporation, by the Voting Agreement dated as of February __, 1999 between the Corporation and International Business Machines Corporation, or by these Bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or any executor, administrator, trust or guardian of a stockholder, or other fiduciary 7 entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least twenty-five percent (25%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 3.7 SPECIAL MEETINGS; NOTICE. Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the Chairman of the Board, the president or any two (2) directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or facsimile, charges prepaid, addressed to each director at that director's address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by facsimile, it shall be delivered personally or by telephone or to the facsimile telephone number at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of 8 the meeting, if the meeting is to be held at the principal executive office of the Corporation. 3.8 QUORUM. At all meetings of the Board of Directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor other purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. 3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. 3.11 FEES AND COMPENSATION OF DIRECTORS. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. 3.12 APPROVAL OF LOANS TO OFFICERS. The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer or employee who is a director of the Corporation or its subsidiaries, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, 9 including, without limitation, a pledge of shares of stock of the Corporation. Nothing contained in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute. 3.13 REMOVAL OF DIRECTORS. Unless otherwise restricted by statute, by the Certificate of Incorporation or by these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to elect such director. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in the Bylaws of the Corporation, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designation and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholdrs the sale, lease or exchange of all or substantially all of the Corporation's property and assets, (iv) recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or (v) amend the Bylaws of the Corporation; and, unless the board resolution establishing the committee, the Bylaws or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 10 4.2 COMMITTEE MINUTES. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these Bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members; PROVIDED, HOWEVER, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. ARTICLE V OFFICERS 5.1 OFFICERS. The officers of the Corporation shall be a President, a Secretary, and a Chief Financial Officer. The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more assistant vice presidents, one or more assistant secretaries, and one or more Assistant Treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person. 5.2 APPOINTMENT OF OFFICERS. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS. The Board of Directors may appoint, or empower the President to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. 11 Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. 5.6 CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer be elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the Board of Directors or as may be prescribed by these Bylaws. If there is no President, then the Chairman of the Board shall also be the chief executive officer of the Corporation and shall have the powers and duties prescribed in Section 5.7 of these Bylaws. 5.7 PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the chief executive officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the Corporation. He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairman of the Board, at all meetings of the Board of Directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 5.8 VICE PRESIDENTS. In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the President or the Chairman of the Board. 5.9 SECRETARY. The Secretary shall keep or cause to be kept, at the principal executive office of the Corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the 12 number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal executive office of the Corporation or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He shall keep the seal of the Corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. 5.10 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all his transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws. The Chief Financial Officer shall be the treasurer of the Corporation. 5.11 ASSISTANT SECRETARY. The Assistant Secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as may be prescribed by the Board of Directors or these Bylaws. 5.12 ASSISTANT TREASURER. The Assistant Treasurer, or, if there is more than one, the Assistant Treasurers, in the order determined by the stockholders or Board of Directors (or if there be no such determination, then in the order of their election), shall, 13 in the absence of the Chief Financial Officer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Chief Financial Officer and shall perform such other duties and have such other powers as may be prescribed by the Board of Directors or these Bylaws. 5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Secretary or Assistant Secretary of this Corporation, or any other person authorized by the Board of Directors or the President or a Vice President, is authorized to vote, represent, and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. 5.14 AUTHORITY AND DUTIES OF OFFICERS. In addition to the foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the Board of Directors or the stockholders. ARTICLE VI INDEMNITY 6.1 THIRD PARTY ACTIONS. Subject to the provisions of this Article VI, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Corporation, which approval shall not be unreasonably withheld) actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. Subject to the provisions of this Article VI, the Corporation shall indemnify any person who was or is a party or is 14 threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer or employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another Corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. Notwithstanding any other provision of this Article VI, no person shall be indemnified hereunder for any expenses or amounts paid in settlement with respect to any action to recover short-swing profits under Section 16(b) of the Securities Exchange Act of 1934, as amended. 6.3 SUCCESSFUL DEFENSE. To the extent that a director, officer or employee of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. 6.4 DETERMINATION OF CONDUCT. Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that the indemnification of the director, officer or employee is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding or (ii) if such quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. Notwithstanding the foregoing, a director, officer or employee of the Corporation shall be entitled to contest any determination that the director, officer or employee has not met the applicable standard of conduct set forth in Sections 6.1 and 6.2 by petitioning a court of competent jurisdiction. 6.5 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending a civil or criminal action, suit or proceeding, by an individual who may be entitled to indemnification pursuant to Section 6.1 or 6.2, shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer or employee to repay such amount if 15 it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VI. 6.6 INDEMNITY NOT EXCLUSIVE; EFFECT OF INDEMNIFICATION AGREEMENTS. The provisions of a written indemnification agreement between the Corporation and any person subject to indemnity under this Article VI shall control over the provisions of this Article VI, which shall not apply to the Corporation and the person subject to indemnity under the written agreement. The indemnification and advancement of expenses provided by or granted pursuant to the other sections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. 6.7 INSURANCE INDEMNIFICATION. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer or employee of the Corporation, or is or was serving at the request of the Corporation, as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VI. 6.8 THE CORPORATION. For purposes of this Article VI, references to the "Corporation" shall include, in addition to the resulting Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors and officers, so that any person who is or was a director, officer or employee of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article VI (including, without limitation, the provisions of Section 6.4) with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. 6.9 EMPLOYEE BENEFIT PLANS. For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer or employee of the Corporation which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and 16 beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article VI. 6.10 INDEMNITY FUND. Upon resolution passed by the Board, the Corporation may establish a trust or other designated account, grant a security interest or use other means (including, without limitation, a letter of credit), to ensure the payment of certain of its obligations arising under this Article VI and/or agreements which may be entered into between the Corporation and its officers and directors from time to time. 6.11 INDEMNIFICATION OF OTHER PERSONS. The provisions of this Article VI shall not be deemed to preclude the indemnification of any person who is not a director or officer of the Corporation or is not serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware or otherwise. The Corporation may, in its sole discretion, indemnify an employee, trustee or other agent as permitted by the General Corporation Law of the State of Delaware. The Corporation shall indemnify an employee, trustee or other agent where required by law. 6.12 SAVINGS CLAUSE. If this Article VI or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each person entitled to indemnification hereunder against expenses (including attorney's fees), judgments, fines and amounts paid in settlement with respect to any action, suit, proceeding or investigation, whether civil, criminal or administrative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated, or by any other applicable law. 6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS. The Corporation shall, either at its principal executive office or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records. A stockholder of record shall have such rights to inspect such records of the Corporation as are provided by the 17 General Corporation Law of the State of Delaware, subject to such conditions and restrictions on inspection rights as are provided by law. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 7.2 INSPECTION BY DIRECTORS. Any director shall have the right to examine the Corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the Corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. ARTICLE VIII GENERAL MATTERS 8.1 CHECKS. From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the Corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES. The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all 18 classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the Chairman or Vice-Chairman of the Board of Directors, or the President or Vice President, and by the Chief Financial Officer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES. If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face of back of the certificate that the Corporation shall issue to represent such class or series of stock; PROVIDED, HOWEVER, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.5 LOST CERTIFICATES. Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and cancelled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, 19 and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 CONSTRUCTION; DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.7 DIVIDENDS. The directors of the Corporation, subject to any restrictions contained in (i) the General Corporation Law of Delaware or (ii) the Corporation's Certificate of Incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the Corporation's capital stock. The directors of the Corporation may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies. 8.8 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors. 8.9 SEAL. The Corporation may adopt a corporate seal, which shall be adopted and which may be altered by the Board of Directors, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. 8.10 TRANSFER OF STOCK. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 STOCK TRANSFER AGREEMENTS. The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 20 8.12 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX AMENDMENTS The Bylaws of the Corporation may be adopted, amended or repealed by an affirmative vote of the holders of a majority of the outstanding shares of Preferred Stock and Common Stock voting as a single class. 21 CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BYLAWS OF NETOBJECTS, INC., A DELAWARE CORPORATION Certificate by Secretary of Amendment of Bylaws: The undersigned hereby certifies that he is the duly elected, qualified, and acting Secretary of NetObjects, Inc., a Delaware Corporation and that the foregoing Amended and Restated Bylaws, comprising ____________ (__) pages, including this page, were adopted as the Bylaws of the Corporation to be effective as of ___________ __, 1999 by the stockholders of the Corporation. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the corporate seal as of ________________ __, 1999. ------------------------------ Alan B. Kalin, Secretary 22 EX-4.2 7 EXHIBIT 4.2 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. WARRANT TO PURCHASE STOCK WARRANT NO. WC-__ CORPORATION: NetObjects, Inc., a Delaware corporation NUMBER OF SHARES: See below. CLASS OF STOCK: See below. INITIAL EXERCISE PRICE: See below. ISSUE DATE: December 18, 1996 EXPIRATION DATE: Upon the Expiration Date of the Put Right, as provided in Section 2.5 THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other good and valuable consideration, __________ ("Holder") is entitled to purchase the number of fully paid and nonassessable shares of Series C Preferred Stock (the "Shares") of the corporation (the "Company") at the initial exercise price per Share (the "Warrant Price") all as set forth herein and as adjusted pursuant to Article 3 of this Warrant, subject to the provisions and upon the terms and conditions set forth of this Warrant. The Warrant Price shall be $0.3035413 per share. The number of Shares subject to this Warrant shall be the quotient derived by dividing _____________________________ ($__________) by the Warrant Price. ARTICLE 1. EXERCISE. 1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased; or at Holder's option, Holder may elect to cancel indebtedness of the Company for money borrowed from Holder, including accrued and unpaid interest thereon, as payment for the Shares, to the extent of any such indebtedness. In lieu of exercising this Warrant as provided in the preceding sentence, at any time on or after the effective date of a Form S-1 registration statement relating to Common Stock of the Company filed by the Company pursuant to the Securities Act of 1933, as amended (the "1933 Act"), Holder may elect to receive shares equal to the value of this Warrant (or any portion thereof remaining unexercised) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to Holder a number of shares of the Company's Common Stock (if Common Stock is then issuable upon exercise of this Warrant pursuant to Section 3.2 hereof) computed using the following formula: X = Y (A-B) ------- A Where X = the number of shares of Common Stock to be issued to Holder. Y = the number of shares of Common Stock purchasable under this Warrant (at the date of such calculation). A = the fair market value of one share of the Company's Common Stock (at the date of such calculation). B = Warrant Price (as adjusted to the date of such calculation). For purposes of this subsection, the fair market value of one share of the Company's Common Stock shall mean the average of the daily closing prices per share of the Common Stock as quoted on the Nasdaq Stock Market or on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the five (5) trading days prior to the date of determination of the fair market value. 1.2 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 1.3 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, or surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 1.4 OTHER AGREEMENTS AND INSTRUMENTS REGARDING THE SHARES. The Shares, when acquired, may also be subject to such rights, preferences, privileges and restrictions as may be set forth in the Company's Certificate of Incorporation, as amended, and Bylaws, as amended, and as may be set forth in the First Amended and Restated Investor Rights Agreement described in Exhibit B hereto, a First Amended and Restated Co-Sale Agreement, an Amended and Restated Voting Rights Agreement, and such other agreements as may be entered into from time to time by the Company and the holders of Series C Preferred Stock, or rights to acquire the same, prior to the exercise of this Warrant. ARTICLE 2. EXERCISE RIGHTS FOLLOWING AN ACQUISITION. 2.1 DEFINITIONS. As used in this Article 2, the following terms have the following meanings: "ACQUISITION" shall mean an acquisition by any Person (an "ACQUIROR") of Beneficial Ownership (including by way of merger) of securities of the Company constituting 70% or more (but less than 100%) of the Voting Power of the Company. "AFFILIATE" shall mean, when used with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the specified Person. "BENEFICIAL OWNERSHIP" shall mean that a Person shall be deemed the beneficial owner of, and shall be deemed to beneficially own any securities (a) which such Person or any of its Affiliates is deemed to "beneficially own" within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "1934 Act"), or (b) which such Person or any of its Affiliates has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of any right of conversion or exchange, warrant, option or otherwise. "BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in the City of New York are authorized or obligated by law or executive order to close. "COMMON STOCK" shall mean common stock, par value $0.00000001 per share, of the Company. "EFFECTIVE TIME" shall mean the effective time of the Acquisition. 2 "EXERCISE PERIOD" shall mean the period beginning on the second anniversary of the Effective Time and ending on the earlier to occur of (i) the 364th day thereafter or (ii) the first day of a Suspension Period; PROVIDED, HOWEVER, that if one or more Suspension Periods occur, the Exercise Period shall be extended, following the termination of each such Suspension Period, until the Exercise Period, as so extended, shall have comprised 365 days. "GOVERNMENTAL ENTITY" shall mean any Federal, state, local or foreign court, governmental or administrative agency or commission or other governmental agency, authority, instrumentality or regulatory body. "PERSON" shall mean any individual, firm, corporation, partnership, limited liability company, trust, joint venture, Governmental Entity or other entity, and shall include any successor (by merger or otherwise) of such entity. "QUARTERLY DATE" shall mean, with respect to any date, the 90th day, 180th day, 270th day and 364th day thereafter. "REGISTRATION APPROVAL DATE" shall mean a date on which the Board of Directors of the Company approves the filing with the Securities and Exchange Commission of a Registration Statement. "REGISTRATION STATEMENT" shall mean a registration statement under the 1993 Act for an initial public offering of the Company's capital stock. "REGISTRATION TERMINATION DATE" shall mean the date of Company action having the effect of withdrawing, terminating or abandoning a Registration Statement. "SPECIAL EXERCISE DATE" shall mean (i) the second anniversary of the Effective Time, and each Quarterly Date thereafter occurring during the Exercise Period or (ii) if any Suspension Period shall have occurred, the day following the end of such Suspension Period, and each Quarterly Date thereafter occurring during the Exercise Period; provided, however, that, in the case of (i) or (ii) above, if any such date shall not be a Business Day, the applicable Special Exercise Date shall be the next Business Day. "SUSPENSION PERIOD" shall mean a period beginning on a Registration Approval Date and ending, if applicable, on the Registration Termination Date next following such Registration Approval Date. "VOTING POWER" shall mean the voting power of all securities of a Person then outstanding generally entitled to vote for the election of directors of the Person. 2.2 EXERCISE RIGHTS FOLLOWING AN ACQUISITION. Following the Effective Time of an Acquisition, Holder shall (i) continue to have the right to exercise this Warrant in accordance with Section 1.1 of this Warrant (a "Conventional Exercise"), and (ii) have the additional right (the "Special Exercise Right") to exercise this Warrant, in whole or in part, on any Special Exercise Date by delivering a duly executed Notice of Special Exercise in the form attached as Appendix 3 in accordance with Section 2.3, and to receive upon such exercise and payment of the Warrant Price, cash in an amount equal to $0.667 per share, in lieu of the number of shares of Series C Preferred Stock otherwise issuable had this Warrant (or portion hereof) been exercised in a Conventional Exercise (a "Special Exercise"); PROVIDED, HOWEVER, that Acquiror shall have the right, following receipt of a Notice of Special Exercise, to elect to purchase the portion of this Warrant with respect to which a Notice of Special Exercise was delivered from Holder for a purchase price equal to the product of (a) the difference between (x) $0.667 MINUS (y) the Warrant Price MULTIPLIED by (b) the number of shares otherwise issuable had this Warrant (or portion hereof) been exercised in a Conventional Exercise (a "Purchase Election"). If Acquiror makes a Purchase Election and pays the purchase price, and returns to Holder the Warrant Price of the shares of Series C Preferred Stock tendered by Holder with the Notice of Special Exercise, this Warrant (or portion hereof) shall not be deemed exercised but rather shall be transferred to Acquiror in accordance with the transfer provisions hereof. 3 2.3 SPECIAL EXERCISE PROCEDURES. In order to exercise the Special Exercise Right, Holder shall deliver, not less than 10 Business Days nor more than 20 Business Days prior to the applicable Special Exercise Date, to the Company (with a copy to Acquiror) Holder's Notice of Special Exercise. Such Notice of Special Exercise shall be irrevocable. On the Special Exercise Date, the Company or Acquiror, as applicable, shall mail or deliver to Holder the amounts then due as a result of the exercise of such Special Exercise Right or Purchase Election, and the Company shall mail or deliver to Holder a new Warrant representing the portion (if any) of this Warrant not theretofore exercised or purchased. 2.4 SUSPENSION. The provisions of Sections 2.2 (other than Section 2.2(i)) and 2.3 above shall be suspended and of no force and effect during any Suspension Period; PROVIDED, HOWEVER, that, subject to Section 2.5 hereof, such provisions shall be reinstated upon the termination of such Suspension Period. 2.5 FINAL TERMINATION. The Special Exercise Right shall expire upon the earlier to occur of (i) the effective date of a Registration Statement or (ii) the date on which the Exercise Period shall have been in effect for an aggregate of 365 days. 2.6 CONDITIONS PRECEDENT. Notwithstanding any other term of this Warrant, neither the Company nor Acquiror shall have an obligation under this Article 2 with respect to any purported Special Exercise (i) unless any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 applicable to the purchase of all or a portion of this Warrant pursuant to this Article 2 shall have expired or been terminated, (ii) at any time when, in Acquiror's reasonable opinion, purchase of all or a portion of this Warrant under this Article 2 would violate any applicable law, including without limitation Section 10(b) of the 1934 Act and/or Rule 10b-5 thereunder, or court order and (iii) if such Special Exercise, when aggregated with each other Special Exercise (and/or purchase pursuant to a Purchase Election) theretofore made by Holder would result in the purchase of, and/or Special Exercise of, Series C Warrants to purchase under this Warrant more than 208,282 shares of Series C Preferred Stock of the Company. 2.7 EXPENSES. Whether or not the transactions contemplated by this Article 2 are consummated, all costs and expenses incurred in connection with this Article 2 and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses, except as otherwise provided in this Article 2. 2.8 ACQUISITION. In the event that an Acquisition shall occur, then proper provision shall be made so that Acquiror shall assume the obligations of the Company in the event of a Special Exercise and shall have the right to make a Purchase Election. ARTICLE 3. ADJUSTMENTS TO THE SHARES. 3.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a dividend on its common stock (or the Shares if the Shares are securities other than common stock) payable in common stock, or other securities, subdivides the outstanding common stock into a greater amount of common stock, or, if the Shares are securities other than common stock, subdivides the Shares in a transaction that increases the amount of common stock into which the Shares are convertible, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred. 3.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the 4 outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company's Certificate of Incorporation upon the closing of a registered public offering of the Company's common stock. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 3 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 3.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. Under no circumstances shall this Warrant be exercisable to purchase shares of Common Stock of International Business Machines Corporation ("IBM") as a result of the consummation of the transactions contemplated by that certain Agreement and Plan of Merger dated as of March 18, 1997 by and among the Company, IBM, Net Acquisition Corp. and the stockholders of the Company listed on the signature page thereto. 3.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased. 3.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The number of shares of common stock issuable upon conversion of the Shares, shall be subject to adjustment from time to time in the manner set forth on Exhibit A. 3.5 NO IMPAIRMENT. The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 3 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment. If the Company takes any action affecting the Shares or its common stock other than as described above that adversely affects Holder's rights under this Warrant, the Warrant Price shall be adjusted downward and the number of Shares issuable upon exercise of this Warrant shall be adjusted upward in such a manner that the aggregate Warrant Price of this Warrant is unchanged. 3.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder amount computed by multiplying the fractional interest by the fair market value of a full Share. 3.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. ARTICLE 4. REPRESENTATIONS AND COVENANTS OF THE COMPANY. 4.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants to the Holder that all Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. 4.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to declare any dividend or distribution upon its common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or 5 series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of common stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give Holder (1) at least 20 days' prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 20 days' prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights. 4.3 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The Company agrees that the Shares or, if the Shares are convertible into common stock of the Company, such common stock, shall be subject to the registration rights set forth on Exhibit B, if attached. ARTICLE 5. MISCELLANEOUS. 5.1 TERM; NOTICE OF EXPIRATION. This Warrant is exercisable, in whole or in part, at any time and from time to time on or before the Expiration Date set forth above. The Company shall give Holder written notice of Holder's right to exercise this Warrant in the form attached as Appendix 2 not more than 90 days and not less than 30 days before the Expiration Date. 5.2 LEGENDS. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with legends in substantially the following form: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. THIS WARRANT IS ISSUED PURSUANT TO AN INVESTMENT AGREEMENT DATED AS OF DECEMBER 17, 1996 AMONG THE COMPANY, THE HOLDER AND EACH OTHER ORIGINAL HOLDER OF A WARRANT TO PURCHASE THE SHARES AND IS SUBJECT TO CERTAIN RESTRICTIONS THEREUNDER, INCLUDING SECTION 5, WHICH PROVIDES FOR MANDATORY DEEMED EXERCISE AND FORFEITURE OF THIS WARRANT UNDER CERTAIN CIRCUMSTANCES. In addition, the Company will place such legends on the Shares as shall be necessary to comply with the applicable terms of agreements and instruments referred to in Section 1.4. 5.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the Shares issuable upon exercise this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder or if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has 6 complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder's notice of proposed sale. 5.4 TRANSFER PROCEDURE. Subject to the provisions of Section 5.2, Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). 5.5 NOTICES. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such holder from time to time. 5.6 WAIVER. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 5.7 GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of laws. "COMPANY" NETOBJECTS, INC. By -------------------------------- Name -------------------------------- (Print) Title: President 7 APPENDIX 1 NOTICE OF EXERCISE 1. The undersigned hereby elects to purchase ____________ shares of the Series __ Preferred Stock of NetObjects, Inc. (the "Company") pursuant to the terms of the attached Warrant, and (i) tenders herewith payment of the purchase price of such shares in full, or (ii) releases and discharges the Company's obligation to pay indebtedness for money loaned by the undersigned in the amount of $________ and tenders payment for the balance of the purchase price herewith. 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: -------------------- (Name) -------------------- -------------------- (Address) 3. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws. ---------------------------------------- (Signature) - ------------------- (Date) APPENDIX 2 NOTICE THAT WARRANT IS ABOUT TO EXPIRE ---------------------- (Name of Holder) (Address of Holder) Attn: Chief Financial Officer Dear ___________________________: This is to advise you that the Warrant issued to you described below will expire on _____________________, 19____. Issuer: Issue Date: December 18, 1996 Class of Security Issuable: See Warrant. Exercise Price per Share: See Warrant. Number of Shares Issuable: See Warrant. Procedure for Exercise: Please contact [name of contact person at (phone number)] with any questions you may have concerning exercise of the Warrant. This is your only notice of pending expiration. ---------------------------------------- (Name of Issuer) By ------------------------------------- Its ------------------------------------- APPENDIX 3 NOTICE OF SPECIAL EXERCISE 1. The undersigned hereby elects to exercise this Warrant in a Special Exercise pursuant to Article 2 hereof, subject to Acquiror's right to make a Purchase Election, with respect to _____ shares of Series C Preferred Stock of the Company otherwise issuable had this Warrant been exercised in a Conventional Exercise, to receive $0.677 for each such share. The undersigned hereby tenders herewith payment of the Warrant Price of such shares in full. Capitalized terms used herein shall have the meanings ascribed to them in this Warrant. -------------------- (Signature) - -------------------- (Date) EXHIBIT A Anti-Dilution Provisions After the Issue Date of the Warrant, the Shares issued or issuable under the terms of the Warrant shall be entitled to the same anti-dilution protection as provided for shares of Series C Preferred Stock in the Company's Certificate of Incorporation with respect to dilutive issuances. Under no circumstances shall the aggregate Warrant Price payable by the Holder upon exercise of the Warrant increase as a result of any adjustment arising from the application of the anti-dilution provisions in the Company's Certificate of Incorporation. EXHIBIT B REGISTRATION RIGHTS The Shares (if common stock), or the common stock issuable upon conversion of the Shares, shall be deemed "registrable securities" or otherwise entitled to registration rights in accordance with the terms of the First Amended and Restated Investor Rights Agreement or similar agreement granting registration rights to the holders of Series C Preferred Stock (the "Agreement") between the Company and its investor(s). The Company agrees that no amendments will be made to the Agreement which would have an adverse impact on Holder's registration rights thereunder without the consent of Holder. By acceptance of the Warrant to which this Exhibit B is attached, Holder shall be deemed to be a party to the Agreement. EX-4.2-1 8 EXHIBIT 4.2.1 AGREEMENT This Agreement dated as of January __, 1999, by and among (i) NetObjects, Inc., a Delaware corporation, and (ii) Perseus U.S. Investors, L.L.C.; Venture Fund I, L.P.; AT&T Venture Fund II, L.P.; Norwest Equity Partners V; Venrock Associates; Venrock Associates II, L.P.; Terence Garnett; and John Sculley (individually, a "Holder" and collectively, the "Holders"). W I T N E S S E T H : WHEREAS, on December 18, 1996, the Company issued to each of the Holders a warrant to acquire shares of the Company's Series C Preferred Stock (individually, a "Warrant" and collectively, the "Warrants"); WHEREAS, the parties hereto wish to amend the terms of the Warrants as provided herein; NOW, THEREFORE, in consideration of the agreements set forth herein, and other good and valuable consideration, and intending to be legally bound hereby, the Company hereby agrees with each Holder as follows: 1. AMENDMENTS TO WARRANT. (a) Each Warrant is hereby amended by adding the following provision as a new Section 1.5: "1.5 AUTOMATIC CONVERSION. Immediately prior to the consummation of an underwritten offering of stock by the Company pursuant to a Registration Statement (an "Offering"), this Warrant automatically, without any action on the part of Holder, shall be converted into the number of shares of the Company's Common Stock computed using the following formula: X = Y(A-B) ------ A Where X = the number of shares of Common Stock to be issued to Holder Y = the number of shares of Common Stock purchasable under this Warrant (immediately prior to the consummation of such Offering and assuming full conversion of all shares of Series C Preferred Stock into shares of Common Stock) A = the initial public offering price for one share of the Company's Common Stock in such Offering without giving effect to any underwriter compensation or discounts B = Warrant Price (as adjusted to the date of such calculation" (b) Section 2.5(i) of each Warrant is hereby amended to read as follows: "the consummation of an Offering or" 3. SAVINGS CLAUSE. In all other respects each Warrant shall remain in full force and effect. 4. COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in any number of counterparts, which taken together shall constitute one and the same document. This Agreement and the amendment to the Warrants set forth herein shall be effective as to each Holder and such Holder's Warrant upon such Holder's execution and delivery of this Agreement, whether or not any other Holders execute and deliver this Agreement. IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto, or their duly authorized agents, as of the date first written above. NETOBJECTS, INC. By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- PERSEUS U.S. INVESTORS, L.L.C. By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- VENTURE FUND I, L.P. By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- AT&T VENTURE FUND II, L.P. By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- NORWEST EQUITY PARTNERS V By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- VENROCK ASSOCIATES By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- VENROCK ASSOCIATES II, L.P. By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- ---------------------------------------- TERENCE GARNETT ---------------------------------------- JOHN SCULLEY EX-4.3 9 EXHIBIT 4.3 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS WARRANT MAY NOT BE SOLD OR OTHERWISE DISPOSED OF UNLESS IT IS AT THE TIME SO REGISTERED OR THE SALE OR OTHER TRANSFER OR DISPOSITION THEREOF IS MADE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY THE ACT OR RULES AND REGULATIONS THEREUNDER AND APPLICABLE STATE LAWS. WARRANT FOR THE PURCHASE OF SERIES E PREFERRED STOCK PAR VALUE $.00000001 PER SHARE of NETOBJECTS, INC. VOID AFTER APRIL 11, 2000 April 11, 1997 THIS CERTIFIES THAT, for value received, INTERNATIONAL BUSINESS MACHINES CORPORATION ("IBM") or assigns (the "Holder") is entitled, in accordance with the terms and conditions hereinafter set forth, at any time on or before April 11, 2000, to purchase up to 20,897,020 as such number may be adjusted) shares of Series E Preferred Stock, par value $.00000001 per share (the "Series E Preferred Stock"), of NETOBJECTS, INC., a Delaware corporation (hereinafter called the "Company"), at the exercise price hereinafter set forth, and to receive a certificate or certificates for the shares of Series E Preferred Stock so purchased, upon presentation and surrender of this Warrant, at the principal office of the Company, which, as of the date hereof, is located at 2055 Woodside Road, Redwood City, CA 94061, together with the exercise price of the shares so purchased. The number of shares purchasable upon exercise of this Warrant and the exercise price shall be subject to adjustment from time to time as set forth below. 1. RESERVATION OF SHARES. The Company shall at all times reserve and keep available out of its authorized but unissued Series E Preferred Stock, solely for issuance and delivery upon exercise of this Warrant, such number of shares of Series E Preferred Stock as shall from time to time be issuable upon exercise of this Warrant. All shares which may be issued upon the exercise of this Warrant shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and be free from all taxes, liens and charges in respect of the issuance thereof. 2. TERM. The purchase rights represented by this Warrant are exercisable at the option of the Holder in whole at any time, or in part from time to time, on or before April 11, 2000. In case of the purchase of fewer than all the shares purchasable under this Warrant, the Company shall cancel this Warrant upon surrender hereof and, provided the unexercised portion has not expired as provided above, shall execute and deliver a new Warrant of like tenor and date for the balance of the shares purchasable hereunder. 3. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any voting rights or other rights whatsoever except the rights herein expressed, and no dividend or interest shall be payable or accrue in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until and unless, and except to the extent that, this Warrant shall be exercised. 4. WARRANT UNREGISTERED. Neither this Warrant nor any of the shares to be issued upon the exercise hereof have been registered under the Securities Act of 1933, as amended (the "Act"). Accordingly, this Warrant and the shares of Series E Preferred Stock issuable upon exercise of this Warrant may not be sold, transferred or otherwise disposed of unless they are so registered or an exemption from registration is available. 5. TRANSFERS AND EXCHANGES. Upon surrender by the Holder of this Warrant, properly endorsed, at the office of the Company for registration of transfer or for exchange, the Company at its expense shall execute and deliver in exchange therefor a new Warrant or Warrants of the same tenor, in the name of such Holder or registered as such Holder may request, evidencing, in the aggregate, the right to purchase an equal number of shares of Series E Preferred Stock as the Warrant so surrendered. 6. EXERCISE PRICE. The purchase price for each share of Series E Preferred Stock which the Holder has the right to purchase hereunder (hereinafter called the "Exercise Price") shall be $1.1131258. The Exercise Price for the shares of Series E Preferred Stock which the Holder has the right to purchase hereunder shall be paid in cash or by certified or official bank check at the time of exercise. In lieu of exercising this Warrant as provided in the preceding sentence, at any time on or after the effective date of a Form S-1 registration statement relating to common stock of the Company ("Company Common Stock") filed by the Company pursuant to the Act, the Holder may elect to receive shares equal to the value of this Warrant (or any portion thereof remaining unexercised) by surrender of this Warrant at the principal office of the 2 Company together with notice of such election, in which event the Company shall issue to the Holder a number of shares of Company Common Stock (if Company Common Stock is then issuable upon exercise of this Warrant pursuant to Section 7 hereof) computed using the following formula: X = Y (A - B) --------- A Where X = the number of shares of Company Common Stock to be issued to the Holder. Y = the number of shares of Company Common Stock purchasable under this Warrant (at the date of such calculation). A = the fair market value of one share of Company Common Stock (at the date of such calculation). B = Exercise Price (as adjusted to the date of such calculation). For purposes of this subsection fair market value of one share of the Company Common Stock shall mean the price of Company Common Stock quoted on the Nasdaq Stock Market or on any exchange on which Company Common Stock is listed, whichever is applicable, as published in the Western Edition of THE WALL STREET JOURNAL for the five (5) trading days prior to the date of determination of the fair market value. 7. ADJUSTMENTS TO THE SHARES; ANTIDILUTION PROVISION. (a) If the Company (A) pays a dividend or makes a distribution on the Series E Preferred Stock in Series E Preferred Stock, (B) subdivides or combines its outstanding shares of Series E Preferred Stock into a greater or smaller number of shares or (C) issues by reclassification of the Series E Preferred Stock any shares of capital stock of the Company, the Exercise Price in effect immediately prior to such action shall be adjusted so that the Holder of this Warrant thereafter surrendered for exercise shall be entitled to receive, at the time of such exercise, the number of shares of Series E Preferred Stock or other capital stock of the Company that it would have owned or been entitled to receive immediately following such action had this Warrant been exercised immediately prior thereto or on the record date therefor, whichever is earlier. Such adjustment shall become effective immediately after the record date, in the case of a dividend or distribution, or immediately after the effective date, in the case of a subdivision, combination or reclassification. The shares of Series E Preferred Stock issued or issuable under the terms of the Warrant shall be entitled to the same antidilution protection as provided for shares of Series E Preferred Stock in the Company's Restated Certificate of 3 Incorporation as if such shares had been outstanding from the issue date of the Warrant. (b) Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, the Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that the Holder would have received for the shares issuable hereunder if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the shares issuable hereunder to common stock pursuant to the terms of the Company's Restated Certificate of Incorporation upon the closing of a registered public offering of Company Common Stock. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 7 including, without limitation, adjustments to the Exercise Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 7(b) shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 8. STOCK CERTIFICATES. As soon as practicable after exercise of this Warrant and in any event within two business days thereafter, the Company at its expense shall cause to be issued in the name of the Holder hereof or (subject to Section 4) any person designated by such Holder, a certificate or certificates for the number of shares of Series E Preferred Stock to which such Holder shall be entitled upon such exercise. The issuance of stock certificates upon the exercise of this Warrant shall be made without charge to the Holder for any tax in respect of the issuance thereof. 9. GOVERNING LAW. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of New York. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its proper officers thereunto duly authorized and the Company's corporate seal to be hereunto affixed this 11th day of April, 1997. NETOBJECTS, INC. By: ----------------------------------- Title: ---------------------------------- 4 PURCHASE FORM (To be executed upon exercise of Warrant) The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant, to purchase shares of Series E Preferred Stock as provided for herein and herewith tenders in payment for such shares of Series E Preferred Stock payment of the purchase price in full in the form of cash or a certified or official bank check payable to the order of NETOBJECTS, INC., or a combination thereof in the amount of $ , all in accordance with the terms hereof. The undersigned requests that a certificate for such shares of Series E Preferred Stock be registered in the name of whose address is and that such certificates shall be delivered to whose address is . If said number of shares of Series E Preferred Stock is fewer than all the shares of Series E Preferred Stock purchasable hereunder, the undersigned requests that a new Warrant representing the right to purchase the remaining balance of the shares of Series E Preferred Stock be registered in the name of whose address is and that such certificates shall be delivered to whose address is . Dated: ---------------- ---------------- (Insert social security or other identifying number of holder) Signature: ----------------------- Note: (Signature must conform in all respects to name of holder as specified on the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever, unless this Warrant has been assigned.) ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto (Name and Address of Assignee Must be Printed or Typewritten) the within Warrant, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint , Attorney, to transfer said Warrant on the books of the within-named Company, with full power of substitution in the premises. Dated: ------------------------ -------------------------------------------------- Signature of Registered Holder Note: The above signature must correspond to the name as written on the face of this Warrant in every particular, without alteration or enlargement or any change whatever. EX-4.4 10 EXHIBIT 4.4 THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF SUCH SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. No: One WARRANT TO PURCHASE SERIES E-2 PREFERRED STOCK of NETOBJECTS, INC. (void after October 8, 2003) 1. ISSUANCE OF WARRANT. FOR VALUE RECEIVED, on and after the Commencement Date (as defined below), and subject to the terms and conditions herein set forth, the Holder (as defined below) is entitled to purchase from NetObjects, Inc., a Delaware corporation (the "Company"), at any time before 5:00 p.m. California time on October 8, 2003 ("Termination Date"), at a price per share equal to the Warrant Price (as defined below and subject to adjustments as described below), the Warrant Stock (as defined below and subject to adjustments as described below) upon exercise of this warrant (this "Warrant") pursuant to Section 5 hereof. 2. DEFINITIONS. As used in this Warrant, the following terms shall have the definitions ascribed to them below: (a) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of California or the State of New York are authorized to be closed. (b) "Commencement Date" means the date of issue of this Warrant. (c) "Common Stock" means the common stock, par value $0.00000001 per share, of the Company. (d) "Holder" means International Business Machines Corporation, or its assigns. (e) "Notes" shall mean the Senior Subordinated Secured Convertible Promissory Notes issued by the Company to International Business Machines Corporation and Perseus Capital, L.L.C. (collectively, the "Purchasers") pursuant to the Note and Warrant Purchase Agreement by and among the Purchasers and the Company dated as of October 8, 1998. (f) "Warrant Price" means $1.1131258 per share. (g) "Warrant Stock" means the shares of Series E-2 Preferred Stock purchasable upon exercise of this Warrant or issuable upon conversion of this Warrant. The total number of shares to be issued upon the exercise of the Warrant shall equal the quotient obtained by dividing $551,217.67 by the Warrant Price. 3. NO SHAREHOLDER RIGHTS. This Warrant, by itself, as distinguished from any shares purchased hereunder, shall not entitle its Holder to any of the rights of a shareholder of the Company. 4. RESERVATION OF STOCK. On and after the Commencement Date, the Company will reserve from its authorized and unissued Series E-2 Preferred Stock a sufficient number of shares to provide for the issuance of Warrant Stock upon the exercise or conversion of this Warrant. Issuance of this Warrant shall constitute full authority to the Company's officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Warrant Stock issuable upon the exercise or conversion of this Warrant. 5. EXERCISE OF WARRANT. This Warrant may be exercised in whole or part by the Holder, at any time after the date hereof prior to the termination of this Warrant, by the surrender of this Warrant, together with the Notice of Exercise and Investment Representation Statement in the forms attached hereto as ATTACHMENTS 1 AND 2, respectively, duly completed and executed at the principal office of the Company, specifying the portion of the Warrant to be exercised and accompanied by payment in full of the Warrant Price in cash or by check with respect to the shares of Warrant Stock being purchased. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such exercise. If this Warrant shall be exercised for less than the total number of shares of Warrant Stock then issuable upon exercise, promptly after surrender of this Warrant upon such exercise, the Company will execute and deliver a new warrant, dated the date hereof, evidencing the right of the Holder to the balance of the Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. 6. CONVERSION. In lieu of exercising this Warrant or any portion hereof, the Holder hereof shall have the right to convert this Warrant or any portion hereof into Warrant Stock by executing and delivering to the Company at its principal office the Investment Representation and the written Notice of Conversion in the forms attached hereto as ATTACHMENTS 2 AND 3, specifying the portion of the Warrant to be converted, and accompanied by this Warrant. The number of shares of Warrant Stock to be issued to the Holder upon such conversion shall be computed using the following formula: 2 X=(P)(Y)(A-B)/A where X = the number of shares of Series E-2 Preferred Stock to be issued to the Holder for the portion of the Warrant being converted. P = the portion of the Warrant being converted expressed as a decimal fraction. Y = the total number of shares of Series E-2 Preferred Stock issuable upon exercise of the Warrant in full. A = the fair market value of one share of Warrant Stock which means (i) the fair market value of the Company's stock issuable upon conversion of such shares as of the last Business Day immediately prior to the date the notice of conversion is received by the Company, as reported in the principal market for such securities or, if no such market exists, as determined in good faith by the Company's Board of Directors, or (ii) if this Warrant is being converted in conjunction with a public offering of stock the price to the public per share pursuant to the offering. B = the Warrant Price on the date of conversion. Any portion of this Warrant that is converted shall be immediately canceled. This Warrant or any portion hereof shall be deemed to have been converted immediately prior to the close of business on the date of its surrender for conversion as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such conversion shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such conversion. If the Warrant shall be converted for less than the total number of shares of Warrant Stock then issuable upon conversion, promptly after surrender of the Warrant upon such conversion, the Company will execute and deliver a new warrant, dated the date hereof, evidencing the right of the Holder to the balance of the Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. 7. COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the Warrant Stock issuable upon exercise this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Warrant Stock, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require the Holder to provide an opinion of counsel if the transfer is to an affiliate of the Holder or if there is no material question as to the availability of current information as referenced in Rule 144(c), the Holder represents that it has complied with 3 Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of the Holder's notice of proposed sale. 8. TRANSFER PROCEDURE. The Holder may transfer all or part of this Warrant or the Warrant Stock issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Warrant Stock, if any) by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering the Warrant to the Company for reissuance to the transferee(s) (and the Holder if applicable). 9. TERMINATION. This Warrant shall terminate on 5:00 p.m. California time on the Termination Date. 10. MISCELLANEOUS. This Warrant shall be governed by the laws of the State of New York, as such laws are applied to contracts to be entered into and performed entirely in New York by New York residents. In the event of any dispute among the Holder and the Company arising out of the terms of this Warrant, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the State of New York for resolution of such dispute, and agree not to contest such exclusive jurisdiction or seek to transfer any action relating to such dispute to any other jurisdiction. The headings in this Warrant are for purposes of convenience and reference only, and shall not be deemed to constitute a part hereof. Neither this Warrant nor any term hereof may be changed or waived orally, but only by an instrument in writing signed by the Company and the Holder of this Warrant. All notices and other communications from the Company to the Holder of this Warrant shall be delivered personally or by facsimile transmission or mailed by first class mail, postage prepaid, to the address or facsimile number furnished to the Company in writing by the last Holder of this Warrant who shall have furnished an address or facsimile number to the Company in writing, and if mailed shall be deemed given three days after deposit in the United States mail. 11. MARKET STAND-OFF AGREEMENT. The Holder agrees to be bound by the terms of a standard lock-up agreement requested by the underwriters with respect to an initial public offering of common stock of the Company which shall apply to all Series E-2 Preferred Stock or Common Stock acquired pursuant to this Warrant; provided that the lock-up period does not exceed 180 days and all other principal shareholders of the Company are subject to similar agreements. ISSUED: October 8, 1998 NETOBJECTS, INC. By: --------------------- Name: ------------------- Title: ------------------- 4 Attachment 1 NOTICE OF EXERCISE TO: NETOBJECTS, INC. 1. The undersigned hereby elects to purchase _______________ shares of the Warrant Stock of NetObjects, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below: ------------------------------ (Name) ------------------------------- (Address) - --------------------------------------- ----------------------------------- (Date) (Name of Warrant Holder) By: -------------------------------- Title: ----------------------------- Attachment 2 INVESTMENT REPRESENTATION STATEMENT Shares of the Series E-2 Preferred Stock (as defined in the attached Warrant) of NETOBJECTS, INC. In connection with the purchase of the above-listed securities, the undersigned hereby represents to NetObjects, Inc. (the "Company") as follows: (a) The securities to be received upon the exercise of the Warrant (the "Securities") will be acquired for investment for its own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and the undersigned has no present intention of selling, granting participation in or otherwise distributing the same, but subject, nevertheless, to any requirement of law that the disposition of its property shall at all times be within its control. By executing this statement, the undersigned further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participations to such person or to any third person, with respect to any Securities issuable upon exercise of the Warrant. (b) The undersigned understands that the Securities issuable upon exercise of the Warrant at the time of issuance may not be registered under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws, on the ground that the issuance of such securities is exempt pursuant to Section 4(2) of the Securities Act and state law exemptions relating to offers and sales not by means of a public offering, and that the Company's reliance on such exemptions is predicated on the undersigned's representations set forth herein. (c) The undersigned agrees that in no event will it make a disposition of any Securities acquired upon the exercise of the Warrant unless and until (i) it shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) it shall have furnished the Company with an opinion of counsel satisfactory to the Company and Company's counsel to the effect that (A) appropriate action necessary for compliance with the Securities Act and any applicable state securities laws has been taken or an exemption from the registration requirements of the Securities Act and such laws is available, and (B) the proposed transfer will not violate any of said laws. (d) The undersigned acknowledges that an investment in the Company is highly speculative and represents that it is able to fend for itself in the transactions contemplated by this statement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investments, and has the ability to bear the economic risks (including the risk of a total loss) of its investment. The undersigned represents that it has had the opportunity to ask questions of the Company concerning the Company's business and assets and to obtain any additional information which it considered necessary to verify the 1 accuracy of or to amplify the Company's disclosures, and has had all questions which have been asked by it satisfactorily answered by the Company (e) The undersigned acknowledges that the Securities issuable upon exercise or conversion of the Warrant must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The undersigned is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold from the Company or any affiliate of the Company, the sale being through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of shares being sold during any three month period not exceeding specified limitations. Dated: --------------------------------------- --------------------------------------- (Typed or Printed Name) By: ------------------------------------ (Signature) --------------------------------------- (Title) 2 Attachment 3 NOTICE OF CONVERSION TO: NETOBJECTS, INC. 1. The undersigned hereby elects to acquire _______________ shares of the Warrant Stock of NetObjects, Inc. pursuant to the terms of the attached Warrant, by conversion of _________ percent (_____%) of the Warrant. 2. Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below: ------------------------------ (Name) ------------------------------- (Address) - ---------------------------------- ----------------------------------- (Date) (Name of Warrant Holder) By: -------------------------------- Title: ------------------------------- (Title and signature of authorized person) EX-4.5 11 EXHIBIT 4.5 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS WARRANT MAY NOT BE SOLD OR OTHERWISE DISPOSED OF UNLESS IT IS AT THE TIME SO REGISTERED OR THE SALE OR OTHER TRANSFER OR DISPOSITION THEREOF IS MADE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY THE ACT OR RULES AND REGULATIONS THEREUNDER AND APPLICABLE STATE LAWS. WARRANT FOR THE PURCHASE OF SERIES F PREFERRED STOCK PAR VALUE $.00000001 PER SHARE of NETOBJECTS, INC. VOID AFTER DECEMBER 23, 2002 THIS CERTIFIES THAT, for value received, IBM Credit Corporation ("IBM Credit") or assigns (the "Holder") is entitled, in accordance with the terms and conditions hereinafter set forth, at any time on or before December 23, 2002, to purchase up to 500,000 (as such number may be adjusted) shares of Series F Preferred Stock, par value $.00000001 per share (the "Series F Preferred Stock"), of NETOBJECTS, INC., a Delaware corporation (hereinafter called the "Company"), at the exercise price hereinafter set forth, and to receive a certificate or certificates for the shares of Series F Preferred Stock so purchased, upon presentation and surrender of this Warrant, at the principal office of the Company, which, as of the date hereof, is located at 602 Galveston Drive, Redwood City, California 94063, together with the exercise price of the shares so purchased. The number of shares purchasable upon exercise of this Warrant and the exercise price shall be subject to adjustment from time to time as set forth below. This Warrant is issued under and pursuant to the terms of the Revolving Loan and Security Agreement dated December 23, 1997 (the "Loan Agreement"), between the Company and IBM Credit. 1. RESERVATION OF SHARES. The Company shall at all times reserve and keep available out of its authorized but unissued Series F Preferred Stock, solely for issuance and delivery upon exercise of this Warrant, such number of shares of Series F Preferred Stock as shall from time to time be issuable upon exercise of this Warrant. All shares which may be issued upon the exercise of this Warrant shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and be free from all taxes, liens and charges in respect of the issuance thereof. 2. TERM. The purchase rights represented by this Warrant are exercisable at the option of the Holder in whole at any time, or in part from time to time, on or before December 23, 2002. In case of the purchase of fewer than all the shares purchasable under this Warrant, the Company shall cancel this Warrant upon surrender hereof and, provided the unexercised portion has not expired as provided above, shall execute and deliver a new Warrant of like tenor and date for the balance of the shares purchasable hereunder. 3. INVESTMENT REPRESENTATION. IBM Credit, by accepting this Warrant, represents that this Warrant is acquired for IBM Credit's own account for investment purposes and not with a view to any offering or distribution and that IBM Credit has no present intention of selling or otherwise disposing of this Warrant or any portion hereof or the underlying shares of Series F Preferred Stock in violation of applicable securities laws. 4. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any voting rights or other rights whatsoever except the rights herein expressed, and no dividend or interest shall be payable or accrue in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until and unless, and except to the extent that, this Warrant shall be exercised. 5. WARRANT UNREGISTERED. Neither this Warrant nor any of the shares to be issued upon the exercise hereof have been registered under the Securities Act of 1933, as amended (the "Act"). Accordingly, this Warrant and the shares of Series F Preferred Stock issuable upon exercise of this Warrant may not be sold, transferred or otherwise disposed of unless they are so registered or an exemption from registration is available. 6. TRANSFERS AND EXCHANGES. Upon surrender by the Holder of this Warrant, properly endorsed, at the office of the Company for registration of transfer or for exchange, the Company at its expense shall execute and deliver in exchange therefor a new Warrant or Warrants of the same tenor, in the name of such Holder or registered as such Holder may request, evidencing, in the aggregate, the right to purchase an equal number of shares of Series F Preferred Stock as the Warrant so surrendered. 7. EXERCISE PRICE. The purchase price for each share of Series F Preferred Stock which the Holder has the right to purchase hereunder (hereinafter called the "Exercise Price") shall be $1.80. The Exercise Price for the shares of Series F Preferred Stock which the Holder has the right to purchase hereunder shall be paid in cash or by certified or official bank check at the time of exercise. In lieu of exercising this Warrant as provided in the preceding sentence, at any time on or after the effective date of a Form S-1 registration statement relating to common stock of the Company ("Company Common Stock") filed by the Company pursuant to the Act, the Holder may 2 elect to receive shares equal to the value of this Warrant (or any portion thereof remaining unexercised) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of shares of Company Common Stock (if Company Common Stock is then issuable upon exercise of this Warrant pursuant to Section 8 hereof) computed using the following formula: Y (A - B) X = --------- A Where X = the number of shares of Company Common Stock to be issued to the Holder. Y = the number of shares of Company Common Stock purchasable under this Warrant (at the date of such calculation). A = the fair market value of one share of Company Common Stock (at the date of such calculation). B = Exercise Price (as adjusted to the date of such calculation). For purposes of this subsection fair market value of one share of the Company Common Stock shall mean the average of the closing price of Company Common Stock quoted on the Nasdaq Stock Market or on any exchange on which Company Common Stock is listed, whichever is applicable, as published in the Western Edition of THE WALL STREET JOURNAL for the five (5) trading days prior to the date of determination of the fair market value. 8. ADJUSTMENTS TO THE SHARES; ANTIDILUTION PROVISION. (a) If the Company (A) pays a dividend or makes a distribution on the Series F Preferred Stock in shares of Series F Preferred Stock, (B) subdivides or combines its outstanding shares of Series F Preferred Stock into a greater or smaller number of shares or (C) issues by reclassification of the Series F Preferred Stock any shares of capital stock of the Company, the Exercise Price in effect immediately prior to such action shall be adjusted so that the Holder of this Warrant thereafter surrendered for exercise shall be entitled to receive, at the time of such exercise, the number of shares of Series F Preferred Stock or other capital stock of the Company that it would have owned or been entitled to receive immediately following such action had this Warrant been exercised immediately prior thereto or on the record date therefor, whichever is earlier. Such adjustment shall become effective immediately after the 3 record date, in the case of a dividend or distribution, or immediately after the effective date, in the case of a subdivision, combination or reclassification. The shares of Series F Preferred Stock issued or issuable under the terms of the Warrant shall be entitled to the same antidilution protection as provided for shares of Series F Preferred Stock in the Company's Restated Certificate of Incorporation as if such shares had been outstanding from the issue date of the Warrant. (b) Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, the Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that the Holder would have received for the shares issuable hereunder if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the shares issuable hereunder to common stock pursuant to the terms of the Company's Restated Certificate of Incorporation upon the closing of a registered public offering of Company Common Stock. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 8 including, without limitation, adjustments to the Exercise Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 8(b) shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 9. STOCK CERTIFICATES. As soon as practicable after exercise of this Warrant and in any event within two business days thereafter, the Company at its expense shall cause to be issued in the name of the Holder hereof or (subject to Section 6) any person designated by such Holder, a certificate or certificates for the number of shares of Series F Preferred Stock to which such Holder shall be entitled upon such exercise. The issuance of stock certificates upon the exercise of this Warrant shall be made without charge to the Holder for any tax in respect of the issuance thereof. 10. REGISTRATION. The shares of Series F Preferred Stock issuable upon exercise of this Warrant shall be entitled to the registration rights set forth in a Registration Rights Agreement dated April 11, 1997 between the Company and International Business Machines Corporation ("IBM"), as amended by a First Amendment to Registration Rights Agreement among the Company, IBM and IBM Credit dated December 23, 1997. 11. GOVERNING LAW. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of New York. 4 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its proper officers thereunto duly authorized and the Company's corporate seal to be hereunto affixed as of this 14th day of May 1998. NETOBJECTS, INC. By: -------------------------------- Title: ----------------------------- 5 PURCHASE FORM (To be executed upon exercise of Warrant) The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant, to purchase shares of Series F Preferred Stock as provided for herein and herewith tenders in payment for such shares of Series F Preferred Stock payment of the purchase price in full in the form of cash or a certified or official bank check payable to the order of NETOBJECTS, INC., or a combination thereof in the amount of $ , all in accordance with the terms hereof. The undersigned requests that a certificate for such shares of Series F Preferred Stock be registered in the name of whose address is and that such certificates shall be delivered to whose address is . If said number of shares of Series F Preferred Stock is fewer than all the shares of Series F Preferred Stock purchasable hereunder, the undersigned requests that a new Warrant representing the right to purchase the remaining balance of the shares of Series F Preferred Stock be registered in the name of whose address is and that such certificates shall be delivered to whose address is . Dated: ------------------------------ ------------------------------ (Insert social security or other identifying number of holder) Signature: ----------------------------- Note: (Signature must conform in all respects to name of holder as specified on the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever, unless this Warrant has been assigned.) ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto (Name and Address of Assignee Must be Printed or Typewritten) the within Warrant, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint , Attorney, to transfer said Warrant on the books of the within-named Company, with full power of substitution in the premises. Dated: ------------------------- -------------------------------------------- Signature of Registered Holder Note: The above signature must correspond to the name as written on the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever. EX-9.1 12 EXHIBIT 9.1 Exhibit 9.1 VOTING AGREEMENT This Voting Agreement (the "Agreement") is made and entered into as of February __, 1999 by and between NetObjects, Inc., a Delaware corporation (the "Company"), and International Business Machines Corporation, a New York corporation ("IBM"). R E C I T A L S WHEREAS, the Company anticipates making an Initial Public Offering (as defined below) of common stock, par value, $0.01 per share, (the "Common Stock"); and WHEREAS, the parties hereto desire to enter into this Agreement to establish the composition of the Company's Board of Directors (the "Board"). NOW THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 "Beneficial ownership" shall mean ownership of a security, directly or indirectly, by any person who through any contract, arrangement, understanding, relationship or otherwise has or shares (1) voting power, which includes the power to vote, or to direct the voting of, such security, and/or (2) investment power, which includes the power to dispose, or to direct the disposition of, such security, and for purposes of this Agreement shall be determined in accordance with Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. 1.2 "IBM Representative" shall mean a director, officer, employee or other agent of IBM, or of an affiliate of IBM. For this purpose an "affiliate" is defined as an individual, firm, corporation (other than NetObjects and its subsidiaries), partnership, limited liability company, trust, joint venture or other entity and any successor of such entity who directly, or indirectly through one or more intermediaries, is controlled by or is under common control with IBM. 1.3 "Initial Public Offering" shall mean a sale by the Company of Common Stock, in a bona fide public offering on an underwritten firm commitment basis pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission pursuant to the Securities Act of 1933 as amended and the General Rules and Regulations thereunder, which public offering results in aggregate cash proceeds of at least $30 million. 1.4 "Fully Diluted" shall mean the number of fully diluted shares of Voting Securities (including without limitation upon exercise of all outstanding warrants, options, convertible securities and other rights to purchase Voting Securities). 1.5 "Voting Securities" shall mean the Common Stock and any other securities of the Company entitled to vote generally in the election of directors of the Company and any other securities (including rights, warrants, options and convertible debt) convertible into, exchangeable for or exercisable for any Common Stock or other securities referred to above (whether or not presently convertible, exchangeable or exercisable, including preferred stock of the Company). ARTICLE II VOTING 2.1 From and after the date of the closing of the sale of Common Stock to the Company's underwriters in an Initial Public Offering until the termination of this Agreement, IBM agrees to vote all shares of Common Stock beneficially owned by IBM and any other Voting Securities of the Company beneficially owned by IBM and shall take all other necessary or desirable actions within its control (whether as a stockholder, through IBM representatives serving as directors, members of a Board committee or officer of the Company or otherwise, and including, without limitation, attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company shall take all necessary and desirable actions (including, without limitation, calling special Board and stockholder meetings), so that: (i) the authorized number of directors on the Board shall be established and remain at six directors; and (ii) a total of three, and not more than three, IBM Representatives designated in writing by IBM prior to their nomination shall be elected to serve on the Board at any one time. 2.2 IBM designates Robert G. Anderegg, Lee A. Dayton and Michael D. Zisman as the initial IBM Representatives under this Agreement. IBM represents and warrants to the Company that IBM has full power and authority to enter into and perform this Agreement and will direct the IBM Representatives to act in accordance with the provisions of this Agreement. 2 2.3 If the holders of a majority of outstanding voting stock of the Company, approve an amendment of the Company's Certificate of Incorporation or Bylaws changing the size of the Board notwithstanding opposition thereto by IBM and the Company in conformance with this Agreement, this Agreement shall remain in full force and effect, but IBM shall not be deemed in breach of this Agreement by reason of such amendment. Notwithstanding the foregoing sentence, IBM and the Company may mutually agree to modify this Agreement in accordance with the terms of Section 4.3 hereof to provide for a decrease in the size of the Board and a simultaneous decrease in the number of IBM Representatives on the Board, provided that the IBM Representatives shall constitute fifty percent (50%) or less of such reduced Board. 2.4 This Voting Agreement is coupled with an interest and may not be revoked without the written consent of the Company and IBM. 2.5 Except as provided by this Agreement, IBM shall exercise the full rights of a stockholder with respect to the shares of Common Stock and any other Voting Securities beneficially owned by it. ARTICLE III EFFECT; TERMINATION This Agreement shall continue in full force and effect with respect to all Common Stock and other Voting Securities of the Company currently or hereafter beneficially owned by IBM from the date hereof until such time as IBM's share of all Voting Securities of the Company on a Fully Diluted basis, shall be less than forty-five percent (45%) for a period of 180 consecutive days, at which time this Agreement will be deemed to have terminated in its entirety as of the last day of the 180-day period. ARTICLE IV MISCELLANEOUS 4.1 The Company and IBM hereby declare that the terms of this Agreement shall be specifically enforceable. If any party hereto or such party's successors or assigns institutes any action or proceeding to specifically enforce the provisions hereof, any person against whom such action or proceeding is brought hereby waives the claim or defense therein that such party or such personal representative has an adequate remedy at law, and such person shall not offer in any such action or proceeding the claim or defense that such remedy at law exists. 3 4.2 This Agreement, and the rights of the parties hereto, shall be governed by and construed in accordance with the laws of the State of California without regard to its principles governing conflicts of laws. 4.3 The rights and covenants provided herein are the sole and entire agreement between IBM and the Company with respect to the subject matter hereof. This Agreement may be amended at any time and from time to time, and particular provisions of this Agreement may be waived as to IBM and the Company, only by an instrument in writing signed by IBM and the Company. 4.4 If any provision of this Agreement is held to be invalid or unenforceable, the validity and enforceability of the remaining provisions of this Agreement shall not be affected thereby, provided that the principal purpose of this Agreement is not materially affected thereby. 4.5 This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. 4.6 In the event that subsequent to the date of this Agreement any shares or other securities (other than any shares or securities of another corporation issued to the Company's stockholders pursuant to a reorganization transaction that effects a change of control of the Company) are issued on, or in exchange for, any of the Common Stock or other Voting Securities beneficially owned by IBM by reason of any stock dividend, stock split, consolidation of shares, reclassification or exchange of shares or the like involving the Company, such shares or securities shall be deemed to be Common Stock for purposes of this Agreement. 4.7 This Agreement may be executed in counterparts and transmitted by facsimile, each of which when so executed and transmitted shall be deemed to be an original, and such counterparts shall together constitute one and the same instrument. 4.8 No delay or omission to exercise any right, power or remedy accruing to any party, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereunder occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Except as provided in Section 4.3, any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 4 This Voting Agreement is hereby executed as of the date first above written. NETOBJECTS, INC. By: --------------------------------- Name: Title: INTERNATIONAL BUSINESS MACHINES CORPORATION By: --------------------------------- Name: Title: 5 EX-10.1 13 EXHIBIT 10.1 NETOBJECTS, INC. 1997 STOCK OPTION PLAN 1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to Employees, Non-Employee Directors and Consultants of the Company and its Subsidiaries, and to promote the success of the Company's business. Options granted hereunder may be either Incentive Stock Options or Nonstatutory Stock Options at the discretion of the Committee. This is intended to be a stock option plan for purposes of Section 408 of the California General Corporation Law. 2. DEFINITIONS. As used herein, and in any Option granted hereunder, the following definitions shall apply: (a) "BOARD" shall mean the Board of Directors of the Company. (b) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (c) "COMMON STOCK" shall mean the Common Stock of the Company. (d) "COMPANY" shall mean NetObjects, Inc., a Delaware corporation. (e) "COMMITTEE" shall mean the Committee appointed by the Board in accordance with paragraph (a) of Section 4 of the Plan. If the Board does not appoint or ceases to maintain a Committee, the term "Committee" shall refer to the Board. (f) "CONSULTANT" shall mean any independent contractor retained to perform services for the Company. (g) "CONTINUOUS EMPLOYMENT" shall mean the absence of any interruption or termination of service as an Employee or Non-Employee Director by the Company or any Subsidiary. Continuous Employment shall not be considered interrupted during any period of sick leave, military leave or any other leave of absence approved by the Board or in the case of transfers between locations of the Company or between the Company and any Parent, Subsidiary or successor of the Company. (h) "COVERED EMPLOYEE" shall mean any individual whose compensation is subject to the limitations on tax deductibility provided by Section 162(m) of the Code and any Treasury Regulations promulgated thereunder in effect at the close of the taxable year of the Company in which an Option has been granted to such individual. (i) "DISINTERESTED PERSON" shall mean a person who has not at any time within one year prior to service as a member of the Committee (or during such service) been granted or awarded Options or other equity securities pursuant to the Plan or any other plan of the Company or any Parent or Subsidiary. Notwithstanding the foregoing, a member of the Committee shall not fail to be a Disinterested Person merely because he or she participates in a plan meeting the requirements of Rule 16b-3(c)(2)(i)(A) or (B) promulgated under the Exchange Act. (j) "EMPLOYEE" shall mean any person, including officers (whether or not they are directors), employed by the Company or any Subsidiary. (k) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. (l) "INCENTIVE STOCK OPTION" shall mean any option granted under this Plan and any other option granted to an Employee in accordance with the provisions of Section 422 of the Code, and the regulations promulgated thereunder. (m) "NON-EMPLOYEE DIRECTOR" shall mean any director of the Company or any Subsidiary who is not employed by the Company or such Subsidiary. (n) "NONSTATUTORY STOCK OPTION" shall mean an Option granted under the Plan that is subject to the provisions of Section 1.83-7 of the Treasury Regulations promulgated under Section 83 of the Code. (o) "OPTION" shall mean a stock option granted pursuant to the Plan. (p) "OPTION AGREEMENT" shall mean a written agreement between the Company and the Optionee regarding the grant and exercise of Options to purchase Shares and the terms and conditions thereof as determined by the Committee pursuant to the Plan. (q) "OPTIONED SHARES" shall mean the Common Stock subject to an Option. (r) "OPTIONEE" shall mean an Employee, Non-Employee Director or Consultant who receives an Option. (s) "OUTSIDE DIRECTOR" shall mean a director of the Company who qualifies as an outside director as such term is used in Section 162(m) of the Code and defined in any applicable Treasury Regulations promulgated thereunder. (t) "PARENT" shall mean a "parent corporation," whether now or hereafter existing, as defined by Section 424(e) of the Code. (u) "PLAN" shall mean this 1997 Stock Option Plan. (v) "REGISTRATION DATE" shall mean the effective date of the first registration of any class of the Company's equity securities pursuant to Section 12 of the Exchange Act. 2 (w) "SECTION 162(m) EFFECTIVE DATE" shall mean the first date as of which the limitations on the tax deductibility of certain compensation provided by Section 162(m) of the Code and any Treasury Regulations promulgated thereunder are applicable to Options granted under the Plan. (x) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. (y) "SHARE" shall mean a share of the Common Stock subject to an Option, as adjusted in accordance with Section 11 of the Plan. (z) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is Twelve Million Nine Hundred Fifty-three Thousand Six Hundred Sixty-two (12,953,662) Shares. The Shares may be authorized but unissued or reacquired shares of Common Stock. If an Option expires or becomes unexercisable for any reason without having been exercised in full, the Shares which were subject to the Option but as to which the Option was not exercised shall become available for other Option grants under the Plan, unless the Plan shall have been terminated. The total number of Shares subject to the Plan shall not exceed the applicable percentage of total outstanding shares of capital stock of the Company as calculated in accordance with the conditions and exclusions of Section 260.140.45 of the Rules of the California Corporations Commissioner based on the shares of the Company that are outstanding at the time the calculation is made, unless a higher percentage is approved by at least two-thirds (2/3) of the total outstanding shares of capital stock of the Company entitled to vote on the matter. The foregoing limitation shall cease to apply to the Plan at such time as, in the opinion of legal counsel to the Company, such Rule is no longer deemed to apply to the offer or sale of Shares subject to the Plan by the Company. 4. ADMINISTRATION OF THE PLAN. (a) PROCEDURE. The Plan shall be administered by the Board. The Board may appoint a Committee consisting of not less than two members of the Board to administer the Plan, subject to such terms and conditions as the Board may prescribe. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and, thereafter, directly administer the Plan. Members of the Board or Committee who are either eligible for Options or have been granted Options may vote on any matters affecting the administration of the Plan or the grant of Options pursuant to the Plan, except that no such member shall act upon the granting of an Option to himself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board or the Committee during which action is taken with respect to the granting of an Option to him or her. 3 The Committee shall meet at such times and places and upon such notice as the chairperson determines. A majority of the Committee shall constitute a quorum. Any acts by the Committee may be taken at any meeting at which a quorum is present and shall be by majority vote of those members entitled to vote. Additionally, any acts reduced to writing or approved in writing by all of the members of the Committee shall be valid acts of the Committee. (b) PROCEDURE AFTER REGISTRATION DATE. Notwithstanding subsection (a) above, after the Registration Date, the Plan shall be administered either by: (i) the full Board, provided that all members of the Board are Disinterested Persons; or (ii) a Committee of two or more directors, each of whom is a Disinterested Person. After such date, the Board shall take all action necessary to administer the Plan in accordance with the then effective provisions of Rule 16b-3 promulgated under the Exchange Act, provided that any amendment to the Plan required for compliance with such provisions shall be made consistent with the provisions of Section 13 of the Plan, and said regulations. After such date, however, Options can be granted to members of the Board or the Committee only if: (i) the Plan is being administered by a Committee consisting solely of Disinterested Persons; or (ii) a majority of the Board and a majority of the Directors acting with respect to such option grants consists of Disinterested Persons. (c) PROCEDURE AFTER SECTION 162(m) EFFECTIVE DATE. Notwithstanding subsections (a) and (b) above, after the Section 162(m) Effective Date the Plan and all Option grants shall be administered and approved by a Committee comprised solely of two or more Outside Directors. (d) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan, the Committee shall have the authority: (i) to determine, upon review of relevant information, the fair market value of the Common Stock; (ii) to determine the exercise price of Options to be granted, the Employees, Directors or Consultants to whom and the time or times at which Options shall be granted, and the number of Shares to be represented by each Option; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the Plan; (v) to determine the terms and provisions of each Option granted under the Plan (which need not be identical) and, with the consent of the holder thereof, to modify or amend any Option; (vi) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Committee; (vii) to accelerate or (with the consent of the Optionee) defer an exercise date of any Option, subject to the provisions of Section 9(a) of the Plan; (viii) to determine whether Options granted under the Plan will be Incentive Stock Options or Nonstatutory Stock Options; (ix) to make all other determinations deemed necessary or advisable for the administration of the Plan. (e) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations and interpretations of the Committee shall be final and binding on all potential or actual Optionees, any other holder of an Option or other equity security of the Company and all other persons. 5. ELIGIBILITY. (a) PERSONS ELIGIBLE FOR OPTIONS. Options under the Plan may be granted only to Employees, Non-Employee Directors or Consultants whom the Committee, in its sole discretion, may designate from time to time. Incentive Stock 4 Options may be granted only to Employees. An Employee who has been granted an Option, if he or she is otherwise eligible, may be granted an additional Option or Options. However, the aggregate fair market value (determined in accordance with the provisions of Section 8(a) of the Plan) of the Shares subject to one or more Incentive Stock Options that are exercisable for the first time by an Optionee during any calendar year (under all stock option plans of the Company and its Parents and Subsidiaries) shall not exceed $100,000 (determined as of the grant date). As of the Section 162(m) Effective Date, Options under the Plan shall be granted to Covered Employees upon satisfaction of the conditions to such grants provided pursuant to Section 162(m) and any Treasury Regulations promulgated thereunder. (b) NO RIGHT TO CONTINUING EMPLOYMENT. Neither the establishment nor the operation of the Plan shall confer upon any Optionee or any other person any right with respect to continuation of employment or other service with the Company or any Subsidiary, nor shall the Plan interfere in any way with the right of the Optionee or the right of the Company (or any Parent or Subsidiary) to terminate such employment or service at any time. 6. TERM OF PLAN. The Plan shall become effective upon its adoption by the Board or its approval by vote of the holders of the outstanding shares of the Company entitled to vote on the adoption of the Plan (in accordance with the provisions of Section 18 hereof), whichever is earlier. It shall continue in effect for a term of ten years unless sooner terminated under Section 13 of the Plan. 7. TERM OF OPTION. Unless the Committee determines otherwise, the term of each Option granted under the Plan shall be ten years from the date of grant. The term of the Option shall be set forth in the Option Agreement. No Incentive Stock Option shall be exercisable after the expiration of ten years from the date such Option is granted, provided that no Incentive Stock Option granted to any Employee who, at the date such Option is granted, owns (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary shall be exercisable after the expiration of five years from the date such Option is granted. 8. OPTION PRICE AND CONSIDERATION. (a) OPTION PRICE. Except as provided in subsections (b) and (c) below, the option price for the Shares to be issued pursuant to any Option shall be such price as is determined by the Committee, which shall in no event be less than: (i) in the case of Incentive Stock Options, the fair market value of such Shares on the date the Option is granted; or (ii) in the case of Nonstatutory Stock Options, 85% of such fair market value. Fair market value of the Common Stock shall be determined by the Committee, using such criteria as it deems relevant; provided, however, that if there is a public market for the Common Stock, the fair market value per Share shall be the average of the last reported bid and asked prices of the Common Stock on the date of grant, as reported in THE WALL STREET JOURNAL (or, if not so reported, as otherwise reported by Nasdaq) or, in the event the Common Stock is listed on a national securities exchange (within the meaning of Section 6 of the Exchange Act) or on the Nasdaq National Market (or any successor national market system), the fair market value per Share shall be the closing price on such exchange on the date of grant of the Option, as reported in THE WALL STREET JOURNAL. 5 (b) TEN PERCENT SHAREHOLDERS. No Incentive Stock Option shall be granted to any Employee who, at the date such Option is granted, owns (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, unless the option price for the Shares to be issued pursuant to such Option is at least equal to 110% of the fair market value of such Shares on the grant date determined by the Committee in the manner set forth in subsection (a) above. (c) SECTION 162(m) LIMITATIONS. After the Section 162(m) Effective Date, the Option Price of any Option granted to a Covered Employee shall be at least equal to the fair market value of the Shares as of the date of grant as determined in the manner set forth in subsection (a) above. (d) CONSIDERATION. The consideration to be paid for the Optioned Shares shall be payment in cash or by check unless payment in some other manner, including by promissory note, other shares of the Company's Common Stock or such other consideration and method of payment for the issuance of Optioned Shares as may be permitted under Sections 408 and 409 of the California General Corporation Law, is authorized by the Committee at the time of the grant of the Option. Any cash or other property received by the Company from the sale of Shares pursuant to the Plan shall constitute part of the general assets of the Company. 9. EXERCISE OF OPTION. (a) VESTING PERIOD. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Committee and as shall be permissible under the terms of the Plan, which shall be specified in the Option Agreement evidencing the Option. Unless the Committee specifically determines otherwise at the time of the grant of the Option, each Option shall vest and become exercisable, cumulatively, as to one-fourth (1/4) of the Optioned Shares on the first anniversary of the date of the grant of the Option, and as to one thirty-sixth (1/36) of the remaining Optioned Shares at the end of each successive month thereafter, until all of the Optioned Shares have vested, subject to the Optionee's Continuous Employment. Except as otherwise permitted by the California Corporations Commissioner or under the Rules of the California Corporations Commissioner, in no event shall the option vest at a rate of less than one-fifth of the Optioned Shares per year during the five (5)-year period following the date of the grant of the Option. An Option may not be exercised for fractional shares or for less than ten Shares. (b) EXERCISE PROCEDURES. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. After the Registration Date, in lieu of delivery of a cash payment for the purchase price of the Shares with respect to which the Option is exercised, the Optionee may deliver to the Company a sell order to a broker for the Shares being purchased and an agreement to pay (or have the broker remit payment for) the purchase price for the Shares being purchased on or before the settlement date for the sale of such shares to the broker. As soon as practicable following the exercise of an Option in the manner set forth above, the Company shall issue or cause its transfer agent to issue stock certificates representing the Shares purchased. Until the issuance of such stock certificates (as evidenced by the appropriate entry on the books 6 of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Shares notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other rights for which the record date is prior to the date of the transfer by the Optionee of the consideration for the purchase of the Shares, except as provided in Section 11 of the Plan. (c) EXERCISE OF OPTION WITH STOCK. If an Optionee is permitted to exercise an Option by delivering shares of the Company's Common Stock, the Option Agreement covering such Option may include provisions authorizing the Optionee to exercise the Option, in whole or in part, by (i) delivering whole shares of the Company's Common Stock previously owned by such Optionee (whether or not acquired through the prior exercise of a stock option) having a fair market value equal to the Option price; or (ii) directing the Company to withhold from the Shares that would otherwise be issued upon exercise of the Option that number of whole Shares having a fair market value equal to the Option price. Shares of the Company's Common Stock so delivered or withheld shall be valued at their fair market value at the close of the last business day immediately preceding the date of exercise of the Option, as determined by the Committee. Any balance of the Option price shall be paid in cash. Any Shares delivered or withheld in accordance with this provision shall again become available for purposes of the Plan and for Options subsequently granted thereunder. After the Registration Date, any exercise of an Option under Section 9(c)(i) or 9(c)(ii) above by any person subject to short-swing trading liability under Section 16(b) of the Exchange Act shall comply with the relevant requirements of Rule 16b-3(d) or (e) promulgated under the Exchange Act. (d) TERMINATION OF STATUS AS EMPLOYEE, NON-EMPLOYEE DIRECTOR OR CONSULTANT. If an Optionee shall cease to be an Employee, Non-Employee Director or Consultant for any reason other than disability or death, he or she may, but only within 30 days (or such other period of time as is determined by the Committee) after the date he or she ceases to be an Employee, Non-Employee Director or Consultant, exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination, subject to the condition that no Option shall be exercisable after the expiration of the Option period. (e) DISABILITY OF OPTIONEE. If an Optionee shall cease to be an Employee, Non-Employee Director or Consultant due to a disability, and such Optionee is, or was within the 90-day period prior to such termination, an Employee, Non-Employee Director or Consultant and who was in Continuous Employment as such from the date of the grant of the Option until the date of disability or termination, the Option may be exercised at any time within 180 days following the date of termination, but only to the extent of the accrued right to exercise at the time of the termination, subject to the condition that no option shall be exercised after the expiration of the Option period. (f) DEATH OF OPTIONEE. In the event of the death during the Option period of an Optionee who is at the time of his or her death, or was within the 90-day period immediately prior thereto, an Employee, Non-Employee Director or Consultant and who was in Continuous Employment as such from the date of the grant of the Option until the date of death, the Option may be exercised, at any time within 180 days following the date of death, by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest, inheritance or otherwise as a result of the Optionee's death, but only to the extent of the accrued right to exercise at 7 the time of the termination or death, whichever comes first, subject to the condition that no option shall be exercised after the expiration of the Option period. (g) TAX WITHHOLDING. After the Registration Date, when an Optionee is required to pay to the Company an amount with respect to tax withholding obligations in connection with the exercise of an Option granted under the Plan, the Optionee may elect prior to the date the amount of such withholding tax is determined (the "Tax Date") to make such payment, or such increased payment as the Optionee elects to make up to the maximum federal, state and local marginal tax rates, including any related FICA obligation, applicable to the Optionee and the particular transaction, by: (i) delivering cash; (ii) delivering part or all of the payment in previously owned shares of Common Stock (whether or not acquired through the prior exercise of an Option); and/or (iii) irrevocably directing the Company to withhold from the Shares that would otherwise be issued upon exercise of the Option that number of whole Shares having a fair market value equal to the amount of tax required or elected to be withheld (a "Withholding Election"). If an Optionee's Tax Date is deferred beyond the date of exercise and the Optionee makes a Withholding Election, the Optionee will initially receive the full amount of Optioned Shares otherwise issuable upon exercise of the Option, but will be unconditionally obligated to surrender to the Company on the Tax Date the number of Shares necessary to satisfy his or her minimum withholding requirements, or such higher payment as he or she may have elected to make, with adjustments to be made in cash after the Tax Date. After the Registration Date, any withholding of Shares with respect to taxes arising in connection with the exercise of an Option by any person subject to short-swing trading liability under Section 16(b) of the Exchange Act shall satisfy the following conditions: (i) An advance election to withhold Optioned Shares in settlement of a tax liability must satisfy the requirements of Rule 16b-3(d)(1)(i), regarding participant-directed transactions; (ii) Absent such an election, the withholding of Optioned Shares to settle a tax liability may occur only during the quarterly window period described in Rule 16b-3(e); (iii) Absent an advance election or window-period withholding, the Optionee may deliver shares of Common Stock owned prior to the exercise of an Option to settle a tax liability arising upon exercise of the Option, in accordance with Rule 16b-3(f); or (iv) The delivery of previously acquired shares of Common Stock (but not the withholding of newly acquired Shares) will be allowed where an election under Section 83(b) of the Code accelerates the Tax Date to a day that occurs less than six months after the advance election and is not within the quarterly window period described in Rule 16b-3(e). Any adverse consequences incurred by the Optionee with respect to the use of shares of Common Stock to pay any part of the Option Price or of any tax in connection with the exercise of an Option, including without limitation any adverse tax consequences arising as a result of a disqualifying disposition within the meaning of Section 422 of the Code, shall be the sole responsibility of the Optionee. 8 10. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required action by the shareholders of the Company, the number of Optioned Shares covered by each outstanding Option, and the per share exercise price of each such Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, recapitalization, combination, reclassification, the payment of a stock dividend on the Common Stock or any other increase or decrease in the number of such shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. The Committee may, if it so determines in the exercise of its sole discretion, also make provision for proportionately adjusting the number or class of securities covered by any Option, as well as the price to be paid therefor, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings, or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation. Unless otherwise determined by the Board, upon the dissolution or liquidation of the Company the Options granted under the Plan shall terminate and thereupon become null and void. Upon any merger or consolidation, if the Company is not the surviving corporation, or if the Company is the surviving corporation in a "triangular merger" transaction with a subsidiary of a "parent corporation" (as such term is defined and used in Section 175 and Section 1101 of the California General Corporation Law), the Options granted under the Plan shall either be assumed by the new entity or the parent corporation, or shall terminate in accordance with the provisions of the preceding sentence. 12. TIME OF GRANTING OPTIONS. Unless otherwise specified by the Committee, the date of grant of an Option under the Plan shall be the date on which the Committee makes the determination granting such Option. Notice of the determination shall be given to each Optionee to whom an Option is so granted within a reasonable time after the date of such grant. 13. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable, except that, without approval of the shareholders of the Company, no such revision or amendment shall change the number of Shares subject to the Plan, change the designation of the class of employees eligible to receive Options or add any material benefit to Optionees under the Plan. Any such amendment or termination of the Plan shall not affect Options already granted, and such Options shall remain in full 9 force and effect as if the Plan had not been amended or terminated. After the Section 162(m) Effective Date, the modification or addition of a material term of the Plan (as determined under Section 162(m) and any applicable Treasury Regulations promulgated thereunder) shall be approved by the shareholders in the manner provided in Section 18 of the Plan. 14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with respect to an Option granted under the Plan unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 15. RESERVATION OF SHARES. During the term of this Plan the Company will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. Inability of the Company to obtain from any regulatory body having jurisdiction and authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder shall relieve the Company of any liability in respect of the nonissuance or sale of such Shares as to which such requisite authority shall not have been obtained. 16. INFORMATION TO OPTIONEE. (a) ANNUAL REPORT AND FINANCIAL INFORMATION. During the term of any Option granted under the Plan, the Company shall provide or otherwise make available to each Optionee a copy of its annual report to Shareholders and financial information which is provided to its shareholders in accordance with the provisions of the Company's Bylaws and applicable law. (b) FREEDOM OF ACTION BY IBM. The Company also shall provide to the Optionee upon grant of an Option under the Plan a copy of the then current Restated Certificate of Incorporation of the Company ("Restated Certificate"), a copy of which Restated Certificate is attached hereto as Exhibit A. Upon receipt of an Option granted under the Plan, the Optionee shall acknowledge that he or she has received a copy of the Restated Certificate and has read and understood it, including Article VII thereof, which contains provisions defining the rights of International Business Machines Corporation, a New York corporation ("IBM"), as a substantial stockholder of the Company. 17. OPTION AGREEMENT. Options granted under the Plan shall be evidenced by Option Agreements. 18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the shareholders of the Company within 12 months before or after the Plan is adopted. Except as provided otherwise in Section 3, any amendments to the Plan requiring shareholder approval must be approved by the affirmative vote of the holders of a 10 majority of the outstanding shares of voting stock present or represented and entitled to vote at a duly held meeting at which a quorum is present, or by the written consent of the shareholders in the manner provided by Delaware law. 11 EX-10.1-1 14 EXHIBIT 10.1.1 Exhibit 10.1.1 NETOBJECTS, INC. AMENDED AND RESTATED 1997 STOCK OPTION PLAN 1. PURPOSE OF THE PLAN. The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to Employees, Directors and Consultants of the Company and its Subsidiaries, and to promote the success of the Company's business. Options granted hereunder may be either Incentive Stock Options or Nonstatutory Stock Options at the discretion of the Committee. 2. DEFINITIONS. As used herein, and in any Option granted hereunder, the following definitions shall apply: (a) "BOARD" shall mean the Board of Directors of the Company. (b) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (c) "COMMON STOCK" shall mean the Common Stock of the Company. (d) "COMPANY" shall mean NetObjects, Inc., a Delaware corporation. (e) "COMMITTEE" shall mean the Committee appointed by the Board in accordance with paragraph (a) of Section 4 of the Plan. If the Board does not appoint or ceases to maintain a Committee, the term "Committee" shall refer to the Board. (f) "CONSULTANT" shall mean any independent contractor retained to perform services for the Company or any Subsidiary. (g) "CONTINUOUS EMPLOYMENT" shall mean the absence of any interruption or termination of service as an Employee or Director by the Company or any Subsidiary. Continuous Employment shall not be considered interrupted during any period of sick leave, military leave or any other leave of absence approved by the Board or in the case of transfers between locations of the Company or between the Company and any Parent, Subsidiary or successor of the Company. (h) "COVERED EMPLOYEE" shall mean any Employee who is as of the close of any taxable year of the Company a "covered employee" as such term is used in Section 162(m) of the Code and defined in any applicable Treasury Regulations promulgated thereunder. (i) "DIRECTOR" shall mean an individual serving on the Board only so long as such individual is serving on the Board. (j) "EMPLOYEE" shall mean any person, including officers (whether or not they are Directors), employed by the Company or any Subsidiary. (k) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. (l) "INCENTIVE STOCK OPTION" shall mean any option granted under this Plan and any other option granted to an Employee in accordance with the provisions of Section 422 of the Code, and the regulations promulgated thereunder. (m) "NON-EMPLOYEE DIRECTOR" shall mean a Director of the Company who qualifies as a "non-employee director," as such term is used in Rule 16b-3 promulgated under the Exchange Act. (n) "NONSTATUTORY STOCK OPTION" shall mean an Option granted under the Plan that is subject to the provisions of Section 1.83-7 of the Treasury Regulations promulgated under Section 83 of the Code. (o) "OPTION" shall mean a stock option granted pursuant to the Plan. (p) "OPTION AGREEMENT" shall mean a written agreement between the Company and the Optionee regarding the grant and exercise of Options to purchase Shares and the terms and conditions thereof as determined by the Committee pursuant to the Plan. (q) "OPTIONED SHARES" shall mean the Common Stock subject to an Option. (r) "OPTIONEE" shall mean an Employee, Director or Consultant who receives an Option. (s) "OUTSIDE DIRECTOR" shall mean a Director of the Company who qualifies as an "outside Director," as such term is used in Section 162(m) of the Code and defined in any applicable Treasury Regulations promulgated thereunder. (t) "PARENT" shall mean a "parent corporation," whether now or hereafter existing, as defined by Section 424(e) of the Code. (u) "PLAN" shall mean this Amended and Restated 1997 Stock Option Plan. 2 (v) "REGISTRATION DATE" shall mean the effective date of the first registration of any class of the Company's equity securities pursuant to Section 12 of the Exchange Act. (w) "SECTION 162(m) EFFECTIVE DATE" shall mean the first date as of which Options granted under the Plan will, if held by Covered Employees, be subject to the limitations on the tax deductibility of certain compensation provided by Section 162(m) of the Code and any Treasury Regulations promulgated thereunder. (x) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. (y) "SHARE" shall mean a share of the Common Stock subject to an Option, as adjusted in accordance with Section 11 of the Plan. (z) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is Four Million Five Hundred Thousand (4,500,000) Shares. The Shares may be authorized but unissued or reacquired shares of Common Stock. If an Option expires or becomes unexercisable for any reason without having been exercised in full, the Shares which were subject to the Option but as to which the Option was not exercised shall become available for other Option grants under the Plan, unless the Plan shall have been terminated. 4. ADMINISTRATION OF THE PLAN. (a) PROCEDURE. The Plan shall be administered by the Board. The Board may appoint a Committee consisting of not less than two members of the Board to administer the Plan, subject to such terms and conditions as the Board may prescribe. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and, thereafter, directly administer the Plan. Members of the Board or Committee who are either eligible for Options or have been granted Options may vote on any matters affecting the administration of the Plan or the grant of Options pursuant to the Plan, except that no such member shall act upon the granting of an Option to himself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board or the Committee during which action is taken with respect to the granting of an Option to him or her. The Committee shall meet at such times and places and upon such notice as the chairperson determines. A majority of the Committee shall constitute a 3 quorum. Any acts by the Committee may be taken at any meeting at which a quorum is present and shall be by majority vote of those members entitled to vote. Additionally, any acts reduced to writing or approved in writing by all of the members of the Committee shall be valid acts of the Committee. (b) PROCEDURE AFTER REGISTRATION DATE. Notwithstanding subsection (a) above, after the Registration Date, if (i) an Option is granted to an Optionee who at the time of grant is subject to the reporting requirements of Section 16 of the Exchange Act, and (ii) the Option is not granted either by the full Board or a Committee consisting solely of two or more Non-Employee Directors, then the grant shall be ratified by the full Board. (c) PROCEDURE AFTER SECTION 162(m) EFFECTIVE DATE. Notwithstanding subsections (a) and (b) above, after the Section 162(m) Effective Date the Plan and all Option grants shall be administered and approved by a Committee comprised solely of two or more Outside Directors. (d) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan, the Committee shall have the authority: (i) to determine, upon review of relevant information, the fair market value of the Common Stock; (ii) to determine the exercise price of Options to be granted, the Employees, Directors or Consultants to whom and the time or times at which Options shall be granted, and the number of Shares to be represented by each Option; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the Plan; (v) to determine the terms and provisions of each Option granted under the Plan (which need not be identical) and, with the consent of the holder thereof, to modify or amend any Option; (vi) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Committee; (vii) to accelerate or (with the consent of the Optionee) defer an exercise date of any Option, subject to the provisions of Section 9(a) of the Plan; (viii) to determine whether Options granted under the Plan will be Incentive Stock Options or Nonstatutory Stock Options; (ix) to make all other determinations deemed necessary or advisable for the administration of the Plan. (e) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations and interpretations of the Committee shall be final and binding on all potential or actual Optionees, any other holder of an Option or other equity security of the Company and all other persons. 4 5. ELIGIBILITY. (a) PERSONS ELIGIBLE FOR OPTIONS. Options under the Plan may be granted only to Employees, Directors or Consultants whom the Committee, in its sole discretion, may designate from time to time. Incentive Stock Options may be granted only to Employees. An Employee who has been granted an Option, if he or she is otherwise eligible, may be granted an additional Option or Options. However, the aggregate fair market value (determined in accordance with the provisions of Section 8(a) of the Plan) of the Shares subject to one or more Incentive Stock Options that are exercisable for the first time by an Optionee during any calendar year (under all stock option plans of the Company and its Parents and Subsidiaries) shall not exceed $100,000 (determined as of the grant date). After the Section 162(m) Effective Date, the Committee shall not grant Options to an Optionee during any calendar year that cover more than One Million (1,000,000) Shares in the aggregate. (b) GRANTS TO NEW DIRECTORS. The provision set forth in this Section 5(b) shall not be amended more than once every six months, other than to comply with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. Directors who are not Employees at the date of grant upon first joining the Board shall be automatically granted an Option to purchase Twenty Thousand (20,000) Shares, decreased or increased as provided in Section 11 hereof. (i) The terms of an Option granted pursuant to this Section 5(b) shall be as follows: (A) the term of the Option shall be six years; (B) except as provided in Section 9 of the Plan, the Option shall be exercisable only while the Director remains a Director; (C) the exercise price per share of Common Stock shall be 100% of the fair market value on the date of grant of the Option (determined in accordance with Section 8(a) of the Plan); (D) the Option shall become exercisable in installments cumulatively with respect to 1/48 of the Optioned Shares on the first day of each month following the date of grant; provided, however, that in no event shall any Option be exercisable prior to obtaining shareholder approval of the Plan. (c) NO RIGHT TO CONTINUING EMPLOYMENT. Neither the establishment nor the operation of the Plan shall confer upon any Optionee or any other person any right with respect to continuation of employment or other service with the Company or any Subsidiary, nor shall the Plan interfere in any way with the right of the Optionee or the right of the Company (or any Parent or Subsidiary) to terminate such employment or service at any time. 5 6. TERM OF PLAN. The Plan shall become effective upon its adoption by the Board or its approval by vote of the holders of the outstanding shares of the Company entitled to vote on the adoption of the Plan (in accordance with the provisions of Section 18 hereof), whichever is earlier. It shall continue in effect for a term of ten years unless sooner terminated under Section 13 of the Plan. 7. TERM OF OPTION. Unless the Committee determines otherwise, the term of each Option granted under the Plan shall be ten years from the date of grant. The term of the Option shall be set forth in the Option Agreement. No Incentive Stock Option shall be exercisable after the expiration of ten years from the date such Option is granted, provided that no Incentive Stock Option granted to any Employee who, at the date such Option is granted, owns (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary shall be exercisable after the expiration of five years from the date such Option is granted. 8. OPTION PRICE AND CONSIDERATION. (a) OPTION PRICE. Except as provided in subsections (b) and (c) below, the option price for the Shares to be issued pursuant to any Option shall be such price as is determined by the Committee, which shall in no event be less than: (i) in the case of Incentive Stock Options, the fair market value of such Shares on the date the Option is granted; or (ii) in the case of Nonstatutory Stock Options, 85% of such fair market value. Fair market value of the Common Stock shall be determined by the Committee, using such criteria as it deems relevant; provided, however, that if there is a public market for the Common Stock, the fair market value per Share shall be the average of the last reported bid and asked prices of the Common Stock on the date of grant, as reported in THE WALL STREET JOURNAL (or, if not so reported, as otherwise reported by Nasdaq) or, in the event the Common Stock is listed on a national securities exchange (within the meaning of Section 6 of the Exchange Act) or on the Nasdaq National Market (or any successor national market system), the fair market value per Share shall be the closing price on such exchange on the date of grant of the Option, as reported in THE WALL STREET JOURNAL. (b) TEN PERCENT SHAREHOLDERS. No Incentive Stock Option shall be granted to any Employee who, at the date such Option is granted, owns (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, unless the option price for the Shares to be issued pursuant to such Option is at least equal to 110% of the fair market value of such Shares on the grant date determined by the Committee in the manner set forth in subsection (a) above. (c) SECTION 162(m) LIMITATIONS. After the Section 162(m) Effective Date, the Option Price of any Option granted to a Covered Employee shall be 6 at least equal to the fair market value of the Shares as of the date of grant as determined in the manner set forth in subsection (a) above. (d) CONSIDERATION. The consideration to be paid for the Optioned Shares shall be payment in cash or by check unless payment in some other manner, including by promissory note, other shares of the Company's Common Stock or such other consideration and method of payment for the issuance of Optioned Shares as may be authorized by the Committee at the time of the grant of the Option. Any cash or other property received by the Company from the sale of Shares pursuant to the Plan shall constitute part of the general assets of the Company. 9. EXERCISE OF OPTION. (a) VESTING PERIOD. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Committee and as shall be permissible under the terms of the Plan, which shall be specified in the Option Agreement evidencing the Option. Unless the Committee specifically determines otherwise at the time of the grant of the Option, each Option shall vest and become exercisable, cumulatively, as to one-fourth (1/4) of the Optioned Shares on the first anniversary of the date of the grant of the Option, and as to one thirty-sixth (1/36) of the remaining Optioned Shares at the end of each successive month thereafter, until all of the Optioned Shares have vested, subject to the Optionee's Continuous Employment. (b) EXERCISE PROCEDURES. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. After the Registration Date, in lieu of delivery of a cash payment for the purchase price of the Shares with respect to which the Option is exercised, the Optionee may deliver to the Company a sell order to a broker for the Shares being purchased and an agreement to pay (or have the broker remit payment for) the purchase price for the Shares being purchased on or before the settlement date for the sale of such shares by the broker. As soon as practicable following the exercise of an Option in the manner set forth above, the Company shall issue or cause its transfer agent to issue stock certificates representing the Shares purchased. Until the issuance of such stock certificates (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Shares notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other rights for which the record date is prior to the date of the transfer by the Optionee of the consideration for the purchase of the Shares, except as provided in Section 11 of the Plan. (c) EXERCISE OF OPTION WITH STOCK. If an Optionee is permitted to exercise an Option by delivering shares of the Company's Common Stock, the 7 Option Agreement covering such Option may include provisions authorizing the Optionee to exercise the Option, in whole or in part, by (i) delivering whole shares of the Company's Common Stock previously owned by such Optionee (whether or not acquired through the prior exercise of a stock option) having a fair market value equal to the Option price; or (ii) directing the Company to withhold from the Shares that would otherwise be issued upon exercise of the Option that number of whole Shares having a fair market value equal to the Option price. Shares of the Company's Common Stock so delivered or withheld shall be valued at their fair market value at the close of the last business day immediately preceding the date of exercise of the Option, as determined by the Committee. Any balance of the Option price shall be paid in cash. Any Shares delivered or withheld in accordance with this provision shall again become available for purposes of the Plan and for Options subsequently granted thereunder. (d) TERMINATION OF STATUS AS EMPLOYEE, DIRECTOR OR CONSULTANT. If an Optionee shall cease to be an Employee, Director or Consultant for any reason other than disability or death, he or she may, but only within 30 days (or such other period of time as is determined by the Committee) after the date he or she ceases to be an Employee, Director or Consultant, exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination, subject to the condition that no Option shall be exercisable after the expiration of the Option period. (e) DISABILITY OF OPTIONEE. If an Optionee shall cease to be an Employee, Director or Consultant due to a disability, and such Optionee is, or was within the 90-day period prior to such termination, an Employee, Director or Consultant and who was in Continuous Employment as such from the date of the grant of the Option until the date of disability or termination, the Option may be exercised at any time within 180 days following the date of termination, but only to the extent of the accrued right to exercise at the time of the termination, subject to the condition that no option shall be exercised after the expiration of the Option period. (f) DEATH OF OPTIONEE. In the event of the death during the Option period of an Optionee who is at the time of his or her death, or was within the 90-day period immediately prior thereto, an Employee, Director or Consultant and who was in Continuous Employment as such from the date of the grant of the Option until the date of death, the Option may be exercised, at any time within 180 days following the date of death, by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest, inheritance or otherwise as a result of the Optionee's death, but only to the extent of the accrued right to exercise at the time of the termination or death, whichever comes first, subject to the condition that no option shall be exercised after the expiration of the Option period. (g) TAX WITHHOLDING. After the Registration Date, when an Optionee is required to pay to the Company an amount with respect to tax withholding obligations in connection with the exercise of an Option granted under the Plan, the Optionee may elect prior to the date the amount of such withholding tax is determined 8 (the "Tax Date") to make such payment, or such increased payment as the Optionee elects to make up to the maximum federal, state and local marginal tax rates, including any related FICA obligation, applicable to the Optionee and the particular transaction, by: (i) delivering cash; (ii) delivering part or all of the payment in previously owned shares of Common Stock (whether or not acquired through the prior exercise of an Option); and/or (iii) irrevocably directing the Company to withhold from the Shares that would otherwise be issued upon exercise of the Option that number of whole Shares having a fair market value equal to the amount of tax required or elected to be withheld (a "Withholding Election"). If an Optionee's Tax Date is deferred beyond the date of exercise and the Optionee makes a Withholding Election, the Optionee will initially receive the full amount of Optioned Shares otherwise issuable upon exercise of the Option, but will be unconditionally obligated to surrender to the Company on the Tax Date the number of Shares necessary to satisfy his or her minimum withholding requirements, or such higher payment as he or she may have elected to make, with adjustments to be made in cash after the Tax Date. Any adverse consequences incurred by the Optionee with respect to the use of shares of Common Stock to pay any part of the Option Price or of any tax in connection with the exercise of an Option, including without limitation any adverse tax consequences arising as a result of a disqualifying disposition within the meaning of Section 422 of the Code, shall be the sole responsibility of the Optionee. 10. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required action by the shareholders of the Company, the number of Shares then subject to the Plan, the number of Optioned Shares covered by each outstanding Option, and the per share exercise price of each such Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, recapitalization, combination, reclassification, the payment of a stock dividend on the Common Stock or any other increase or decrease in the number of such shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. 9 The Committee may, if it so determines in the exercise of its sole discretion, also make provision for proportionately adjusting the number or class of securities covered by any Option, as well as the price to be paid therefor, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings, or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation. Unless otherwise determined by the Board, upon the dissolution or liquidation of the Company the Options granted under the Plan shall terminate and thereupon become null and void. Upon any merger or consolidation, if the Company is not the surviving corporation, or if the Company is the surviving corporation in a "triangular merger" transaction with a subsidiary of a "parent corporation" (as such term is defined and used in Section 175 and Section 1101 of the California General Corporation Law), the Options granted under the Plan shall either be assumed by the new entity or the parent corporation, or shall terminate in accordance with the provisions of the preceding sentence. 12. TIME OF GRANTING OPTIONS. Unless otherwise specified by the Committee, the date of grant of an Option under the Plan shall be the date on which the Committee makes the determination granting such Option. Notice of the determination shall be given to each Optionee to whom an Option is so granted within a reasonable time after the date of such grant. 13. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable; provided, however, that any such amendment (a) shall comply with all applicable laws and stock exchange listing requirements, and (b) with respect to Incentive Stock Options granted or to be granted under the Plan, shall be subject to any approval by shareholders of the Company required under the Code. Any such amendment or termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if the Plan had not been amended or terminated. 14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with respect to an Option granted under the Plan unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or 10 distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 15. RESERVATION OF SHARES. During the term of this Plan the Company will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. Inability of the Company to obtain from any regulatory body having jurisdiction and authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder shall relieve the Company of any liability in respect of the nonissuance or sale of such Shares as to which such requisite authority shall not have been obtained. 16. INFORMATION TO OPTIONEE. (a) ANNUAL REPORT AND FINANCIAL INFORMATION. During the term of any Option granted under the Plan, the Company shall provide or otherwise make available to each Optionee a copy of its annual report to Shareholders and financial information which is provided to its shareholders in accordance with the provisions of the Company's Bylaws and applicable law. (b) FREEDOM OF ACTION BY IBM. The Company also shall provide to the Optionee upon grant of an Option under the Plan a copy of the then current Restated Certificate of Incorporation of the Company ("Restated Certificate"), a copy of which Restated Certificate is attached hereto as Exhibit A. Upon receipt of an Option granted under the Plan, the Optionee shall acknowledge that he or she has received a copy of the Restated Certificate and has read and understood it, including Article VII thereof, which contains provisions defining the rights of International Business Machines Corporation, a New York corporation ("IBM"), as a substantial stockholder of the Company. 17. OPTION AGREEMENT. Options granted under the Plan shall be evidenced by Option Agreements. 18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the shareholders of the Company within 12 months before or after the Plan is adopted. 11 EX-10.1-2 15 EXHIBIT 10.1.2 EXHIBIT 10.1.2 NETOBJECTS, INC. STOCK OPTION AGREEMENT NetObjects, Inc., a Delaware corporation (the "Company"), hereby grants to (the "Optionee"), an option (the "Option") to purchase a total of ( ) shares of Common Stock (the "Shares") of the Company, at the price set forth herein, and in all respects subject to the terms, definitions and provisions of the Company's 1997 Stock Option Plan (the "Plan"), which is incorporated herein by this reference. 1. NATURE OF THE OPTION. The Option is intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. OPTION PRICE. The Option Price is ( ) for each Share. 3. VESTING AND EXERCISE OF OPTION. The Option shall vest and become exercisable during its term in accordance with the provisions of Section 9 of the Plan as follows: (a) Vesting and Right to Exercise. (i) The Option shall vest and become exercisable with respect to twenty-five (25%) of the Shares subject to the Option on the first anniversary of the Vesting Commencement Date set forth in the signature page of this Agreement, and one thirty-sixth (1/36) of the remaining Shares subject to the Option at the end of each successive month thereafter, until all of the Shares have vested, subject to the Optionee's Continuous Employment with the Company. Subject to the provisions of subparagraphs (ii) and (iii) below, the Optionee can exercise any portion of the Option which has vested until the expiration of the Option term. (ii) In the event of the Optionee's death, disability or other termination of employment, the exercisability of the Option shall be governed by Sections 9(d), (e) and (f) of the Plan, as the case may be. (iii) The Option may not be exercised for fractional shares or for less than ten (10) Shares. (b) METHOD OF EXERCISE. In order to exercise any portion of this Option which has vested, the Optionee shall notify the Company in writing of the election to exercise the Option and the number of shares in respect of which the Option is being exercised, by executing and delivering the Notice of Exercise of Stock Option in the form attached as Exhibit B hereto, and shall execute and deliver to the Chief Financial Officer of the Company the Restricted Stock Transfer Agreement, together with the Stock Assignments, Escrow Agreement and, if applicable, the Consent of Spouse, forms of which are attached as exhibits to the Purchase Agreement. The Restricted Stock Transfer Agreement must be accompanied by payment in full of the aggregate purchase price for the Shares to be purchased. The certificate or certificates representing Shares as to which this Option has been exercised shall be registered in the name of the Optionee. (c) RESTRICTIONS ON EXERCISE. This Option may not be exercised if the issuance of the Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable Federal or state securities law or other law or regulation. Furthermore, the method and manner of payment of the Option Price will be subject to the rules under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as promulgated by the Federal Reserve Board if such rules apply to the Company at the date of exercise. As a condition to the exercise of this Option, the Company may require the Optionee to make any representation or warranty to the Company at the time of exercise of this Option as in the opinion of legal counsel for the Company may be required by any applicable law or regulation, including the execution and delivery of an appropriate representation statement. Accordingly, the stock certificates for the Shares issued upon exercise of this Option may bear appropriate legends restricting transfer. 4. NON-TRANSFERABILITY OF OPTION. This Option may be exercised during the lifetime of the Optionee only by the Optionee and, subject to the provisions of Section 9(f) of the Plan, may not be transferred in any manner other than by will or by the laws of descent and distribution. The terms of this Option shall be binding upon the executors, administrators, heirs and successors of the Optionee. 5. METHOD OF PAYMENT. Payment of the exercise price shall be by any of the following, or a combination thereof, at the election of the Optionee: (a) cash; (b) certified or bank cashier's check; or (c) in the event there exists a public market for the Company's Common Stock on the date of exercise, by surrender of shares of the Company's Common Stock, provided that if such shares were acquired upon exercise of an incentive stock option, the Optionee must have first satisfied the holding period requirements under Section 422(a)(1) of the Code. In this case payment shall be made as follows: (i) In addition to the execution and delivery of the Restricted Stock Transfer Agreement, Optionee shall deliver to the Secretary of the Company a written notice which shall set forth the portion of the purchase price the Optionee wishes to pay with Common Stock, and the number of shares of such Common Stock the Optionee intends to surrender pursuant to the exercise of this Option, which shall be determined by dividing the aforementioned portion of the purchase price by the average of the last reported bid and asked prices per share of Common Stock of the Company, as reported in THE WALL STREET JOURNAL (or, if not so reported, as otherwise reported by Nasdaq or, in the event the Common Stock is listed on a national securities exchange, or on the Nasdaq National Market (or any successor national market system), the closing price of Common Stock of the Company on such exchange as reported in THE WALL STREET JOURNAL, for the day on which the notice of exercise is sent or delivered; (ii) Fractional shares shall be disregarded and the Optionee shall pay in cash an amount equal to such fraction multiplied by the price determined under subparagraph (i) above; (iii) The written notice shall be accompanied by a duly endorsed blank stock power with respect to the number of Shares set forth in the notice, and the certificate(s) representing said Shares shall be delivered to the Company at its principal offices within three (3) working days from the date of the notice of exercise; (iv) The Optionee hereby authorizes and directs the Secretary of the Company to transfer so many of the Shares represented by such certificate(s) as are necessary to pay the purchase price in accordance with the provisions herein; (v) If any such transfer of Shares requires the consent of the California Commissioner of Corporations or of some other agency under the securities laws of any other state, or an opinion of counsel for the Company or Optionee that such transfer may be effected under applicable Federal and state securities laws, the time periods specified herein shall be extended for such periods as the necessary request for consent to transfer is pending before said Commissioner or other agency, or until counsel renders such an opinion, as the case may be. All parties agree to cooperate in making such request for transfer, or in obtaining such opinion of counsel, and no transfer shall be effected without such consent or opinion if required by law; and (vi) Notwithstanding any other provision herein, the Optionee shall only be permitted to pay the purchase price with Shares of the Company's Common Stock owned by him as of the exercise date in the manner and within the time periods allowed under 17 CFR Section 240.16b-3 promulgated under the Securities Exchange Act of 1934 as such regulation is presently constituted, as it is amended from time to time, and as it is interpreted now or hereafter by the Securities and Exchange Commission. 6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. The number of Shares covered by this Option shall be adjusted in accordance with the provisions of Section 11 of the Plan in the event of changes in the capitalization or organization of the Company, or if the Company is a party to a merger or other corporate reorganization. 7. TERM OF OPTION. This Option may not be exercised more than ten (10) years from the Vesting Commencement Date set forth in the signature page of this Agreement, and may be exercised during such term only in accordance with the Plan and the terms of this Option. 8. REPURCHASE RIGHTS. The Optionee hereby agrees that any Shares acquired upon the exercise of this Option shall be subject to the rights of the Company to repurchase such Shares and to certain restrictions on transfer specified in the Restricted Stock Transfer Agreement. 9. NOT EMPLOYMENT CONTRACT. Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the employ of the Company or shall interfere with or restrict in any way the rights of the Company, which are hereby expressly reserved, to discharge the Optionee at any time for any reason whatsoever, with or without cause, subject to the provisions of applicable law. This is not an employment contract. 10. INCOME TAX WITHHOLDING. (a) The Optionee authorizes the Company to withhold in accordance with applicable law from any compensation payable to him or her any taxes required to be withheld by Federal, state or local laws as a result of the exercise of this Option. The Optionee agrees to notify the Company immediately in the event of any disqualifying disposition (within the meaning of Section 421(b) of the Code) of the shares acquired upon exercise of an incentive stock option. Furthermore, in the event of any determination that the Company has failed to withhold a sum sufficient to pay all withholding taxes due in connection with the exercise of this Option, or a disqualifying disposition of the shares acquired upon exercise of an incentive stock option, the Optionee agrees to pay the Company the amount of such deficiency in cash within five (5) days after receiving a written demand from the Company to do so, whether or not Optionee is an employee of the Company at that time. (b) After the effective date of the first registration statement filed by the Company pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), at such time as the Optionee is required to pay to the Company an amount with respect to tax withholding obligations as set forth in paragraph (a), the Optionee may elect prior to the date the amount of such withholding tax is determined to make such payment, or such increased payment as the Optionee elects to make up to the maximum federal, state and local marginal tax rates (including any related FICA obligation) applicable to the Optionee and the particular transaction in accordance with the provisions of Section 9(g) of the Plan. (c) Any adverse consequences incurred by an Optionee with respect to the use of shares of Common Stock to pay any part of the Option Price or of any tax in connection with the exercise of an Option, including, without limitation, any adverse tax consequences arising as a result of a disqualifying disposition within the meaning of Section 422 of the Code shall be the sole responsibility of the Optionee. VESTING COMMENCEMENT DATE: ____________, 19___ NetObjects, Inc. By:_________________________________ Title:______________________________ The Optionee acknowledges receipt of a copy of the Plan and the exhibits referred to therein, the Option Agreement and the exhibits referred to therein, the Restricted Stock Transfer Agreement and the exhibits referred to therein, and he or she represents and warrants as follows: 1. The Optionee is familiar with the terms and provisions of these documents, and hereby accepts this Option subject to all of the terms and provisions thereof. 2. The Optionee is aware of and familiar with the restrictions and limitations imposed on the transfer by the Optionee of any shares of Common Stock, including, without limitation, the restrictions contained in the Restricted Stock Transfer Agreement. The Optionee is aware of and familiar with the restrictions on ownership of the Common Stock, including, without limitation, certain rights of first refusal and call rights contained in the Restricted Stock Transfer Agreement. The Optionee is aware that he or she shall have no right to transfer any shares of Common Stock in any manner, except as expressly permitted by the Restricted Stock Transfer Agreement, or to require the registration of any shares of Common Stock, except as expressly permitted by the Restricted Stock Transfer Agreement. 3. The Optionee is aware of and familiar with the provisions of the Restated Certificate of Incorporation of the Company ("Restated Certificate") and the Stockholders Agreement dated as of March 18, 1997 among IBM, the Company and certain investors in the Companies ("Stockholders Agreement"), which are exhibits to the Plan. The Optionee is aware of and familiar with Article VII of the Restated Certificate and Section 4 of the Stockholders Agreement, each of which contains provisions defining the rights of International Business Machines Corporation, a New York corporation ("IBM"), as a substantial shareholder of the Company with respect to freedom of action by IBM to compete with the Company, the duties of members on the Board of Directors of the Company who are affiliated with IBM, and other matters. 4. The Optionee acknowledges that the Company is entering into this Agreement in reliance upon the Optionee's representations and warranties in this Agreement. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan. Dated: ____________, 19___ ----------------------------- CONSENT OF SPOUSE I, ____________________, spouse of the Optionee who executed the foregoing Option Agreement, hereby agree that my spouse's interest in the shares of Common Stock subject to said Option Agreement shall be irrevocably bound by the Option Agreement's terms. I further agree that my community property interest in such shares, if any, shall similarly be bound by said Option Agreement and that such consent is binding upon my executors, administrators, heirs and assigns. I agree to execute and deliver such documents as may be necessary to carry out the intent of said Option Agreement and this consent. Dated: , 199 ------------------------------ EXHIBIT B NOTICE OF EXERCISE OF STOCK OPTION TO: NetObjects, Inc. 2055 Woodside Road, Suite 250 Redwood City, CA 94061 ATTN: President SUBJECT: Notice of Exercise of Stock Option (Payment in cash or check) In respect to the stock option granted to the undersigned on ____________, 19__, to purchase an aggregate of _________ shares of the Common Stock of NetObjects, Inc. (the "Company"), this is official notice that the undersigned hereby elects to exercise such option to purchase shares as follows: Number of Shares: __________________________ Date of Purchase: ___________________, 19___ Mode of Payment: __________________________ (Certified Check, Cash, Other Consideration as permitted by the terms of the Option Agreement) The shares should be issued as follows: Name: ____________________________________ Address: ____________________________________ ____________________________________ ____________________________________ Signed: _________________________ Date: _________________________ Please send this notice of exercise to: NetObjects, Inc. 2055 Woodside Road, Suite 250 Redwood City, CA 94061 Attention: President EX-10.1-3 16 EXHIBIT 10.1.3 EXHIBIT A NETOBJECTS, INC. RESTRICTED STOCK PURCHASE AGREEMENT THIS AGREEMENT is made and entered into as of ____________, 19__, between NetObjects, Inc., a Delaware corporation (the "Company") and _____________________ ("Purchaser"). R E C I T A L S: A. Pursuant to the exercise of a stock option (the "Option") granted to Purchaser by the Company pursuant to the terms and conditions of that certain Stock Option Agreement dated ____________, 199_ (the "Option Agreement"), Purchaser has elected to purchase ________ shares of the Company's Common Stock (the "Shares"). Pursuant to the terms of the Option Agreement, _________ Shares are being purchased pursuant to options which have vested and have become exercisable (the "Vested Shares") and __________ Shares being purchased pursuant to options which have not vested and are not exercisable (the "Unvested Shares"). B. Purchaser is a key employee of the Company. The securities described in this Agreement are being offered and sold pursuant to a written compensatory benefit plan of the Company or pursuant to a written contract relating to the compensation of the Purchaser within the meaning of Rule 701 promulgated by the U.S. Securities and Exchange Commission. NOW, THEREFORE, in consideration of the mutual covenants exchanged, the parties agree as follows: 1. PURCHASE AND SALE OF SHARES. (a) PURCHASE AND SALE OF SHARES. The Company agrees to sell to Purchaser, and Purchaser agrees to purchase from the Company, ____________ Shares of the Company's Common Stock (the "Shares"), at a purchase price of ___ Cents (___) per share, for a total purchase price of $__________. All of the Shares shall be subject to this Agreement and the restrictions herein contained. (b) CLOSING. The purchase and sale of the Shares shall be held at the principal office of the Company within ten (10) days of the date hereof, or at such other time and place as shall be mutually agreed between Purchaser and the Company. At the closing, Purchaser shall deliver to the Company the total purchase price for the Shares in cash or by bank check, and the Company will issue, as promptly thereafter as practicable, a certificate representing the Shares issued in the name of Purchaser. 2. REPURCHASE OPTION. (a) SHARES SUBJECT TO REPURCHASE. Purchaser hereby grants to the Company the option (the "Repurchase Option") to repurchase all or part of the Shares at the price per share paid for them by Purchaser (the "Option Price"), subject to adjustment pursuant to Section 3, upon the occurrences set forth in subsection (c), but A-1 only to the extent such Shares have not been released from the Repurchase Option as provided in subsection (b). All of the Unvested Shares shall initially be subject to the Repurchase Option. (b) RELEASE DATES. The Shares subject to the Repurchase Option shall be released from the Repurchase Option in accordance with the vesting schedule set forth in Section 3(a) of the Option Agreement to the extent and as of the dates provided therein. Shares subject to the Repurchase Option are referred to herein as "Unvested Shares," and Shares which have been released from the Repurchase Option are referred to herein as "Vested Shares." (c) OCCURRENCES PERMITTING EXERCISE. The Company may exercise the Repurchase Option if during the term of this Agreement either of the following events (an "Offering Event") takes place: (i) Purchaser shall cease to be employed by the Company (including a parent or subsidiary of the Company) on a full-time basis for any reason, or no reason, with or without cause, including involuntary termination, death or disability; or (ii) any event occurs which causes the involuntary transfer to creditors or to any other person or entity of all or any part of the Shares still subject to the Repurchase Option at the time of such transfer. (d) EXERCISE OF REPURCHASE OPTION. Upon the occurrence of an Offering Event, the Company may exercise the Repurchase Option by delivering personally, or by registered or certified mail, to Purchaser (or the Purchaser's permitted transferee or legal representative, as the case may be), within ninety (90) days after the date of the Offering Event, a notice in writing indicating the Company's election to exercise its Repurchase Option and the number of Shares to be purchased by the Company or the Company's designee, who shall be identified in such notice, and setting forth a date for closing not later than thirty (30) days from the date of giving such notice. (e) CLOSING FOR REPURCHASE OF SHARES. The closing for the repurchase of the Shares pursuant to the exercise of the Repurchase Option shall take place at the Company's principal offices. At the closing, the holder of the certificate(s) representing the Shares being transferred shall deliver said certificate or certificates evidencing the Shares to the Company, duly endorsed for transfer, and the Company (or its designee) shall tender payment of the purchase price for the Shares being purchased. The purchase price shall be payable in full in cash, or by check, provided that the Company may elect to offset against and deduct from any payment of the purchase price any indebtedness then owed by Purchaser to the Company. 3. ADJUSTMENTS. If, from time to time during the term of this Agreement: (i) there is any stock dividend, distribution or dividend of cash or property, stock split, or other change in the character or amount of any of the outstanding securities of the Company; or (ii) there is any consolidation, merger or sale of all, or substantially all, of the assets of the Company; then in such event, any and all new, substituted or additional securities, cash, or other property to which Purchaser is entitled by reason of his ownership of the Shares shall be immediately subject to the Repurchase Option and be included in the word "Shares" for all purposes with the same force and effect as the Shares presently subject to the Repurchase Option, the Right of First Refusal and other A-2 terms of this Agreement. While the total Option Price shall remain the same after any such event, the Option Price per share shall be appropriately adjusted. 4. RESTRICTIONS ON TRANSFER; RIGHT OF FIRST REFUSAL. (a) NO TRANSFER OF SHARES SUBJECT TO REPURCHASE OPTION. Purchaser shall not sell, transfer, pledge, assign or otherwise dispose of any of the Unvested Shares which are subject to the Repurchase Option. (b) RIGHT OF FIRST REFUSAL. Should Purchaser wish to transfer any of the Vested Shares, or any interest in such Vested Shares, Purchaser shall first deliver a written notice (the "Transfer Notice") to the Company, which shall have the option to purchase such shares as provided herein (the "Right of First Refusal"). As used herein, the term "transfer" means any sale, assignment, gift, hypothecation, alienation or other disposition (including any involuntary transfer of the Shares (or part of them) to a creditor) to any individual, entity, government, government agency, political subdivision or unincorporated association. The Transfer Notice must specify: (i) that Purchaser has a bona fide intention to sell or transfer such Vested Shares; (ii) the name and address of the person or firm to whom the Purchaser intends to transfer the Vested Shares, or interest therein; (iii) the number of Vested Shares, or interest therein, Purchaser proposes to transfer; (iv) the price or amount to be paid for the proposed transfer (including the amount of any debt to be paid, cancelled or forgiven upon foreclosure of a security interest in the Vested Shares or upon any other transfer to the Purchaser's creditors); and (v) all other material terms and conditions of the proposed transfer. (c) ELECTION TO PURCHASE SHARES. Within thirty (30) days after receipt of the Transfer Notice, the Company or its designee (as the case may be) may elect to purchase all, but not less than all, of the Vested Shares to which the Transfer Notice refers at the per share price specified in the Transfer Notice. If no price is specified in the Transfer Notice, the purchase price shall be the fair market value of the Shares, as determined in good faith by the Board of Directors of the Company. Such Right of First Refusal shall be exercised by delivery to the Purchaser by the Company or its designee, of a written election to exercise such Right of First Refusal, specifying the number of Shares to be purchased by the Company or its designee (as the case may be). Notwithstanding the foregoing, the Company may elect to offset against and deduct from any payment of the purchase price any indebtedness then owed by Purchaser to the Company. (d) CLOSING FOR PURCHASE OF SHARES. In the event the Company elects to acquire Shares of the Purchaser as specified in the Transfer Notice, the Secretary of the Company shall so notify the Purchaser and settlement thereof shall be made in cash within forty-five (45) days after the Secretary of the Company receives the Transfer Notice, provided that if the terms of payment set forth in the Transfer Notice were other than cash against delivery, the Company shall pay for said Shares on the same terms and conditions set forth in the Transfer Notice. (e) TRANSFERS FREE OF RIGHT OF FIRST REFUSAL. If the Vested Shares referred to in the Transfer Notice are not purchased as aforesaid by the Company, or its designee(s), Purchaser, within a period of ninety (90) days from the date of delivery of the Transfer Notice to the Company, may sell any of said Vested A-3 Shares to any person named in the Transfer Notice at the price and on the terms specified in the Transfer Notice, or at a higher price or on terms more favorable to the Purchaser, provided that such sale or transfer is consummated within ninety (90) days following the date of delivery of the Transfer Notice to the Company and, provided further, that such sale is in accordance with all the terms and conditions hereof. The transferee will hold all Shares transferred hereunder subject to the provisions of this Agreement. No transfer of the Vested Shares shall be made after the end of such ninety (90)-day period, nor shall any change in the terms of the transfer be permitted, without delivery by the Purchaser to the Company of a new Transfer Notice in compliance with the requirements of this Section 4. (f) GIFTS OF SHARES. Notwithstanding any other term of this Section 4, Purchaser may make a gift of all or any part of the Shares to any of Purchaser's parents, spouse, or issue, or to a trust for the exclusive benefit of any of the foregoing parties. The donee or donees shall hold such Shares subject to all the provisions of this Agreement. 5. ASSIGNMENT OF RIGHTS. The Company may assign its rights under Sections 2, 3, and 4 hereof to one or more persons or entities, who shall have the right to so exercise such rights in his or its own name and for his or its own account. If any such transfer of the Shares requires the consent of any agency pursuant to the securities laws of any state, the time periods specified herein shall be extended for such period as the necessary request for consent to transfer is pending before such agency. All parties agree to cooperate in making such request for transfer, and no transfer shall be executed without such consent if required by law. 6. TERMINATION OF RESTRICTIONS. (a) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal shall terminate: (i) on the termination of this Agreement; (ii) at such time as a public market exists for the Company's Common Stock. For the purpose of this Agreement, a "public market" shall be deemed to exist if (i) said Common Stock is listed on a national securities exchange (as that term is used in the Securities Exchange Act of 1934), or (ii) said Common Stock is listed on the Nasdaq Stock Market or is traded on the over-the-counter market and prices are published daily on business days in a recognized financial journal; or (iii) if more than fifty percent (50%) of the outstanding shares of the Company's capital stock entitled to vote are sold, redeemed or exchanged in any (i) merger, consolidation, or reorganization involving the Company and one or more unaffiliated corporations, (ii) exchange of capital stock of the Company for stock of any unaffiliated corporation, or (iii) sale of all or substantially all of the assets of the Company to an unaffiliated corporation. For purposes of this subsection, an "unaffiliated corporation" means any corporation that is not controlled by or under common control with, directly or indirectly, the Company excluding for this purpose control established merely by common directorships. A-4 (b) RELEASE OF SHARES FROM REPURCHASE OPTION. The number of Shares subject to the Repurchase Option will decline as set forth in Section 2(b), and the Repurchase Option shall terminate following the expiration of the notice specified in Section 2(d). The Company shall within ten (10) days following Purchaser's written request to the Secretary of the Company, which may be made once in any twelve (12) month calendar period, release and deliver to Purchaser a certificate representing that number of Shares which is no longer subject to the Repurchase Option, or such lesser number of Shares as Purchaser may have specified in such request. The Company shall cause new certificates to be issued as necessary to effectuate the release and delivery of such Shares to Purchaser. 7. LEGENDS. (a) ENDORSEMENT ON CERTIFICATES. The certificates representing the Shares subject to this Agreement shall be endorsed with a legend substantially in the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OR HIS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. THE AGREEMENT MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE COMPANY DURING NORMAL BUSINESS HOURS. (b) TERMINATION OF ALL RESTRICTIONS. In the event the restrictions imposed by this Agreement shall be terminated as herein provided, a new certificate or certificates representing the Shares shall be issued, on request, without the legend referred to in Subsection 7(a). (c) SECURITIES LAW LEGENDS. Any transfer or sale of the Shares is further subject to all restrictions on transfer imposed by state or federal securities laws. Accordingly, it is understood and agreed that the certificates representing the Shares shall bear any legends required by such state or federal securities laws. 8. DISSOLUTION OF MARRIAGE. (a) PURCHASE OF SHARES FROM FORMER SPOUSE. In the event of the dissolution of Purchaser's marriage, Purchaser shall have the right and option to purchase from his or her spouse all of the Shares (i) awarded to the spouse pursuant to a decree of dissolution of marriage or any other order by any court of competent jurisdiction and/or by any property settlement agreement (whether or not incorporated by reference in any such decree), or (ii) gifted to the spouse by Purchaser prior to the dissolution, at the fair market value of said Shares as determined by the Company's Board of Directors, upon the terms set forth below. If either Purchaser or Purchaser's spouse disputes the fair market valuation of the Shares determined by the Board of Directors, such fair market value shall be determined by arbitration in accordance with the rules of the American Arbitration Association. Purchaser shall exercise his or her right, if at all, within thirty (30) days following the entry of any such decree or property settlement agreement by delivery to Purchaser's former spouse of written notice of A-5 exercise, specifying the number of Shares Purchaser elects to purchase. The purchase price for the Shares shall be paid by delivery of a promissory note for the purchase price bearing interest at the rate of ten percent (10%) per annum payable in four (4) equal annual installments of principal and interest, commencing on the anniversary date of the exercise of the option, PROVIDED, HOWEVER, that if, subsequent to the date any or all of the Shares is awarded to Purchaser's former spouse as provided above, the Company exercises its Repurchase Option with respect to any or all of the Shares so awarded, the amount remaining due under such promissory note shall be reduced by the difference between the fair market value of such Shares determined as set forth above and the amount received by Purchaser for such Shares upon exercise by the Company of the Repurchase Option. (b) TRANSFER OF RIGHTS TO COMPANY. In the event Purchaser does not exercise his or her right to purchase all of the Shares awarded to Purchaser's former spouse, Purchaser shall provide written notice to the Company of the number of Shares available for purchase within thirty (30) days of the entry of the decree or property settlement agreement. Subject to the provisions of Section 166 and Chapter 5 of the General Corporation Law of California, the Company shall then have the right to purchase any of the Shares not acquired by the Purchaser directly from Purchaser's former spouse in the manner provided in Sections 4(b)-4(e) above at the same price and on the same terms that were available to Purchaser. 9. CONSENT OF SPOUSE. If Purchaser is married on the date of this Agreement, Purchaser's spouse shall execute a Consent of Spouse in the form of Exhibit A hereto, effective on the date hereof. Such consent shall not be deemed to confer or convey to the spouse any rights in the Shares that do not otherwise exist by operation of law or the agreement of the parties. If Purchaser should marry or remarry subsequent to the date of this Agreement, Purchaser shall within thirty (30) days thereafter obtain his or her new spouse's acknowledgment of and consent to the existence and binding effect of all restrictions contained in this Agreement by signing a Consent of Spouse in the form of Exhibit A. 10. PURCHASER'S REPRESENTATIONS. In connection with the purchase of the Shares, Purchaser hereby represents and warrants to the Company as follows: (a) INVESTMENT INTENT; CAPACITY TO PROTECT INTERESTS. Purchaser is purchasing the Shares solely for his or her own account for investment and not with a view to or for sale in connection with any distribution of the Shares or any portion thereof and not with any present intention of selling, offering to sell or otherwise disposing of or distributing the Shares or any portion thereof in any transaction other than a transaction exempt from registration under the Act. Purchaser also represents that the entire legal and beneficial interest of the Shares is being purchased, and will be held, for Purchaser's account only, and neither in whole or in part for any other person. Purchaser either (i) has a pre-existing business or personal relationship with the Company or any of its officers, directors or controlling persons, or (ii) by reason of Purchaser's business or financial experience or the business or financial experience of Purchaser's professional advisors who are unaffiliated with and who are not compensated by the Company or any affiliate or selling agent of the Company, directly or indirectly, could be reasonably assumed to have the capacity to evaluate the merits and risks of an investment in the Company and to protect Purchaser's own interests in connection with this transaction. A-6 (b) INFORMATION CONCERNING COMPANY. Purchaser has heretofore discussed the Company and its plans, operations and financial condition with the Company's officers and has heretofore received all such information as Purchaser has deemed necessary and appropriate to enable Purchaser to evaluate the financial risk inherent in making an investment in the Shares, and Purchaser has received satisfactory and complete information concerning the business and financial condition of the Company in response to all inquiries in respect thereof. (c) ECONOMIC RISK. Purchaser realizes that the purchase of the Shares will be a highly speculative investment and involves a high degree of risk, and Purchaser is able, without impairing his or her financial condition, to hold the Shares for an indefinite period of time and to suffer a complete loss on Purchaser's investment. (d) RESTRICTED SECURITIES. Purchaser understands and acknowledges that: (i) the sale of the Shares has not been registered under the Act, and the Shares must be held indefinitely unless subsequently registered under the Act or an exemption from such registration is available and the Company is under no obligation to register the Shares; (ii) the share certificate representing the Shares will be stamped with the legends specified in Section 7 hereof; and (iii) the Company will make a notation in its records of the aforementioned restrictions on transfer and legends. (e) DISPOSITION UNDER RULE 144. Purchaser understands that the Shares are restricted securities within the meaning of Rule 144 promulgated under the Act; that unless the Shares have been issued pursuant to the exemption provided by Rule 701, the exemption from registration under Rule 144 will not be available in any event for at least two years from the date of purchase and payment of the Shares (AND THAT PAYMENT BY A NOTE IS NOT DEEMED PAYMENT UNLESS IT IS SECURED BY ASSETS OTHER THAN THE SHARES) and even then will not be available unless: (i) a public trading market then exists for the Common Stock of the Company; (ii) adequate information concerning the Company is then available to the public; and (iii) other terms and conditions of Rule 144 are complied with; and that any sale of the Shares may be made only in limited amounts in accordance with such terms and conditions. (f) FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting his representations set forth above, Purchaser further agrees that he shall in no event make any disposition of all or any portion of the Shares unless and until: (i) (A) There is then in effect a Registration Statement under the Act covering such proposed disposition and such disposition is made in accordance with said Registration Statement; OR, (B)(1) Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, (2) Purchaser shall have furnished the Company with an opinion of the Purchaser's A-7 counsel to the effect that such disposition will not require registration of such shares under the Act, AND (3) such opinion of Purchaser's counsel shall have been concurred in by counsel for the Company and the Company shall have advised Purchaser of such concurrence; AND, (ii) The Shares proposed to be transferred are no longer subject to the Repurchase Option set forth in Section 2 hereof and Purchaser shall have complied with the Right of First Refusal set forth in Section 4 hereof. 11. FREEDOM OF ACTION BY IBM. Purchaser acknowledges and agrees that he or she is familiar with the provisions of the Restated Certificate of Incorporation of the Company, Exhibit A to the Plan, including Article VII thereof, which defines the rights of International Business Machines Corporation, a New York corporation ("IBM"), as a substantial shareholder of the Company with respect to freedom of action by IBM to compete with the Company and other matters. 12. ESCROW. As security for his faithful performance of the terms of this Agreement and to ensure the availability for delivery of Purchaser's Shares upon exercise of the Repurchase Option herein provided for, Purchaser agrees to deliver to and deposit with Graham & James LLP, legal counsel to the Company (the "Escrow Agent"), as Escrow Agent in this transaction, two Stock Assignments duly endorsed (with date and number of Shares blank) in the form attached hereto as Exhibit B, together with the certificate or certificates evidencing the Shares; said documents are to be held by the Escrow Agent pursuant to the Joint Escrow Instructions of the Company and Purchaser set forth in Exhibit C attached hereto and incorporated by this reference, which instructions shall also be delivered to the Escrow Agent at the closing hereunder. 13. COMPLIANCE WITH INCOME TAX LAWS. Purchaser authorizes the Company to withhold in accordance with applicable law from any compensation payable to him or her any taxes required to be withheld by Federal, state or local laws as a result of the purchase of the Shares. Furthermore, in the event of any determination that the Company has failed to withhold a sum sufficient to pay all withholding taxes due in connection with the purchase of the Shares, Purchaser agrees to pay the Company the amount of such deficiency in cash within five (5) days after receiving a written demand from the Company to do so, whether or not Purchaser is an employee of the Company at that time. 14. ELECTION PURSUANT TO SECTION 83(b) OF INTERNAL REVENUE CODE OF 1986, AS AMENDED. Purchaser shall be responsible for filing with the Internal Revenue Service an appropriate written notice of election pursuant to Section 83(b) of the Code, if Purchaser wishes to make such an election. Purchaser shall notify the Company in writing if Purchaser files such an election within thirty (30) days of the date of the sale herein contemplated. The Company intends, in the event it does not receive from Purchaser evidence of such filing, to claim a tax deduction for any amount which would otherwise be taxable to Purchaser in the absence of such an election. 15. "MARKET STAND-OFF" AGREEMENT. Purchaser hereby agrees that he or she shall not, to the extent reasonably requested by the Company and an underwriter of Common Stock (or other securities) of the Company, sell or otherwise transfer or dispose (other than to donees who agree to be similarly bound) of any Shares during the one hundred eighty (180)-day period following the effective date of a A-8 registration statement of the Company filed under the Securities Act; provided, however, that: (i) all officers and directors of the Company and all other persons with registration rights enter into similar agreements; and (ii) such agreement shall be applicable only to the first such registration statement of the Company which covers shares (or securities) to be sold on its behalf to the public in an underwritten offering. Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Shares of each Shareholder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such one hundred eighty (180)-day period. 16. ENFORCEMENT. Purchaser agrees that a violation on his or her part of any of the terms of this Agreement (other than those contained in Sections 12 and 13, above) may cause irreparable damage to the Company, the exact amount of which is impossible to ascertain, and for that reason agrees that the Company shall be entitled to exercise its right to effect a repurchase and transfer of the Shares pursuant to Section 2 hereof or to a decree of specific performance of the terms hereof or an injunction restraining further violation, said right to be in addition to any other remedies of said parties. 17. CONTROLLING PROVISIONS. To the extent that there may be any conflict between the provisions of this Agreement and the provisions contained in the Company's Bylaws on the transfer or restriction on transfer of Shares, the terms of this Agreement shall be controlling. This Agreement may not be modified except by a writing signed by the party to be bound. 18. OWNERSHIP, VOTING RIGHTS, DUTIES. This Agreement shall not affect in any way the ownership, voting rights or other rights or duties of Purchaser, except as specifically provided herein. 19. NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery or on the day sent by facsimile transmission if a true and correct copy is sent the same day by first class mail, postage prepaid, or by dispatch by an internationally recognized express courier service. 20. BINDING EFFECT. This Agreement shall inure to the benefit of the Company and its successors and assigns and, subject to the restrictions on transfer set forth herein, be binding upon Purchaser, his permitted transferees, heirs, legatees, executors, administrators and legal successors, who shall hold the Shares subject to the terms hereof. 21. GOVERNING LAW. This Agreement, together with the exhibits hereto, shall be governed by and construed in accordance with the laws of the State of California, as such laws are applied to contracts entered into by residents of such state and performed in such state. 22. ENTIRE AGREEMENT. This Agreement supersedes all previous written or oral agreements between the parties regarding the subject matter hereof, and constitutes the entire agreement of the parties regarding such subject matter. This A-9 Agreement may not be modified or terminated except by a writing executed by all of the parties hereto. 23. NOT EMPLOYMENT CONTRACT. Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Purchaser or the Company to terminate Purchaser's employment, for any reason or for no reason, with or without cause, subject to the provisions of applicable law. This Agreement is not an employment contract. 24. GENDER. The masculine, feminine or neuter pronouns used herein shall be interpreted without regard to gender. 25. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 26. SEVERABILITY. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way and shall be construed in accordance with the purposes and tenor and effect of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. NETOBJECTS, INC. PURCHASER By: By: ------------------------- --------------------------- Title: Address: ---------------------- ---------------------- ------------------------------ ------------------------------ EXHIBIT A CONSENT OF SPOUSE I, ________________, spouse of ________________, acknowledge that I have read the Restricted Stock Purchase Agreement dated as of _______________, 19__, to which this Consent is attached as Exhibit A (the "Agreement") and that I know its contents. I am aware that by its provisions (a) my spouse and NetObjects, Inc. (the "Company") have the option to purchase all the Shares of the Company of which I may become possessed as a result of a gift from my spouse or a court decree and/or any property settlement in any domestic litigation, (b) the Company has the option to purchase certain Shares of the Company which my spouse owns pursuant to the Agreement including any interest I might have therein, upon termination of his A-10 employment under circumstances set forth in the Agreement, and (c) certain other restrictions are imposed upon the sale or other disposition of the Shares. I hereby agree that my interest, if any, in the Shares subject to the Agreement shall be irrevocably bound by the Agreement and further understand and agree that any community property interest I may have in the Shares shall be similarly bound by the Agreement. I agree to the sale and purchase described in Section 8 of the Agreement and I hereby consent to the sale of the Shares by my spouse or his legal representative in accordance with the provisions of the Agreement. Further, as part of the consideration for the Agreement, I agree that at my death, if I have not disposed of any interest of mine in the Shares by an outright bequest of said shares to my spouse, then my spouse and the Company shall have the same rights against my legal representative to purchase any interest of mine in the Shares as they would have had pursuant to Section 8 of the Agreement if I had acquired the Shares pursuant to a court decree in domestic litigation. I AM AWARE THAT THE LEGAL, FINANCIAL AND RELATED MATTERS CONTAINED IN THE AGREEMENT ARE COMPLEX AND THAT I AM FREE TO SEEK INDEPENDENT PROFESSIONAL GUIDANCE OR COUNSEL WITH RESPECT TO THIS CONSENT. I HAVE EITHER SOUGHT SUCH GUIDANCE OR COUNSEL OR DETERMINED AFTER REVIEWING THE AGREEMENT CAREFULLY THAT I WILL WAIVE SUCH RIGHT. Dated as of the ______ of ____________, 19__. _________________________________ A-11 EXHIBIT B ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, ____________________________ hereby sells, assigns and transfers unto _____________________________ __________________ (___________) shares of the Common Stock of NetObjects, Inc., a Delaware corporation, standing in the undersigned's name on the books of said corporation represented by Certificate No. _______________, and do hereby irrevocably constitute and appoint ______________________________ as the undersigned's agent and attorney-in-fact to transfer the said stock on the books of the said corporation with full power of substitution in the premises. Dated:_______________ , 19 __ _______________________________ A-12 EXHIBIT B ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, ____________________________ hereby sells, assigns and transfers unto _____________________________ __________________ (___________) shares of the Common Stock of NetObjects, Inc., a Delaware corporation, standing in the undersigned's name on the books of said corporation represented by Certificate No. _______________, and do hereby irrevocably constitute and appoint ______________________________ as the undersigned's agent and attorney-in-fact to transfer the said stock on the books of the said corporation with full power of substitution in the premises. Dated:________________, 19__ _______________________________ A-13 EXHIBIT C JOINT ESCROW INSTRUCTIONS ___________, 199_ Graham & James LLP 600 Hansen Way Palo Alto, California 94304 Attn: Alan B. Kalin, Esq. Gentlemen: As Escrow Agent for both NetObjects, Inc., a Delaware corporation (the "Company"), and the undersigned purchaser of common stock (the "Shares") of the Company (the "Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement (the "Agreement"), dated as of the date hereof, to which a copy of these Joint Escrow Instructions is attached as Exhibit C, in accordance with the following instructions: 1. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") shall elect to exercise the Repurchase Option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of Shares to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. 2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of Shares being transferred, and (c) to deliver same, together with the certificates evidencing the Shares to be transferred, to the Company against the simultaneous delivery to you of the purchase price (by check or evidence of cancellation of indebtedness of Purchaser to the Company) for the number of Shares being purchased pursuant to the exercise of the Repurchase Option. 3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing the Shares to be held by you hereunder and any additions and substitutions to said Shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as his attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all stock certificates, stock assignments, or other documents necessary or appropriate to make such securities A-14 negotiable and complete any transaction herein contemplated. Subject to the provisions of this Section 3, Purchaser shall exercise all rights and privileges of a shareholder of the Company while the Shares are held by you. 4. This escrow shall terminate at such time as there are no longer any Shares subject to the Repurchase Option. 5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of same to Purchaser and shall be discharged of all further obligations hereunder. 6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. 7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and in the exercise of your own good judgment, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. 8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or company, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree of any court, you shall not be liable to any of the parties hereto or to any other person, firm or company by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 9. You shall not be liable in any respect on account of any failure to confirm the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. 10. You shall not be liable for the outlawing of any rights under the Statute of Limitations with respect to these Joint Escrow Instructions or any documents deposited with you. 11. You shall be entitled to employ such legal counsel and other experts as you may deem necessary or proper to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. 12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be counsel to the Company or if you shall resign by written notice to A-15 each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent. 13. If you reasonably require other or further instructions in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or rights of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree, or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. 15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties entitled to such notice at the following addresses, or at such other addresses as a party may designate by ten (10) days' advance written notice to each of the other parties hereto. COMPANY: NetObjects, Inc. 2055 Woodside Road, Suite 250 Redwood City, CA 94061 PURCHASER: ----------------------------------- Address: ------------------------ ------------------------ ESCROW AGENT: Graham & James LLP 600 Hansen Way Palo Alto, California 94304-1043 Attn: Alan B. Kalin, Esq. 16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement. A-16 17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. Very truly yours, NetObjects, Inc. a Delaware corporation By: --------------------------- Title: -------------------------- PURCHASER: ------------------------------- Agreed to and accepted as of the date set forth above. ESCROW AGENT: By: --------------------------- Alan B. Kalin, as Escrow Agent A-17 EX-10.1-4 17 EXHIBIT 10.1.4 EXHIBIT B NETOBJECTS, INC. RESTRICTED STOCK TRANSFER AGREEMENT THIS AGREEMENT is made and entered into as of ______________, ____ between NetObjects, Inc., a Delaware corporation (the "Company") and ______________ ("Purchaser"), the holder of stock options under the 1997 Special Stock Option Plan (the "Plan") pursuant to a Stock Option Agreement dated ______________, ____ (the "Option Agreement"). A. Pursuant to the exercise of stock options granted to the Purchaser by the Company in the Option Agreement, the Purchaser has elected to purchase __________ shares of the Company's Common Stock (the "Shares") for a total purchase price of $____________. B. As provided in the Option Agreement, Purchaser must execute this Agreement giving the Company a right of first refusal on all sales of Shares by Purchaser upon the terms and conditions stated herein and making certain representations regarding his purchase of the Shares as required by the Company pursuant to applicable federal and state securities laws. C. Unless otherwise provided expressly herein, defined terms under the Plan when used herein shall have the meanings ascribed to them under the Plan. In consideration of the mutual covenants exchanged, the parties agree as follows: 1. RESTRICTIONS ON TRANSFER; RIGHT OF FIRST REFUSAL. (a) NO TRANSFER OF SHARES SUBJECT TO REPURCHASE OPTION. Purchaser shall not sell, transfer, pledge, assign or otherwise dispose of any of the Shares except in accordance with the provisions of this Agreement. (b) RIGHT OF FIRST REFUSAL. Should Purchaser wish to transfer any of the Shares, or any interest in such Shares, Purchaser shall first deliver a written notice (the "Transfer Notice") to the Company, which shall have the option to purchase such shares as provided herein (the "Right of First Refusal"). As used herein, the term "transfer" means any sale, assignment, gift, hypothecation, alienation or other disposition (including any involuntary transfer of the Shares (or part of them) to a creditor) to any individual, entity, government, government agency, political subdivision or unincorporated association. The Transfer Notice must specify: (i) that Purchaser has a bona fide intention to sell or transfer such Shares; (ii) the name and address of the person or firm to whom the Purchaser intends to transfer the Shares, or interest 1 therein; (iii) the number of Shares, or interest therein, Purchaser proposes to transfer; (iv) the price or amount to be paid for the proposed transfer (including the amount of any debt to be paid, cancelled or forgiven upon foreclosure of a security interest in the Shares or upon any other transfer to the Purchaser's creditors); and (v) all other material terms and conditions of the proposed transfer. (c) ELECTION TO PURCHASE SHARES. Within thirty (30) days after receipt of the Transfer Notice, the Company or its designee (as the case may be) may elect to purchase all, but not less than all, of the Shares to which the Transfer Notice refers at the per share price specified in the Transfer Notice. If no price is specified in the Transfer Notice, the purchase price shall be the fair market value of the Shares, as determined in good faith by the Board of Directors of the Company. Such Right of First Refusal shall be exercised by delivery to the Purchaser by the Company or its designee, of a written election to exercise such Right of First Refusal, specifying the number of Shares to be purchased by the Company or its designee (as the case may be). Notwithstanding the foregoing, the Company may elect to offset against and deduct from any payment of the purchase price any indebtedness then owed by Purchaser to the Company. (d) CLOSING FOR PURCHASE OF SHARES. In the event the Company elects to acquire Shares of the Purchaser as specified in the Transfer Notice, the Secretary of the Company shall so notify the Purchaser and settlement thereof shall be made in cash within forty-five (45) days after the Secretary of the Company receives the Transfer Notice, provided that if the terms of payment set forth in the Transfer Notice were other than cash against delivery, the Company shall pay for said Shares on the same terms and conditions set forth in the Transfer Notice. (e) TRANSFERS FREE OF RIGHT OF FIRST REFUSAL. If the Shares referred to in the Transfer Notice are not purchased as aforesaid by the Company, or its designee(s), Purchaser, within a period of ninety (90) days from the date of delivery of the Transfer Notice to the Company, may sell any of said Shares to any person named in the Transfer Notice at the price and on the terms specified in the Transfer Notice, or at a higher price or on terms more favorable to the Purchaser, provided that such sale or transfer is consummated within ninety (90) days following the date of delivery of the Transfer Notice to the Company and, provided further, that such sale is in accordance with all the terms and conditions hereof. The transferee will hold all Shares transferred hereunder subject to the provisions of this Agreement. No transfer of the Shares shall be made after the end of such ninety (90)-day period, nor shall any change in the terms of the transfer be permitted, without delivery by the Purchaser to the Company of a new Transfer Notice in compliance with the requirements of this Section 4. (f) GIFTS OF SHARES. Notwithstanding any other term of this Section 4, Purchaser may make a gift of all or any part of the Shares to any of Purchaser's parents, spouse, or issue, or to a trust for the exclusive benefit of any of the foregoing parties. The donee or donees shall hold such Shares subject to all the provisions of this Agreement. 2 2. PROCEDURE FOR PURCHASE OF THE SHARES. (a) The closing for the purchase of the Shares hereunder shall take place at the Company's principal offices within forty-five (45) days of the Company's receipt of the Notice. At the closing, the holder of the certificate(s) representing the Shares being transferred shall deliver said certificate or certificates evidencing the Shares to the Company, duly endorsed for transfer, and the Company shall deliver the purchase price. The purchase price shall be payable in full in cash, or by certified check or cashier's check, provided that the Company may elect to offset against and deduct from any payment of the purchase price any indebtedness then owed by Purchaser to the Company. (b) As security for the faithful performance of the terms of this Agreement and to ensure the availability for delivery of Purchaser's Shares upon the exercise of the Company's purchase option by the Company or its designee, Purchaser agrees to deliver and deposit with the Secretary of the Company two Stock Assignments duly endorsed (with date and number of shares blank). Purchaser hereby constitutes and appoints the Secretary of the Company as his attorney-in-fact and agent to transfer Shares as to which the Company's purchase option has been exercised hereunder if the Company or its designee has tendered the purchase price for the Shares to Purchaser at the address set forth herein or as otherwise noticed in writing and, in connection therewith: (i) to date the stock assignment(s) necessary for the transfer in question; (i) to fill in the number of shares being transferred; and (iii) to deliver a certificate representing the shares being purchased to the Company or its designee. Purchaser further authorizes the Company to refuse, or to cause its transfer agent to refuse, to transfer of record any stock attempted to be transferred in violation of this Agreement. Purchaser agrees that the foregoing power of attorney is coupled with an interest, is irrevocable and shall survive Purchaser's death, insanity, incapacity, bankruptcy or insolvency. (c) If any transfer of the Shares requires the consent of any agency pursuant to the securities laws of any state, the time periods specified herein shall be extended for such periods as the necessary request for consent to transfer is pending before such agency. All parties agree to cooperate in making such request for transfer, and no transfer shall be effected without such consent if required by law. 3. EXEMPT TRANSFERS. Notwithstanding any other term of this Agreement, Purchaser may make a gift of all or part of the Shares to any of his parents, spouse or issue, or to a trust for his or their exclusive benefit. The donee or donees shall hold such Shares subject to all provisions of this Agreement. 4. TERMINATION OF RESTRICTIONS. The restrictions on transfer imposed by Section 1 of this Agreement shall terminate: 3 (i) on the termination of this Agreement; (ii) at such time as a public market exists for the Company's Common Stock. For the purpose of this Agreement, a "public market" shall be deemed to exist if (i) said Common Stock is listed on a national securities exchange (as that term is used in the Securities Exchange Act of 1934), or (ii) said Common Stock is listed on the Nasdaq Stock Market or is traded on the over-the-counter market and prices are published daily on business days in a recognized financial journal; or (ii) if the Company dissolves, or if more than fifty percent (50%) of the outstanding shares of the Company's capital stock entitled to vote are sold, redeemed or exchanged in any (i) merger, consolidation, or reorganization involving the Company and one or more unaffiliated corporations, (ii) exchange of capital stock of the Company for stock of any unaffiliated corporation, provided that the security holders of the Company receive in exchange for the Company's capital stock securities for which a public market exists, or (iii) sale of all or substantially all of the assets of the Company to an unaffiliated corporation. For purposes of this subsection, an "unaffiliated corporation" means any corporation that is not controlled by or under common control with, directly or indirectly, the Company or any or all of its shareholders. 5. ENDORSEMENT ON CERTIFICATES. (a) The certificates representing the Shares subject to this Agreement shall be endorsed with a legend substantially in the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A RESTRICTED STOCK TRANSFER AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OR HIS PREDECESSOR IN INTEREST, A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY. (b) Any transfer or sale of the Shares is further subject to any restrictions on transfer imposed by state or Federal securities laws. Accordingly, it is understood and agreed that the certificates representing the Shares shall bear any legends required by the securities laws of any state or by Federal securities laws. 6. PURCHASER'S REPRESENTATIONS. In connection with his purchase of the Shares, Purchaser hereby represents and warrants to the Company as follows: (a) INVESTMENT INTENT; CAPACITY TO PROTECT INTERESTS. Purchaser is purchasing the Shares solely for his or her own account for investment and not with a view to or for sale in connection with any distribution of the Shares or any portion thereof and not with any present intention of selling, offering to sell or otherwise 4 disposing of or distributing the Shares or any portion thereof in any transaction other than a transaction exempt from registration under the Securities Act of 1933, as amended (the "Act"). Purchaser also represents that the entire legal and beneficial interest of the Shares is being purchased, and will be held, for Purchaser's account only, and neither in whole or in part for any other person. Purchaser either (i) has a pre-existing business or personal relationship with the Company or any of its officers, directors or controlling persons or (ii) by reason of Purchaser's business or financial experience or the business or financial experience of Purchaser's professional advisors who are unaffiliated with and who are not compensated by the Company or any affiliate or selling agent of the Company, directly or indirectly, could be reasonably assumed to have the capacity to evaluate the merits and risks of an investment in the Company and to protect Purchaser's own interests in connection with this transaction. (b) INFORMATION CONCERNING COMPANY. Purchaser has heretofore discussed the Company and its plans, operations and financial condition with the Company's officers and has heretofore received all such information as Purchaser has deemed necessary and appropriate to enable Purchaser to evaluate the financial risk inherent in making an investment in the Shares, and Purchaser has received satisfactory and complete information concerning the business and financial condition of the Company in response to all inquiries in respect thereof. (c) ECONOMIC RISK. Purchaser realizes that the purchase of the Shares will be a highly speculative investment and involves a high degree of risk, and Purchaser is able, without impairing his financial condition, to hold the Shares for an indefinite period of time and to suffer a complete loss on Purchaser's investment. (d) RESTRICTED SECURITIES. Purchaser understands and acknowledges that: (i) the sale of the Shares has not been registered under the Act, and the Shares must be held indefinitely unless subsequently registered under the Act or an exemption from such registration is available and the Company is under no obligation to register the Shares; (ii) the share certificate representing the Shares will be stamped with the legends specified in Section 5 hereof; and (iii) the Company will make a notation in its records of the aforementioned restrictions on transfer and legends. (e) DISPOSITION UNDER RULE 144. Purchaser understands that the Shares are restricted securities within the meaning of Rule 144 promulgated under the Act; that unless the Shares have been issued pursuant to Rule 701 promulgated under the Act the exemption from registration under Rule 144 will not be available in any event for at least [one year] from the date of purchase and payment of the Shares and even then will not be available unless: (i) a public trading market then exists for the 5 Common Stock of the Company; (ii) adequate information concerning the Company is then available to the public; and (iii) other terms and conditions of Rule 144 are complied with; and that any sale of the Shares may be made only in limited amounts in accordance with such terms and conditions. (f) FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting his representations set forth above, Purchaser further agrees that he shall in no event make any disposition of all or any portion of the Shares unless and until: (i) (A) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with said registration statement; OR (B)(1) Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, (2) Purchaser shall have furnished the Company with an opinion of Purchaser's counsel to the effect that such disposition will not require registration of such shares under the Act, and (3) such opinion of the Purchaser's counsel shall have been concurred in by counsel for the Company and the Company shall have advised Purchaser of such concurrence; AND (ii) Purchaser shall have complied with the right of first refusal set forth in Section 1 hereof. 7. "MARKET STAND-OFF" AGREEMENT. Purchaser hereby agrees that he or she shall not, to the extent reasonably requested by the Company and an underwriter of Common Stock (or other securities) of the Company, sell or otherwise transfer or dispose (other than to donees who agree to be similarly bound) of any Shares during the one hundred eighty (180)-day period following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that: (a) all officers and directors of the Company and all other persons with registration rights enter into similar agreements; and (b) such agreement shall be applicable only to the first such registration statement of the Company which covers shares (or securities) to be sold on its behalf to the public in an underwritten offering. Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Shares of each Shareholder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such one hundred eighty (180)-day period. 8. CONSENT OF SPOUSE. If Purchaser is married on the date of this Agreement, Purchaser's spouse shall execute a Consent of Spouse in the form of Exhibit A hereto, effective on the date hereof. Such consent shall not be deemed to confer or convey to the spouse any rights in the Shares that do not otherwise exist by operation of law or the agreement of the parties. If Purchaser should marry or remarry subsequent to the date of this Agreement, Purchaser shall within thirty (30) days thereafter obtain his or her new spouse's acknowledgment of and consent to the 6 existence and binding effect of all restrictions contained in this Agreement by signing a Consent of Spouse in the form of Exhibit A. 9. ENFORCEMENT. Purchaser agrees that a violation on his or her part of any of the terms of this Agreement may cause irreparable damage to the Company, the exact amount of which is impossible to ascertain, and for that reason agrees that the Company shall be entitled to a decree of specific performance of the terms hereof or an injunction restraining further violation, said right to be in addition to any other remedies of said parties. 10. CONDITIONS UPON ISSUANCE OF SHARES. The Shares shall be subject to the provisions of the Bylaws and the Restated Certificate of Incorporation of the Company as of the date of grant of the Option or the acquisition of the Shares by the Purchaser. The Shares shall be subject to all amendments to the By-laws and Certificate of Incorporation made thereafter which affect the Common Stock generally. Shares shall not be issued with respect to an Option granted under the Plan unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. To the extent that there may be any conflict between the provisions of this Agreement and any provisions contained in the Company's Bylaws on the transfer or restriction on transfer of Shares, the terms of this Agreement shall be controlling. This Agreement may not be modified except by a writing signed by the party to be bound. 11. OWNERSHIP, VOTING RIGHTS, DUTIES. This Agreement shall not affect in any way the ownership, voting rights or other rights or duties of Purchaser, except as specifically provided herein. 12. NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery or on the day sent by facsimile transmission if a true and correct copy is sent the same day by first class mail, postage prepaid, or by dispatch by an internationally recognized express courier service, to the proper parties at the appropriate business addresses. 13. BINDING EFFECT. This Agreement shall apply to and be binding upon Purchaser, his permitted transferees, heirs, legatees, executors, administrators and legal successors, who shall hold the Shares subject to the terms hereof, and is for the benefit of the Company and its successors and assigns. 14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties with respect to the subject matter of this Agreement. 7 15. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 16. APPLICABLE LAW. This Agreement shall be governed by and construed under the laws of the State of California as such laws are applied to contracts entered into and performed in such state. ATTORNEYS' FEES. In the event of litigation brought by either party to enforce the provisions of this Agreement or for damages based upon the breach thereof, the prevailing party shall be entitled to recover his costs and reasonable attorneys' fees, as determined by the court. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. NETOBJECTS, INC. PURCHASER By: ---------------------------- --------------------------------------- Title: Address: ------------------------- -------------------------- -------------------------- -------------------------- PURCHASER'S SPOUSE ---------------------------------- 8 EXHIBIT A CONSENT OF SPOUSE I, ________________, spouse of ______________________, acknowledge that I have read the Restricted Stock Transfer Agreement dated as of _______________, 19__, to which this Consent is attached as Exhibit A (the "Agreement") and that I know its contents. I am aware that by its provisions (a) my spouse and NetObjects, Inc. (the "Company") have the option to purchase all the Shares of the Company of which I may become possessed as a result of a gift from my spouse or a court decree and/or any property settlement in any domestic litigation, (b) the Company has the option to purchase certain Shares of the Company which my spouse owns pursuant to the Agreement including any interest I might have therein, upon termination of his employment under circumstances set forth in the Agreement, and (c) certain other restrictions are imposed upon the sale or other disposition of the Shares. I hereby agree that my interest, if any, in the Shares subject to the Agreement shall be irrevocably bound by the Agreement and further understand and agree that any community property interest I may have in the Shares shall be similarly bound by the Agreement. Dated as of the ______ of ____________, 19__. --------------------------------------- ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, ____________________________ hereby sells, assigns and transfers unto _____________________________ __________________ (___________) shares of the Common Stock of NetObjects, Inc., a Delaware corporation, standing in the undersigned's name on the books of said corporation represented by Certificate No. _______________, and do hereby irrevocably constitute and appoint ______________________________ as the undersigned's agent and attorney-in-fact to transfer the said stock on the books of the said corporation with full power of substitution in the premises. Dated:____________, 19______ -------------------------------------------- ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, ____________________________ hereby sells, assigns and transfers unto _____________________________ __________________ (___________) shares of the Common Stock of NetObjects, Inc., a Delaware corporation, standing in the undersigned's name on the books of said corporation represented by Certificate No. _______________, and do hereby irrevocably constitute and appoint ______________________________ as the undersigned's agent and attorney-in-fact to transfer the said stock on the books of the said corporation with full power of substitution in the premises. Dated:____________, 19______ -------------------------------------------- EX-10.2 18 EXHIBIT 10.2 NETOBJECTS, INC. 1997 SPECIAL STOCK OPTION PLAN 1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to Employees of the Company and its Subsidiaries, and to promote the success of the Company's business. Options granted hereunder may be either Incentive Stock Options or Nonstatutory Stock Options at the discretion of the Committee. 2. DEFINITIONS. As used herein, and in any Option granted hereunder, the following definitions shall apply: (a) "BOARD" shall mean the Board of Directors of the Company. (b) "CHANGE OF CONTROL TRANSACTION" shall mean (A) any transaction or series of transactions, in which all stockholders of the Company are entitled to participate (whether as a matter of law or agreement) and pursuant to which shares representing more than 50% of the Company's outstanding voting securities are purchased by a person not controlled by, in control of or under common control with any holder of the Company's outstanding voting securities, (B) the merger or consolidation of the Company with another entity (other than a merger or consolidation in which the holders of voting securities of the Company immediately before the merger or consolidation own, immediately after the merger or consolidation, voting securities of the surviving or acquiring corporation or of a parent party of such surviving or acquiring corporation, possessing more than 50% of the voting power of the surviving or acquiring corporation or parent party) resulting in the exchange of outstanding shares of capital stock of the Company for cash, securities or other property or (C) any merger, sale, lease, license, exchange or other disposition (whether in one transaction or a series of related transactions) or more than 50% of the assets of the Company. (c) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (d) "COMMON STOCK" shall mean the Common Stock of the Company. (e) "COMPANY" shall mean NetObjects, Inc., a Delaware corporation. (f) "COMMITTEE" shall mean the Committee appointed by the Board in accordance with paragraph (a) of Section 4 of the Plan. If the Board does not appoint or ceases to maintain a Committee, the term "Committee" shall refer to the Board. (g) "CONTINUOUS EMPLOYMENT" shall mean the absence of any interruption or termination of service as an Employee by the Company or any Subsidiary. Continuous Employment shall not be considered interrupted during any period of sick leave, military leave or any other leave of absence approved by the Board or in the case of transfers between locations of the Company or between the Company and any Parent, Subsidiary or successor of the Company. (h) "COVERED EMPLOYEE" shall mean any individual whose compensation is subject to the limitations on tax deductibility provided by Section 162(m) of the Code and any Treasury Regulations promulgated thereunder in effect at the close of the taxable year of the Company in which an Option has been granted to such individual. (i) "DISINTERESTED PERSON" shall mean a person who has not at any time within one year prior to service as a member of the Committee (or during such service) been granted or awarded Options or other equity securities pursuant to the Plan or any other plan of the Company or any Parent or Subsidiary. Notwithstanding the foregoing, a member of the Committee shall not fail to be a Disinterested Person merely because he or she participates in a plan meeting the requirements of Section 240.16b-3(c)(2)(i)(A) or (B) of the General Rules and Regulations promulgated under the Exchange Act (the "General Rules and Regulations"). (j) "EMPLOYEE" shall mean any person, including officers (whether or not they are directors), employed by the Company or any Subsidiary. (k) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. (l) "INCENTIVE STOCK OPTION" shall mean any option granted under this Plan and any other option granted to an Employee in accordance with the provisions of Section 422 of the Code, and the regulations promulgated thereunder. (m) "NONSTATUTORY STOCK OPTION" shall mean an Option granted under the Plan that is subject to the provisions of Section 1.83-7 of the Treasury Regulations promulgated under Section 83 of the Code. (n) "OPTION" shall mean a stock option granted pursuant to the Plan. (o) "OPTION AGREEMENT" shall mean a written agreement between the Company and the Optionee regarding the grant and exercise of Options to purchase Shares and the terms and conditions thereof as determined by the Committee pursuant to the Plan. 2 (p) "OPTIONED SHARES" shall mean the Common Stock subject to an Option. (q) "OPTIONEE" shall mean an Employee, Non-Employee Director or Consultant who receives an Option. (r) "OUTSIDE DIRECTOR" shall mean a director of the Company who qualifies as an outside director as such term is used in Section 162(m) of the Code and defined in any applicable Treasury Regulations promulgated thereunder. (s) "PARENT" shall mean a "parent corporation," whether now or hereafter existing, as defined by Section 424(e) of the Code. (t) "PLAN" shall mean this 1997 Stock Option Plan. (u) "REGISTRATION DATE" shall mean the effective date of the first registration of any class of the Company's equity securities pursuant to Section 12 of the Exchange Act. (v) "SECTION 162(m) EFFECTIVE DATE" shall mean the first date as of which the limitations on the tax deductibility of certain compensation provided by Section 162(m) of the Code and any Treasury Regulations promulgated thereunder are applicable to Options granted under the Plan. (w) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. (x) "SHARE" shall mean a share of the Common Stock subject to an Option, as adjusted in accordance with Section 11 of the Plan. (y) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is Six Million Two Hundred Forty-six Thousand Three Hundred Thirty-eight (6,246,338) Shares. The Shares may be authorized but unissued or reacquired shares of Common Stock. If an Option expires or becomes unexercisable for any reason without having been exercised in full, the Shares which were subject to the Option but as to which the Option was not exercised shall become available for other Option grants under the Plan, unless the Plan shall have been terminated. 3 4. ADMINISTRATION OF THE PLAN. (a) PROCEDURE. The Plan shall be administered by the Board. The Board may appoint a Committee consisting of not less than two members of the Board to administer the Plan, subject to such terms and conditions as the Board may prescribe. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and, thereafter, directly administer the Plan. Members of the Board or Committee who are either eligible for Options or have been granted Options may vote on any matters affecting the administration of the Plan or the grant of Options pursuant to the Plan, except that no such member shall act upon the granting of an Option to himself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board or the Committee during which action is taken with respect to the granting of an Option to him or her. The Committee shall meet at such times and places and upon such notice as the chairperson determines. A majority of the Committee shall constitute a quorum. Any acts by the Committee may be taken at any meeting at which a quorum is present and shall be by majority vote of those members entitled to vote. Additionally, any acts reduced to writing or approved in writing by all of the members of the Committee shall be valid acts of the Committee. (b) PROCEDURE AFTER REGISTRATION DATE. Notwithstanding subsection (a) above, after the Registration Date, the Plan shall be administered either by: (i) the full Board, provided that all members of the Board are Disinterested Persons; or (ii) a Committee of two or more directors, each of whom is a Disinterested Person. After such date, the Board shall take all action necessary to administer the Plan so that all transactions involving Options and Shares issued pursuant to the Plan shall be exempt from Section 16(b) of the Exchange Act in accordance with the then effective provisions of Section 240.16b-1 ET SEQ. of the General Rules and Regulations; provided that any amendment to the Plan required for compliance with such provisions shall be made consistent with the provisions of Section 13 of the Plan, and said Rules and Regulations. (c) PROCEDURE AFTER SECTION 162(m) EFFECTIVE DATE. Notwithstanding subsections (a) and (b) above, after the Section 162(m) Effective Date the Plan and all Option grants shall be administered and approved by a Committee comprised solely of two or more Outside Directors. (d) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan, the Committee shall have the authority: (i) to determine, upon review of relevant information, the fair market value of the Common Stock; (ii) to determine the exercise price of Options to be granted, the Employees, Directors or Consultants 4 to whom and the time or times at which Options shall be granted, and the number of Shares to be represented by each Option; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the Plan; (v) to determine the terms and provisions of each Option granted under the Plan (which need not be identical) and, with the consent of the holder thereof, to modify or amend any Option; (vi) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Committee; (vii) to accelerate or (with the consent of the Optionee) defer an exercise date of any Option, subject to the provisions of Section 9(a) of the Plan; (viii) to determine whether Options granted under the Plan will be Incentive Stock Options or Nonstatutory Stock Options; (ix) to make all other determinations deemed necessary or advisable for the administration of the Plan. (e) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations and interpretations of the Committee shall be final and binding on all potential or actual Optionees, any other holder of an Option or other equity security of the Company and all other persons. 5. ELIGIBILITY. (a) PERSONS ELIGIBLE FOR OPTIONS. Options under the Plan may be granted only to Employees whom the Committee, in its sole discretion, may designate from time to time. Incentive Stock Options may be granted only to Employees. An Employee who has been granted an Option, if he or she is otherwise eligible, may be granted an additional Option or Options. As of the Section 162(m) Effective Date, Options under the Plan shall be granted to Covered Employees upon satisfaction of the conditions to such grants provided pursuant to Section 162(m) and any Treasury Regulations promulgated thereunder. However, the aggregate fair market value (determined in accordance with the provisions of Section 8(a) of the Plan) of the Shares subject to one or more Incentive Stock Options that are exercisable for the first time by an Optionee during any calendar year (under all stock option plans of the Company and its Parents and Subsidiaries) shall not exceed $100,000 (determined as of the grant date). To the extent that an Option, or any portion thereof, does not qualify as an Incentive Stock Option under the Code because the aggregate fair market value (determined at the grant date) of the Shares for which such Option or portion thereof first becomes exercisable hereunder will, when added to the aggregate fair market value (determined as of the respective date or dates of grant) of the Shares or other securities for which the Option or one or more other Incentive Stock Options granted to Optionee prior to the grant date (whether under the Plan or any other option plan of the Corporation or any Parent or Subsidiary) first become exercisable during the same calendar year, exceed $100,000 in the aggregate, such option or portion thereof shall constitute an Incentive Stock Option under this Plan in such calendar year only to the 5 extent of such $100,000 limitation. To the extent that the fair market value of the Shares for which this Option first becomes exercisable in any calendar year exceeds such $100,000 limitation, the Option may nevertheless be exercised for those excess Shares in such calendar year as a Nonstatutory Stock Option. (b) NO RIGHT TO CONTINUING EMPLOYMENT. Neither the establishment nor the operation of the Plan shall confer upon any Optionee or any other person any right with respect to continuation of employment or other service with the Company or any Subsidiary, nor shall the Plan interfere in any way with the right of the Optionee or the right of the Company (or any Parent or Subsidiary) to terminate such employment or service at any time. 6. TERM OF PLAN. The Plan shall become effective upon its adoption by the Board or its approval by vote of the holders of the outstanding shares of the Company entitled to vote on the adoption of the Plan (in accordance with the provisions of Section 9 hereof), whichever is earlier. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 7. TERM OF OPTION. Unless the Committee determines otherwise, the term of each Option granted under the Plan shall be ten years from the date of grant. The term of the Option shall be set forth in the Option Agreement. No Incentive Stock Option shall be exercisable after the expiration of ten years from the date such Option is granted, provided that no Incentive Stock Option granted to any Employee who, at the date such Option is granted, owns (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary shall be exercisable after the expiration of five years from the date such Option is granted. 8. OPTION PRICE AND CONSIDERATION. (a) OPTION PRICE. Except as provided in subsections (b) and (c) below, the option price for the Shares to be issued pursuant to any Option shall be such price as is determined by the Committee, which shall in no event be less than the fair market value of such Shares on the date the Option is granted. Fair market value of the Common Stock shall be determined by the Committee, using such criteria as it deems relevant; provided, however, that if there is a public market for the Common Stock, the fair market value per Share shall be the average of the last reported closing prices of the Common Stock on the date of grant, as reported in THE WALL STREET JOURNAL (or, if not so reported, as otherwise reported by Nasdaq) or, in the event the Common Stock is listed on a national securities exchange (within the meaning of Section 6 of the Exchange Act) or on the Nasdaq National Market (or any successor national market system), the fair market value per Share shall be the closing price on such exchange on the date of grant of the Option, as reported in THE WALL STREET JOURNAL. 6 (b) TEN PERCENT SHAREHOLDERS. No Option shall be granted to any Employee who, at the date such Option is granted, owns (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, unless the option price for the Shares to be issued pursuant to such Option is at least equal to 110% of the fair market value of such Shares on the grant date determined by the Committee in the manner set forth in subsection (a) above. (c) SECTION 162(m) LIMITATIONS. After the Section 162(m) Effective Date, the Option Price of any Option granted to a Covered Employee shall be at least equal to the fair market value of the Shares as of the date of grant as determined in the manner set forth in subsection (a) above. (d) CONSIDERATION. The consideration to be paid for the Optioned Shares shall be payment in cash or by check unless payment in some other manner, including by recourse promissory note, other shares of the Company's Common Stock or such other consideration and method of payment for the issuance of Optioned Shares as may be permitted under the Delaware General Corporation Law, is authorized by the Committee at the time of the grant of the Option. Any cash or other property received by the Company from the sale of Shares pursuant to the Plan shall constitute part of the general assets of the Company. 9. EXERCISE OF OPTION. (a) VESTING PERIOD. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Committee and as shall be permissible under the terms of the Plan, which shall be specified in the Option Agreement evidencing the Option. Unless the Committee specifically determines otherwise at the time of the grant of the Option, each Option shall vest and become exercisable as to one-fourth (1/4) of the Optioned Shares on the first anniversary of the date of grant of the Option, and as to one thirty-sixth (1/36) of the remaining Optioned Shares at the end of each calendar month thereafter, until all of the Optioned Shares have vested; PROVIDED THAT, if voting securities of the Company are not acquired by International Business Machines Corporation pursuant to a Change of Control Transaction closing prior to July 31, 1997, or if the Board so determines in connection with a Change of Control Transaction subject to Section 12 of the Plan, each Option shall vest and become exercisable, cumulatively, instead as to 100% of the Optioned Shares only on the fifth anniversary of the date of the grant of the Option. The vesting and exercisability of each Option shall be further subject to the Optionee's Continuous Employment and the provisions of Section 12 of the Plan in all events. (b) EXERCISE PROCEDURES. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in 7 accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. An Option may not be exercised for fractional shares or for less than ten (10) Shares. After the Registration Date, in lieu of delivery of a cash payment for the purchase price of the Shares with respect to which the Option is exercised, the Optionee may deliver to the Company a sell order to a broker for the Shares being purchased and an agreement to pay (or have the broker remit payment for) the purchase price for the Shares being purchased on or before the settlement date for the sale of such shares to the broker. As soon as practicable following the exercise of an Option in the manner set forth above, the Company shall issue or cause its transfer agent to issue stock certificates representing the Shares purchased. Until the issuance of such stock certificates (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Shares notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other rights for which the record date is prior to the date of the transfer by the Optionee of the consideration for the purchase of the Shares, except as provided in Section 11 of the Plan. (c) EXERCISE OF OPTION WITH STOCK. If an Optionee is permitted to exercise an Option by delivering shares of the Company's Common Stock, the Option Agreement covering such Option may include provisions authorizing the Optionee to exercise the Option, in whole or in part, by (i) delivering whole shares of the Company's Common Stock previously owned by such Optionee (whether or not acquired through the prior exercise of a stock option) having a fair market value equal to the Option price; or (ii) directing the Company to withhold from the Shares that would otherwise be issued upon exercise of the Option that number of whole Shares having a fair market value equal to the Option price. Shares of the Company's Common Stock so delivered or withheld shall be valued at their fair market value at the close of the last business day immediately preceding the date of exercise of the Option, as determined by the Committee. Any balance of the Option price shall be paid in cash. Any Shares delivered or withheld in accordance with this provision shall again become available for purposes of the Plan and for Options subsequently granted thereunder. After the Registration Date, any exercise of an Option under Section 9(c)(i) or 9(c)(ii) above by any person subject to short-swing trading liability under Section 16(b) of the Exchange Act shall satisfy the conditions for exemption therefrom set forth in Section 240.16b-1 ET SEQ. of the General Rules and Regulations. (d) TERMINATION OF STATUS AS EMPLOYEE, NON-EMPLOYEE DIRECTOR OR CONSULTANT. If an Optionee shall cease to be an Employee for any reason other than disability or death, he or she may, but only within 30 days (or such other 8 period of time as is determined by the Committee) after the date he or she ceases to be an Employee, exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination, subject to the condition that no Option shall be exercisable after the expiration of the Option period. (e) DISABILITY OF OPTIONEE. If an Optionee shall cease to be an Employee due to a disability, and such Optionee is, or was within the 90-day period prior to such termination, an Employee and who was in Continuous Employment as such from the date of the grant of the Option until the date of disability or termination, the Option may be exercised at any time within 180 days following the date of termination, but only to the extent of the accrued right to exercise at the time of the termination, subject to the condition that no option shall be exercised after the expiration of the Option period. (f) DEATH OF OPTIONEE. In the event of the death during the Option period of an Optionee who is at the time of his or her death, or was within the 90-day period immediately prior thereto, an Employee and who was in Continuous Employment as such from the date of the grant of the Option until the date of death, the Option may be exercised, at any time within 180 days following the date of death, by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest, inheritance or otherwise as a result of the Optionee's death, but only to the extent of the accrued right to exercise at the time of the termination or death, whichever comes first, subject to the condition that no option shall be exercised after the expiration of the Option period. (g) TAX WITHHOLDING. After the Registration Date, when an Optionee is required to pay to the Company an amount with respect to tax withholding obligations in connection with the exercise of an Option granted under the Plan, the Optionee may elect prior to the date the amount of such withholding tax is determined (the "Tax Date") to make such payment, or such increased payment as the Optionee elects to make up to the maximum federal, state and local marginal tax rates, including any related FICA obligation, applicable to the Optionee and the particular transaction, by: (i) delivering cash; (ii) delivering part or all of the payment in previously owned shares of Common Stock (whether or not acquired through the prior exercise of an Option); and/or (iii) irrevocably directing the Company to withhold from the Shares that would otherwise be issued upon exercise of the Option that number of whole Shares having a fair market value equal to the amount of tax required or elected to be withheld (a "Withholding Election"). If an Optionee's Tax Date is deferred beyond the date of exercise and the Optionee makes a Withholding Election, the Optionee will initially receive the full amount of Optioned Shares otherwise issuable upon exercise of the Option, but will be unconditionally obligated to surrender to the Company on the Tax Date the number of Shares necessary to satisfy his or her 9 minimum withholding requirements, or such higher payment as he or she may have elected to make, with adjustments to be made in cash after the Tax Date. After the Registration Date, any withholding of Shares with respect to taxes arising in connection with the exercise of an Option by any person subject to short-swing trading liability under Section 16(b) of the Exchange Act shall satisfy the conditions for exemption therefrom set forth in Section 240.16b-1 ET SEQ. of the General Rules and Regulations. Any adverse consequences incurred by the Optionee with respect to the use of shares of Common Stock to pay any part of the Option Price or of any tax in connection with the exercise of an Option, including without limitation any adverse tax consequences arising as a result of a disqualifying disposition within the meaning of Section 422 of the Code, shall be the sole responsibility of the Optionee. 10. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. (a) Subject to any required action by the shareholders of the Company, the number of Optioned Shares covered by each outstanding Option, and the per share exercise price of each such Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, recapitalization, combination, reclassification, the payment of a stock dividend on the Common Stock or any other increase or decrease in the number of such shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) The Committee may, if it so determines in the exercise of its sole discretion, also make provision for proportionately adjusting the number or class of securities covered by any Option, as well as the price to be paid therefor, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings, or other increases or reductions of shares of its 10 outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation. (c) Unless otherwise determined by the Board, upon the dissolution or liquidation of the Company the Options granted under the Plan shall terminate and thereupon become null and void. 12. CHANGE OF CONTROL TRANSACTION. Upon the first Change of Control Transaction occurring after the adoption of the Plan, if the Options granted under the Plan are not assumed in connection with that Transaction by an entity which acquires control of the Company, the Board may elect, in its sole discretion, to terminate the Plan; whereupon all Options granted under the Plan and outstanding as of the effective date of such Change of Control Transaction will terminate as of that date. 13. TIME OF GRANTING OPTIONS. Unless otherwise specified by the Committee, the date of grant of an Option under the Plan shall be the date on which the Committee makes the determination granting such Option. Notice of the determination shall be given to each Optionee to whom an Option is so granted within a reasonable time after the date of such grant. 14. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable, except that, without approval of the shareholders of the Company, no such revision or amendment shall change the number of Shares subject to the Plan, change the designation of the class of employees eligible to receive Options or add any material benefit to Optionees under the Plan. Except as provided otherwise in Section 12 of the Plan, any such amendment or termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if the Plan had not been amended or terminated. After the Section 162(m) Effective Date, the modification or addition of a material term of the Plan (as determined under Section 162(m) and any applicable Treasury Regulations promulgated thereunder) shall be approved by the shareholders in the manner provided in Section 19 of the Plan. 15. CONDITIONS UPON ISSUANCE OF SHARES. All Options and Optioned Shares shall be subject to the provisions of the By-laws and the Certificate of Incorporation of the Company as of the date of grant of the Option or the acquisition of the Optioned Shares by the Optionee. The Optioned Shares shall be subject to all amendments to the By-laws and Certificate of Incorporation made thereafter which affect the Common Stock generally. Shares shall not be issued with respect to an Option granted under the Plan unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares 11 may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 16. RESERVATION OF SHARES. During the term of this Plan the Company will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. Inability of the Company to obtain from any regulatory body having jurisdiction and authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder shall relieve the Company of any liability in respect of the nonissuance or sale of such Shares as to which such requisite authority shall not have been obtained. 17. INFORMATION TO OPTIONEE. During the term of any Option granted under the Plan, the Company shall provide or otherwise make available to each Optionee a copy of its annual report to Shareholders and financial information which is provided to its shareholders in accordance with the provisions of the Company's Bylaws and applicable law. 18. OPTION AGREEMENT. Options granted under the Plan shall be evidenced by Option Agreements. 19. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the shareholders of the Company within 12 months before or after the Plan is adopted. Except as provided otherwise in Section 3, any amendments to the Plan requiring shareholder approval must be approved by the affirmative vote of the holders of a majority of the outstanding shares of voting stock present or represented and entitled to vote at a duly held meeting at which a quorum is present, or by the written consent of the shareholders in the manner provided by Delaware law. 12 EX-10.3 19 EXHIBIT 10.3 NETOBJECTS, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN NetObjects, Inc., a Delaware corporation (the "Company"), hereby establishes this 1999 Employee Stock Purchase Plan (the "Plan"). 1. PURPOSE OF PLAN. The purpose of the Plan is to enable Eligible Employees (as defined in Section 3) who wish to become stockholders of the Company a convenient and favorable method of doing so. The Plan is intended to constitute an "employee stock purchase plan," as defined in Section 423(b) of the Internal Revenue Code of 1986, as amended (the "Code"), and shall be interpreted and administered to further that intent. 2. ADMINISTRATION OF THE PLAN. The Plan will be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Company (the "Board"). Subject to the provisions of the Plan, the Committee will have the complete authority to interpret the Plan, to adopt, amend and rescind rules and procedures relating to the Plan, and to make all of the determinations necessary or advisable for the administration of the Plan. All such interpretations, rules, procedures and determinations will, in the absent of fraud or patent mistake, be conclusive and binding on all persons with any interest in the Plan. 3. ELIGIBLE EMPLOYEES. The term "Eligible Employees" means all common law employees of the Company and its current subsidiary, as defined in Section 424(f) of the Code, (and each other corporation designated by the Committee that hereafter becomes a majority-owned subsidiary of the Company), except the following: (a) employees who have been continuously employed for less than 90 days; (b) employees whose customary employment is 20 hours or less per week; and (c) employees whose customary employment is for not more than five months in any calendar year. The employment of an employee shall be treated as continuing intact while the employee is on sick leave or other leave of absence approved by the Company. Except as otherwise expressly provided in the Plan and permitted by Section 423 of the Code, all Eligible Employees shall have the same rights and obligations under the Plan. 4. STOCK SUBJECT TO THE PLAN. The stock subject to the Plan shall be shares of the Company's authorized but unissued Common Stock, $.01 par value per share, (the "Common Stock"). The aggregate number of shares of Common Stock that may be purchased by Eligible Employees pursuant to the Plan is 300,000, subject to adjustment as provided in Section 13. 5. OFFERING PERIODS. The Common Stock shall be offered under the Plan during twenty consecutive six-month periods (the "Offering Periods"). The first Offering Period shall begin upon the issue and sale shares of Common Stock in a bona fide public offering on an underwritten firm commitment basis pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission, pursuant to the Securities Act of 1933, as amended, and end on June 30, 1999. Thereafter, the Offering Periods will begin on the first day and end on the last day of each subsequent six-month period. 6. PARTICIPANTS; PAYROLL DEDUCTIONS 6.1 A person who is an Eligible Employee at the beginning of an Offering Period may elect to have the Company make deductions from the person's Compensation (as defined in Section 6.4), at a specified percentage rate, to be used to purchase shares of Common Stock pursuant to the Plan. This election must be made prior to the beginning of the Offering Period in accordance with such procedures as the Committee may adopt (each Eligible Employee who so elects to have such deductions made will be referred to as a "Participant"). 6.2 The maximum rate of deduction that a Participant may elect for any Offering Period is 10%. An amount equal to the elected percentage shall be deducted from the Participant's pay each time during the Offering Period that any Compensation is paid to the Participant. The Committee may set such minimum level of payroll deductions as the Committee determines to be appropriate. Any minimum level of deductions set by the Committee shall apply equally to all Eligible Employees. A Participant's accumulated payroll deductions shall remain the property of the Participant until applied toward the purchase of shares of Common Stock under the Plan, but may be commingled with the general funds of the Company. No interest will be paid on payroll deductions accumulated under the Plan. 6.3 A Participant in the Plan on the last day of an Offering Period shall automatically continue to participate in the Plan during the next Offering Period unless he or she withdraws in the manner described in Section 11 or is no longer an Eligible Employee. 6.4 The term "Compensation" means all base salary, straight time wages and commissions paid to or on behalf of a Participant for services performed or on account of holidays, vacation, sick leave or other similar events (including any amounts by which such earnings are reduced, at the election of a Participant, pursuant to a cafeteria plan described in Section 125 of the Code, a dependent care assistance program described in Section 129 of the Code, a cash or deferred arrangement described in Section 401(k) of the Code, or any similar plan, program or arrangement), and excluding any overtime, shift premium, bonuses and other incentive compensation, the value of any noncash benefits under any employee benefit plans, and any other amounts paid to the Participant that are specifically excluded by the Committee. 2 7. PURCHASE OF SHARES 7.1 At the end of an Offering Period, a Participant's accumulated payroll deductions for the Offering Period will, subject to the limitations in Section 9 and the withdrawal provisions of Section 11, be applied toward the purchase of shares of Common Stock at a purchase price (the "Purchase Price") equal to the lesser of -- (a) 85% of the Market Price (as defined in Section 8.1) of the Common Stock on the first Business Day (as defined in Section 8.2) of the Offering Period; or (b) 85% of the Market Price of the Common Stock on the last Business Day of the Offering Period; in either event rounded to the nearest whole cent. 7.2 Shares of Common Stock may be purchased under the Plan only with a Participant's accumulated payroll deductions. Fractional shares cannot be purchased. Any portion of a Participant's accumulated payroll deductions for an Offering Period not used for the purchase of Common Stock shall be applied to the purchase of Common Stock in the next Offering Period, if the Participant is participating in the Plan during that Offering Period, or returned to the Participant. 7.3 Each Participant who purchases shares of Common Stock under the Plan shall thereby be deemed to have agreed that the Company or the subsidiary of the Company that employs the Participant shall be entitled to withhold, from any other amounts that may be payable to the Participant at or around the time of the purchase, such federal, state, local and foreign income, employment and other taxes which may be required to be withheld under applicable laws. In lieu of such withholding, the Company or such subsidiary may require the Participant to remit such taxes to the Company or such subsidiary as a condition of the purchase. 8. MARKET PRICE 8.1 For purposes of the Plan, the term "Market Price" on any day means, if the Common Stock is publicly traded, the last sales price (or, if no last sales price is reported, the average of the high bid and low asked prices) for a share of Common Stock on that day as reported by the principal exchange on which the Common Stock is listed, or, if the Common Stock is publicly traded but not listed on an exchange, as reported by The Nasdaq Stock Market, or, if such prices or quotations are not reported by The Nasdaq Stock Market, as reported by any other available source of prices or quotations selected by the Committee. 8.2 For purposes of the Plan, the term "Business Day" means a day on which prices or quotations for the Common Stock are reported by a national securities exchange, The Nasdaq Stock Market, or any other available source of prices or 3 quotations selected by the Committee, whichever is applicable pursuant to the preceding paragraph. 8.3 If the Market Price of the Common Stock must be determined for purposes of the Plan at a time when the Common Stock is not publicly traded, then the term "Market Price" shall mean the fair market value of the Common Stock as determined by the Committee, after taking into consideration all the factors it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 9. LIMITATIONS ON SHARE PURCHASES 9.1 Notwithstanding Section 3, an employee will not be an Eligible Employee for purposes of the Plan if the employee owns stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company. For purposes of this 5% limitation, an employee shall be treated as owning any stock the ownership of which is attributed to him or her under the rules of Section 424(d) of the Code, as well as any stock that, in the absence of this paragraph, the employee could purchase under the Plan with his or her payroll deductions held pursuant to Section 6 but not yet applied to the purchase of shares of Common Stock under the Plan. 9.2 During any calendar year, the maximum value of the Common Stock that may be purchased by a Participant under the Plan and all such plans of Company, any Subsidiary of the Company, and any parent corporation (as defined in Section 424(e) of the Code) is $25,000, said value to be determined on the basis of the Market Price of the Common Stock on the first Business Day of each Offering Period that ends in the calendar year. 9.3 The limitations in Section 9.1 and Section 9.2 are intended to and shall be interpreted in such a manner as will comply with Section 423(b)(3) and Section 423(b)(8) of the Code, respectively. 10. CHANGES IN PAYROLL DEDUCTIONS. The rate of payroll deductions for an Offering Period may not be increased or decreased by a Participant during the Offering Period. However, the Participant may change the rate of payroll deduction for a subsequent Offering Period. In addition, a Participant may withdraw in full from the Plan in the manner described in Section 11. 11. WITHDRAWAL FROM THE PLAN 11.1 A Participant may elect to withdraw from the Plan, effective for the Offering Period in progress, by delivering to the Committee written notice thereof prior to the end of the Offering Period. 11.2 If a Participant ceases for any reason (including death, disability or voluntary or involuntary termination of employment) to be an employee of the Company 4 or one of its subsidiaries, the Participant will be deemed to have elected to withdraw from the Plan for the Offering Period in progress when the Participant's employment ceases. 11.3 If a Participant's payroll deductions are interrupted by any legal process, the Participant will be deemed to have elected to withdraw from the Plan for the Offering Period in progress when the interruption occurs. 11.4 If a Participant elects or is deemed to have elected to withdraw for an Offering Period in progress, all of the Participant's payroll deductions for that Offering Period will be promptly returned to the Participant. 11.5 A Participant may elect to withdraw from the Plan, effective for an Offering Period that has not yet commenced, by delivering to the Committee written notice thereof prior to the first day of the Offering Period. 11.6 Following withdrawal from the Plan, in order to participate in the Plan for any subsequent Offering Period, the Participant must again elect to participate in the manner described in Section 6.1. 12. ISSUANCE OF COMMON STOCK 12.1 Certificates for the shares of Common Stock purchased by Participants will be delivered by the Company's transfer agent as soon as practicable after each Offering Period. In lieu of issuing certificates for such shares directly to Participants, the Company shall be entitled to issue such shares to a bank, broker-dealer or similar custodian (the "Custodian") that has agreed to hold such shares for the accounts of the respective Participants. Fees and expenses of the Custodian shall be paid by the Company or allocated among the respective Participants in such manner as the Committee determines. 12.2 A Participant may direct, in accordance with such procedures as the Committee may adopt, that shares purchased by the Participant shall be issued (or, if such shares are issued to the Custodian, that the account for such shares be held) in the names of the Participant and one other person designated by the Participant, as joint tenants with right of survivorship, tenants in common, or community property, to the extent and in the manner permitted by applicable law. 12.3 A Participant may at any time, in the manner described in Section 17, undertake a disposition (as that term is defined in Section 424(c) of the Code), whether by sale, exchange, gift or other transfer of legal title, of any or all of the shares held for the Participant by the Custodian. In the absence of such a disposition of the shares, the shares shall continue to be held by the Custodian until the holding period set forth in Section 423(a) of the Code has been satisfied. If a Participant so requests, shares for which such holding period has been satisfied will be transferred to 5 another brokerage account specified by the Participant, or a stock certificate for such shares will be issued and delivered to the Participant or his or her designee. 13. CHANGES IN CAPITALIZATION 13.1 Upon the happening of any of the following described events, a Participant's right to purchase shares of Common Stock under the Plan shall be adjusted as hereinafter provided: (a) If the shares of Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock or if, upon a recapitalization, split-up or other reorganization of the Company, the shares of Common Stock are exchanged for other securities of the Company, the rights of each Participant shall be modified so that the Participant is entitled to purchase, in lieu of the shares of Common Stock that the Participant would otherwise have been entitled to purchase for the Offering Period in progress at the time of such subdivision, combination or exchange (the "Offering Period Shares"), such number of shares of Common Stock or such number and type of other securities as the Participant would have received if such Offering Period Shares had been issued and outstanding at the time of such subdivision, combination or exchange (unless in the case of an exchange the Committee determines that the nature of the exchange is such that it is not feasible or advisable that the rights of Participants be so modified, in which event the exchange shall be deemed a Terminating Event under Section 14); and (b) If the Company issues any of its shares as a stock dividend upon or with respect to the Common Stock, each Participant who purchases shares of Common Stock under the Plan at the end of the Offering Period in progress on the record date for the stock dividend shall be entitled to receive the shares so purchased (the "Purchased Shares") and shall also be entitled to receive at no additional cost, but only if the Purchase Price for the Purchased Shares was determined with reference to the Market Price of the Common Stock on the first Business Day of the Offering Period, the number of shares of the class of stock issued as a stock dividend, and the amount of cash in lieu of fractional shares, that the Participant would have received if he or she had been the holder of the Purchased Shares on the record date for the stock dividend. 13.2 Upon the happening of an event specified in clause (a) or (b) above, the class and aggregate number of shares available under the Plan, as set forth in Section 4, shall be appropriately adjusted to reflect the event. Notwithstanding the foregoing, such adjustments shall be made only to the extent that the Committee, based on advice of counsel for the Company, determines that such adjustments will not constitute a change requiring shareholder approval under Section 423(b)(2) of the Code. 6 14. TERMINATING EVENTS 14.1 Upon (a) the dissolution or liquidation of the Company, (b) a merger or other reorganization of the Company with one or more corporations as a result of which the Company will not be a surviving corporation, (c) the sale of all or substantially all of the assets of the Company or a material division of the Company, (d) a sale or other transfer, pursuant to a tender offer or otherwise, of more than fifty percent (50%) of the then outstanding shares of Common Stock of the Company, (e) an acquisition by the Company resulting in an extraordinary expansion of the Company's business or the addition of a material new line of business, or (f) any exchange that is subject to this Section 14 in accordance with the provisions of Section 13 (any of such events is herein referred to as a "Terminating Event"), the Committee may but shall not be required to -- (a) make provision for the continuation of the Participants' rights under the Plan on such terms and conditions as the Committee determines to be appropriate and equitable, including where applicable, but not limited to, an arrangement for the substitution on an equitable basis, for each share of Common Stock that could otherwise be purchased at the end of the Offering Period in progress at the time of the Terminating Event, of any consideration payable with respect to each then outstanding share of Common Stock in connection with the Terminating Event; or (b) terminate all rights of Participants under the Plan for such Offering Period and -- (i) return to the Participants all of their payroll deductions for such Offering Period; and (ii) for each share of Common Stock, if any, that otherwise could have been purchased under the Plan by a Participant at the end of such Offering Period (determined by assuming that payroll deductions at the rate elected by the Participant were continued to the end of the Payroll Period and used to purchase shares based on the Market Price of the Common Stock on the first Business Day of the Offering Period) and with respect to which (A) the Purchase Price at which such share could be purchased (determined with reference only to the Market Price of the Common Stock on the first Business Day of the Offering Period) is exceeded by (B) the Market Price on the date of the Terminating Event of a share of Common Stock, as determined by the Committee, pay to the Participant an amount equal to such excess. 14.2 The Committee shall make all determinations necessary or advisable in connection with Terminating Events, and its determinations shall, in the absent of fraud or patent mistake, be conclusive and binding on all persons with any interest in the Plan. 7 15. NO TRANSFER OR ASSIGNMENT OF EMPLOYEE'S RIGHTS. An Eligible Employee's rights under the Plan are the Eligible Employee's alone and may not be voluntarily or involuntarily transferred or assigned to, or availed of by, any other person other than by will or the laws of descent and distribution. An Eligible Employee's rights under the Plan are exercisable during his or her lifetime by the Eligible Employee alone. 16. TERMINATION AND AMENDMENT OF PLAN 16.1 The Plan shall terminate on January 31, 2004. The Plan may be terminated at any earlier time by the Board, but, except as provided in Section 14, such termination shall not affect the rights of Participants under the Plan for the Offering Period in progress at the time of termination. The Plan will also terminate in any case when all or substantially all of the unissued shares of Common Stock reserved for the purposes of the Plan have been purchased. If at any time shares of Common Stock reserved for the purpose of the Plan remain available for purchase but not in sufficient number to satisfy all then unfilled purchase requirements, the available shares shall be apportioned among Participants in proportion to the respective amounts of their accumulated payroll deductions, and the Plan shall terminate. Upon such termination or any other termination of the Plan, all payroll deductions not used to purchase shares of Common Stock will be refunded to the Participants entitled thereto. 16.2 The Committee or the Board may from time to time adopt amendments to the Plan; PROVIDED, HOWEVER, that, without the approval of the stockholders of the Company, no amendment may increase the number of shares that may be issued under the Plan or make any other change for which shareholder approval is required by Section 423 of the Code or the regulations thereunder. 17. DISPOSITION OF SHARES. Subject to compliance with any applicable federal and state securities and other laws and any policy of the Company in effect from time to time with respect to trading in its shares, a Participant may effect a disposition (as that term is defined in Section 424(c) of the Code) of Common Stock purchased under the Plan at any time the Participant chooses; PROVIDED, HOWEVER, each Participant agrees, by purchasing shares of Common Stock under the Plan, that (a) the Company shall be entitled to withhold, from any other amounts that may be payable to the Participant by the Company at or around the time of such disposition, such federal, state, local and foreign income, employment and other taxes as the Company may be required to withhold under applicable law; and (b) in lieu of such withholding, the Participant will, upon request of the Company, promptly remit such taxes to the Company. EACH EMPLOYEE PURCHASING SHARES OF COMMON STOCK UNDER THE PLAN ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE THEREOF. 18. NO SHAREHOLDER RIGHTS; INFORMATION TO PARTICIPANTS. A Participant shall not have any rights as a shareholder of the Company (other than the right potentially to receive stock dividends under Section 13) on account of shares of 8 Common Stock that may be purchased under the Plan prior to the time such shares are actually purchased by and issued to the Participant. Notwithstanding the foregoing, the Company shall deliver to each Participant under the Plan who does not otherwise receive such materials (a) a copy of the Company's annual financial statements (which shall be delivered annually as promptly as practical following each fiscal year of the Company and review or audit of such statements by the Company's auditors), together with management's discussion and analysis of financial condition and results of operations for the fiscal year, and (b) a copy of all reports, proxy statements and other communications distributed to the Company's security holders generally. 19. USE OF PROCEEDS. The proceeds received by the Company from the sale of shares of Common Stock under the Plan will be used for general corporate purposes. 20. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and deliver shares of the Common Stock under the Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares, including the Securities and Exchange Commission, the securities administrators of the states in which Participants reside, and the Internal Revenue Service. 21. MISCELLANEOUS PROVISIONS 21.1 Nothing contained in the Plan shall obligate the Company or any of its subsidiaries to employ a Participant for any period, nor shall the Plan interfere in any way with the right of the Company or any of its subsidiaries to reduce a Participant's compensation. 21.2 The provisions of the Plan shall be binding upon each Participant and, subject to the provisions of Section 15, the heirs, successors and assigns of each Participant. 21.3 Where the context so requires, references in the Plan to the singular shall include the plural, and vice versa, and references to a particular gender shall include either or both additional genders. 21.4 The Plan shall be construed, administered and enforced in accordance with the laws of the United States, to the extent applicable thereto, as well as the laws of the State of California. 22. APPROVAL OF STOCKHOLDERS. The Plan shall be effective January 1, 1999, subject to approval by the stockholders of the Company in a manner that complies with Section 423(b)(2) of the Code. If such approval does not occur prior to December 31, 1999, the Plan shall be void and of no effect. 9 EX-10.4 20 EXHIBIT 10.4 EXHIBIT 10.4 3/18/97 NETOBJECTS LICENSE AGREEMENT AGREEMENT NUMBER: L97063 This NetObjects License Agreement ("Agreement") dated as of March 18, 1997 between NetObjects Corporation ("NETOBJECTS") with an address at 2055 Woodside Road Redwood City, California 94061 and International Business Machines Corporation ("IBM") with an address at Route 100 Somers, NewYork 10589. Under this Agreement, IBM licenses computer software from NETOBJECTS. By signing below, the parties agree to the terms of this Agreement. The complete Agreement between the parties regarding this transaction consists of this Agreement and the following Exhibits: I. Description of Licensed Work, EXHIBIT A. II. Pricing, EXHIBIT B. III. Source Escrow Agreement, EXHIBIT C. IV. Product Improvements, EXHIBIT D. V. NETOBJECTS Trademarks and Product Names, EXHIBIT E. VII. Maintenance and Support, EXHIBIT F. The following are related agreements between the parties: VII. Agreement for Exchange of Confidential Information between IBM and NETOBJECTS dated April 29, 1996. ("AECI") This Agreement replaces all prior oral or written communications between the parties relating to the subject matter. Once signed, any reproduction of this Agreement made by reliable means (for example, photocopy or facsimile) is considered an original, unless prohibited by local law. ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO: INTERNATIONAL BUSINESS NETOBJECTS CORPORATION MACHINES CORPORATION By: /s/ R.G. Anderegg By: /s/ Samir Arora --------------------------- ------------------------------ Authorized Signature Authorized Signature Name: R.G. Anderegg Name: Samir Arora --------------------------- ---------------------------- Title: Asst. General Counsel Title: CEO --------------------------- --------------------------- Date: 3/18/97 Date: 3/18/97 --------------------------- --------------------------------- 1 1.0 DEFINITIONS Capitalized terms in the Agreement and its exhibits and other attachments have the following meanings. 1.1 BUNDLE is a work that integrates, embeds, bundles or incorporates the Licensed Work into or with other software or hardware. 1.2 CODE is computer programming code, including both Object Code and Source Code. a. OBJECT CODE is Code substantially in binary form, and includes header files of the type necessary for use or interoperation with other computer programs. It is directly executable by a computer after processing or linking, but without compilation or assembly. Object Code is all Code other than Source Code. b. SOURCE CODE is Code in a form which when printed out or displayed is readable and understandable by a programmer of ordinary skills. It includes related source code level system documentation, comments and procedural code. Source Code does not include Object Code. 1.3 DELIVERABLE is any item that NETOBJECTS provides under this Agreement. 1.4 DERIVATIVE WORK is a work that is based on an underlying work and that would be a copyright infringement if prepared without the authorization of the copyright owner(s) of the underlying work. Derivative Works are subject to the ownership rights and licenses of a party or of others in the underlying work. 1.5 DISTRIBUTORS are those authorized or licensed by IBM, IBM Subsidiaries or IBM Distributors to license or distribute Products. 1.6 EFFECTIVE TIME shall have the meaning set forth in the Agreement and Plan of Merger dated as of March 18, 1997, among IBM, Net Acquisition Corporation, NETOBJECTS and the Holders (as set forth therein). 1.7 ENHANCEMENTS are changes or additions, including versions and releases, other than Error Corrections, to the Licensed Work during the term of this Agreement. 1.8 ERROR CORRECTIONS are revisions that correct errors and deficiencies (collectively referred to as "Errors") in the Licensed Work created during the term of this Agreement. 1.9 EXTERNALS are (1) any pictorial, graphic, and audiovisual works (such as icons, screens, sounds, toolbars, palettes and characters) generated by execution of Code, and (2) any programming interfaces, languages or protocols implemented in Code to enable interaction with other computer programs or the end user, including application program interfaces ("API"). Externals do not include the Code that implements them. 2 1.10 LICENSED WORK is (1) any material described in Exhibit A, Description of Licensed Work, or that is delivered to IBM as the Licensed Work, including (but not limited to) Code, associated documentation, and Externals, and (2) Error Corrections and Enhancements. 1.11 MORAL RIGHTS are personal rights associated with authorship of a work under applicable law. They include the rights to approve modifications and to require authorship identification. 1.12 PRODUCT is an offering to customers or other users, whether or not branded by IBM or its Subsidiaries, that includes the Licensed Work or a Derivative Work of the Licensed Work. 1.13 SUBSIDIARY is an entity during the time that more than 50% of its voting stock is owned or controlled, directly or indirectly, by another entity. If there is no voting stock, a Subsidiary is an entity during the time that more than 50% of its decision-making power is controlled, directly or indirectly, by another entity. 1.14 TOOLS include devices, compilers, programming, documentation, media and other items used by NETOBJECTS for the development, maintenance or implementation of a Licensed Work or other Deliverable that are not commercially available. 2.0 RESPONSIBILITIES OF NETOBJECTS 2.1 NETOBJECTS will provide the following to IBM on a reasonable schedule: a. The Licensed Works in Object Code form, in accordance with Exhibit A; and b. Early access to NETOBJECTS product plans and new product testing and releases; and c. Maintenance and support for the Licensed Work, as described in Exhibit F. 2.2 NETOBJECTS will: a. implement a process designed to help prevent contamination by harmful code. NETOBJECTS will provide IBM notice if NETOBJECTS suspects contamination; b. have written agreements with NETOBJECTS' personnel and third parties to perform obligations and to grant or assign rights to IBM as required by this Agreement, including all necessary consents of individuals or entities required for the use of names, likenesses, voices, and the like in the Licensed Work and agreements not to assert any Moral Rights from any person or entity having Moral Rights in the Licensed Work. NETOBJECTS agrees not to assert any Moral Rights in the Licensed Work. NETOBJECTS further agrees to maintain records to verify authorship of the Licensed Work for four (4) years after the termination or expiration of this Agreement. On request, NETOBJECTS will deliver or otherwise make available the foregoing records and information to IBM; 3 c. not assign or transfer this Agreement or NETOBJECTS' rights under it, or delegate or subcontract NETOBJECTS' obligations, without IBM's prior written consent. Any attempt to do so is void. d. work closely with IBM to develop a list of priorities, establish schedules for implementation, and implement the product improvements described in Exhibit D. e. deposit Source Code of the Licensed Works and Tools (including all updates and upgrades thereto) with an escrow agent selected jointly by IBM and NETOBJECTS under the Escrow Agreement attached hereto as Exhibit C. IBM will pay the fees of the escrow agent. 3.0 MUTUAL RESPONSIBILITIES 3.1 Each party agrees to: a. not provide any information to the media, or issue any press releases or other publicity, regarding this Agreement or the parties' relationship under it, without the other party's prior written consent; and b. not disclose to a third party the terms of this Agreement, without the other party's prior written consent. Each party may, however, make such disclosures (i) to its accountants, lawyers or other professional advisors provided that any such advisor is under a confidentiality obligation and (ii) as required by law provided the party obtains any confidentiality treatment for it which is available. Also, NETOBJECTS may disclose the terms of this Agreement to its shareholders of record as of the Effective Time, subject to appropriate confidentiality obligations. 3.2 NETOBJECTS and IBM agree to participate in technical and business meetings and discussions of plans for the Licensed Work, and to implement the product improvement plan described in Exhibit D. Such meetings shall occur quarterly or more often if requested by either party and will be held at a location to be determined alternately by IBM and NETOBJECTS. Both parties shall bear their own expenses associated with participating in these meetings. At each such meeting, NETOBJECTS agrees to disclose its current road map or schedule for revisions, enhancements, or other upgrades to the Licensed Work. 4.0 GRANT OF LICENSES 4.1 NETOBJECTS hereby grants IBM a nonexclusive, worldwide, irrevocable license during the Term (as defined in Section 8.1) to use, execute, reproduce and have reproduced, and to prepare and have prepared Bundles, in Object Code form, and to display, perform, transfer, distribute, transmit and sublicense the Licensed Works and Bundles, in Object Code form, in any medium or distribution technology whatsoever, whether now known or hereafter invented. The rights and licenses granted by NETOBJECTS to IBM under this Section 4.1 include the right of IBM to authorize or sublicense its Subsidiaries, subcontractors, and Distributors to exercise any of the rights granted to IBM hereunder. 4 4.2 NETOBJECTS hereby grants IBM a nonexclusive, worldwide, irrevocable license during the Term to use, execute, reproduce and have reproduced, and to prepare and have prepared Derivative Works of the Licensed Works and Tools in Source Code form for use in connection with the purposes and subject to the Release Events set forth in Exhibit C, the Escrow Agreement. The rights and licenses granted by NETOBJECTS to IBM under this Section 4.2 include the right of IBM to authorize or sublicense its Subsidiaries and subcontractors to exercise any of the rights granted to IBM hereunder. 4.3 NETOBJECTS hereby grants IBM a nonexclusive, worldwide, perpetual, irrevocable, paid-up license during the Term to use the names and trademarks used by NETOBJECTS to identify, or otherwise in connection with, the Licensed Work, and Derivative Works, thereof, including but not limited to the names and trademarks set forth in Exhibit E. NETOBJECTS grants IBM the right to authorize or sublicense its Subsidiaries, Distributors and subcontractors to exercise any of the rights granted to IBM hereunder. IBM will treat NETOBJECTS' trademarks in the same manner as IBM treats its own trademarks. However, if NETOBJECTS provides IBM with reasonable trademark guidelines, IBM will, for a Product, comply with the version of such trademark guidelines that is current at the time IBM announces the general availability of such Product. 4.4 Any goodwill attaching to IBM's trademarks, service marks, or trade names belongs to IBM, and this Agreement does not grant NETOBJECTS any right to use them. IBM may state that NETOBJECTS has provided the Licensed Work. Any goodwill attaching to NETOBJECTS' trademarks, service marks, or trade names belongs to NETOBJECTS and, subject to Section 4.3, this Agreement does not grant IBM, its Subsidiaries, or Distributors, any right to use them. 5.0 PAYMENT 5.1 IBM will pay NETOBJECTS royalties as set forth in Exhibit B hereto. 5.2 IBM has no royalty obligation for: a. copies of the Licensed Work or its Derivative Works made by IBM, its Subsidiaries or subcontractors which are used for: (1) IBM's and IBM Subsidiaries' (including third parties under contract) Product development, maintenance or support activities; (2) Product marketing demonstrations, customer testing or trial periods (including early support, pre-release, or other similar programs), Product training or education; or (3) Product backup and archival purposes; b. a copy of the Product used by a licensed end user at home or on travel when such Product is stored on both the user's primary machine as well as another machine, provided that the end user is not authorized to actively use the Product on both machines at the same time; c. the Licensed Work (or a functionally equivalent work) that becomes available generally from NETOBJECTS to third parties without a payment obligation; 5 d. documentation provided with, contained in, or derived from the Licensed Work; e. Error Corrections or Enhancements; f. warranty replacement copies of the Product; g. Externals; or h. use of an insignificant portion of the Licensed Work measured on the basis of functionality. 5.3 IBM, IBM Subsidiaries, and Distributors may, without incurring any royalty obligation, copy the Product and distribute it on a CD-ROM, or other media or distribution technology now known or hereafter invented in a manner where the customer, under a limited license, is allowed a limited preview, trial or demonstration use of the Product. IBM will have no royalty obligation to NETOBJECTS unless IBM, IBM Subsidiaries, or Distributors license the Product to such customer for full unrestricted, productive use. 5.4 IBM may request a lower royalty for the Licensed Work when a licensing transaction requires a substantial discount. If NETOBJECTS agrees, both parties will sign a letter specifying the licensing transaction and its lower royalty payment. 5.5 If NETOBJECTS offers another party lower rates, prices or royalties for any Licensed Work, portions thereof, or Derivative Work thereof, than are available to IBM under this Agreement, NETOBJECTS will promptly, in writing, offer the same to IBM including other associated price related terms, if any. If IBM accepts NETOBJECTS' offer, IBM will also accept the associated price related licensing terms which may include volume commitments. NETOBJECTS will maintain relevant records to evidence that IBM has been offered the most favored customer pricing terms in accordance with the preceding paragraph. These records will be made available by NETOBJECTS to an independent auditor chosen and compensated by IBM. Such independent auditor shall sign a confidentiality agreement. 5.6 For Hard Bundles and Soft Bundles, royalties are paid against revenue recorded by IBM in a royalty payment quarter. In the U.S., a royalty payment quarter ends on the last business day of the calendar quarter. Outside of the U.S., a royalty payment quarter is defined according to IBM's then current administrative practices. Upon request, IBM shall advise NETOBJECTS of all applicable royalty payment quarters, and any changes thereto. Payment will be made by the last day of the second calendar month following the royalty payment quarter. Royalties will be paid less adjustments and refunds due to IBM in accordance with this Agreement. IBM will provide a statement summarizing the royalty calculation with each payment. All payments will be made in U.S. dollars. Payments based on foreign revenue will be converted to U.S. dollars on a monthly basis at the rate of exchange published by Reuters Financial Service on approximately the same day each month. 5.7 IBM or any of its Subsidiaries will order a N.O. Package by issuing a purchase order to NETOBJECTS against which NETOBJECTS will invoice IBM. IBM will pay such invoices net thirty (30) days from the date of IBM's receipt of an acceptable invoice. NETOBJECTS will deliver the N.O. Package (as defined in Section 3.4 of Exhibit B) to IBM in accordance with the 6 terms of the purchase order. The terms of this Agreement will govern in the case of a conflict between this Agreement and any terms of a purchase order. 5.8 Each party will be solely responsible for any taxes incurred by the party, directly or indirectly, associated with its performance of this Agreement. 5.9 The payments defined in this Section 5.0 and in Exhibit B hereto fully compensate NETOBJECTS for its performance under, and for the rights and licenses granted in, this Agreement. 5.10 IBM will maintain relevant records to support payments made to NETOBJECTS. The records will be retained and made available for two (2) years from the date of the related payment. If NETOBJECTS requests, IBM will make these records available to an independent certified public accountant chosen and compensated (other than on a contingency basis) by NETOBJECTS. NETOBJECTS' request will be in writing, will provide IBM ninety (90) days prior notice, and will not occur more than once each year. The audit will be conducted during normal business hours at IBM's office and in such a manner as not to interfere with IBM's normal business activities. The auditor will sign a confidentiality agreement and will only disclose to NETOBJECTS any amounts overpaid or underpaid for the period examined. In the event royalties are found by any audit to have been underpaid by greater than ten percent (10%), IBM shall reimburse NETOBJECTS for the reasonable charges of the auditor. 6.0 REPRESENTATIONS AND WARRANTIES 6.1 NETOBJECTS makes the following ongoing representations and warranties: a. NETOBJECTS has full legal rights to grant the rights and licenses granted herein; b. NETOBJECTS is not under, and will not assume, any contractual obligation that prevents NETOBJECTS from performing its obligations or conflicts with the rights and licenses granted in this Agreement; c. there are no liens, encumbrances or claims pending or threatened against NETOBJECTS, or to NETOBJECTS' knowledge, anyone else, that relate to the rights and licenses granted in this Agreement; d. neither the Licensed Work nor the Tools contain libelous matters nor do they directly or indirectly infringe any publicity, privacy or intellectual property rights of a third party including, to NETOBJECTS' knowledge, any patents or patent applications; e. the Licensed Work will conform to NETOBJECTS' user documentation, and any sales and marketing materials provided by NETOBJECTS; f. the fully commented Source Code that NETOBJECTS provides corresponds to the current release or version of the Licensed Work provided by NETOBJECTS under this Agreement; NETOBJECTS will immediately provide IBM written notice of any change that may affect its representations and warranties. 7 6.2 Except as provided above, anything either party provides to the other related to this Agreement is "AS IS", without warranty of any kind. 7.0 INDEMNIFICATION AND LIABILITY 7.1 NETOBJECTS shall indemnify, defend and hold harmless IBM, IBM Subsidiaries, and its and their end-users ("Indemnified Parties") and pay any costs, expenses, attorneys' fees and damages finally awarded against or settlements paid by any Indemnified Party, against any claim by a third party that any Licensed Work infringes a copyright, trademark or patent or misappropriates any trade secret of a third party or otherwise violates any third party's intellectual property rights. 7.2 If any current release or unaltered version of any Product or component part of a Licensed Work becomes the subject of any infringement action, NETOBJECTS may at its option procure for IBM the right to continue promoting and selling such Licensed Work, or replace or modify the Licensed Work. 7.3 NETOBJECTS will not be liable for any claim of infringement based on (i) the use of Licensed Work in combination with any other products if such infringement would have been avoided by the use of such Licensed Work without such other products (unless such combination is consistent with the Licensed Work intended use pursuant to the accompanying documentation or has been specified by NETOBJECTS); (ii) IBM's use or distribution of such Licensed Work without an Enhancement or Error Correction provided by NETOBJECTS that, if used, would have made such Licensed Work non-infringing; or (iii) any use or distribution of a Licensed Work in a manner not permitted under the licenses granted under this Agreement or not in accordance with the documentation provided by NETOBJECTS for such Licensed Work. 7.4 NETOBJECTS shall not be obligated to indemnify IBM under this Section unless (i) IBM promptly notifies NETOBJECTS in writing of any claim to which the indemnity obligations might apply; (ii) NETOBJECTS has the sole control of the defense and/or settlement of such claim at NETOBJECTS' sole cost and expense; and (iii) IBM reasonably cooperates with NETOBJECTS in defending or settling any such claim. Subject to the foregoing conditions, IBM shall be entitled to participate in the defense of any such claim at its expense. 7.5 IBM shall indemnify, defend and hold harmless NETOBJECTS and pay any costs, expenses, attorneys' fees and damages finally awarded against or settlements authorized by IBM, against any claim by a third party that the modifications to the Source Code of the Licensed Work created by IBM in accordance with Section 4.2 hereof ("IBM Derivative") infringe a copyright, trademark or patent or misappropriate any trade secret of a third party or otherwise violate any third party's intellectual property rights. 7.6 IBM will not be liable for any claim of infringement based on (i) the use of the IBM Derivative in combination with any other products if such infringement would have been avoided 8 by the use of such IBM Derivative without such other products (unless such combination is consistent with the IBM Derivative's intended use pursuant to the accompanying documentation or has been specified by IBM); (ii) NETOBJECTS', its distributors or its or their end-users use or distribution of such IBM Derivative without an enhancement or error correction provided by IBM that, if used, would have made such IBM Derivative non-infringing; (iii) any use or distribution of an IBM Derivative in a manner not permitted under the licenses granted to the IBM Derivative or not in accordance with the documentation provided by IBM for such IBM Derivative; or (iv) any claim based upon any intellectual property provided by NETOBJECTS to IBM pursuant to this Agreement. 7.7 IBM shall not be obligated to indemnify NETOBJECTS under this Section unless (i) NETOBJECTS promptly notifies IBM in writing of any claim to which the indemnity obligations might apply; (ii) IBM has the sole control of the defense and/or settlement of such claim at IBM's sole cost and expense; and (iii) NETOBJECTS reasonably cooperates with IBM in defending or settling any such claim. Subject to the foregoing conditions, NETOBJECTS shall be entitled to participate in the defense of any such claim at its expense. 7.8 Each party is responsible for any actual loss or damage only up to the amount of charges paid or due (if any) for the Licensed Work or IBM Derivative that is the subject of a claim. Neither party shall be liable to the other for any economic consequential damages (including lost profits or savings), indirect, or incidental damages, even if advised of their possibility. This Section describes the parties' sole remedies and exclusive liabilities for any breach of this Agreement. Notwithstanding the foregoing, none of the above limitations apply to claims arising under Sections 7.1, 7.2, 7.3 7.4, 7.5, 7.6 or 7.7. 8.0 TERM AND TERMINATION 8.1 The term of this Agreement ("Term") shall begin on the Effective Time and will continue, for ten (10) years unless terminated by IBM on thirty (30) days' notice to NETOBJECTS. Notwithstanding the foregoing, IBM may not terminate the Agreement after the Effective Time until the end of the Initial Period (as defined in Section 5.0 of Exhibit B). NETOBJECTS shall have no right to terminate this Agreement during the Term. Notwithstanding the foregoing, nothing in this Agreement shall limit NETOBJECTS' rights at law or in equity to seek an injunction against IBM in the event that IBM materially breaches this Agreement. 8.2 Any provisions of this Agreement that by their nature extend beyond termination or expiration will survive in accordance with their terms. These include License, Representations and Warranties, Indemnification and Liability, and General. These terms will apply to either party's successors and assigns. Termination or expiration of this Agreement does not affect any previously granted end user licenses granted by IBM, its Subsidiaries or Distributors pursuant to this Agreement. 9.0 COORDINATORS 9 9.1 Any notice required or permitted to be made by either party to this Agreement must be in writing. Notices are effective when received by the appropriate coordinator as demonstrated by reliable written confirmation (for example, certified mail receipt). 9.2 The Contract Coordinators responsible to receive all notices, act as liaison and administer this Agreement are: FOR IBM: FOR NETOBJECTS: Name: Carolyn Kelly Name: David Kleinberg Title: Contract Administrator Title: Exec. V.P. Address: Route 100 Address: 2055 Woodside Rd. Somers, NY Redwood City, CA 10589 94061 Phone: 914-766-1732 Phone: 415-482-1940 Fax: 914-766-1789 Fax: 415-482-3240 9.3 The Technical Coordinators responsible to accept all Deliverables, coordinate all exchanges of confidential information, and administer and coordinate the technical matters associated with this Agreement are: FOR IBM: FOR NETOBJECTS: Name: David Rosenbaum Name: Bernard Desarnauts Title: Senior Product Manager Title: Dir. of Program Lotus Notes Management Address: One Charles Park Address: 2055 Woodside Rd Cambridge, MA Redwood City, CA 02154 94061 Phone: 617-693-5676 Phone: Fax: 617-693-2426 Fax: 9.4 A party will provide written notice to the other when its coordinators change. 10.0 GENERAL 10.1 INDEPENDENT CONTRACTOR. Each party is an independent contractor. Neither party is, nor will claim to be, a legal representative, partner, franchisee, agent or employee of the other except as specifically stated in the Subsection entitled "Copyright" below. Neither party will assume or create obligations for the other. Each party is responsible for the direction and compensation of its employees. 10.2 FREEDOM OF ACTION. Each party may have similar agreements with others. Each party may design, develop, manufacture, acquire or market competitive products and services, and 10 conduct its business in whatever way it chooses. IBM is not obligated to announce or market any products or services. IBM does not guarantee the success of its marketing efforts. IBM will independently establish prices for its products and services. 10.3 RELIANCE. Neither party relies on any promises, inducements or representations made by the other or expectations of more business dealings, except as expressly provided in this Agreement. This Agreement accurately states the parties' agreement. 10.4 COMPLIANCE WITH APPLICABLE LAWS. Each party will comply with all applicable laws and regulations at its expense including, to the extent applicable, Executive Order 11246 on Equal Employment Opportunity, as amended, the Occupational Safety and Health Act of 1970, as amended, and the Americans With Disabilities Act of 1990, as amended. This also includes all applicable government export and import laws and regulations. 10.5 CONFIDENTIAL INFORMATION. The parties agree that information exchanged under this Agreement that is considered by either party to be confidential information will be subject to the terms of the AECI referenced on the first page of this Agreement. The parties hereby agree to extend the terms of the AECI such that it is coextensive with the Term, and the term of the AECI will expire ten (10) years from the Effective Date hereof. In addition, NETOBJECTS will not provide IBM with any information which may be considered confidential information of any third party unless provided under the AECI. The obligations set forth in the AECI with regard to confidential information will not limit or preclude the exercise of the licenses granted in this Agreement or the assignment or reassignment of either party's personnel. 10.6 COPYRIGHT. Any publication by IBM of the Licensed Work or a Derivative Work thereof may contain an appropriate copyright notice, as determined by IBM. IBM will not remove any copyright notice of NETOBJECTS contained within the Licensed Works. NETOBJECTS will enforce and maintain its copyright protection in the Licensed Work. IBM is not responsible for enforcing and maintaining such copyright protection. However, NETOBJECTS authorizes IBM to act as NETOBJECTS' agent in the copyright registration of the Licensed Work. At IBM's request, NETOBJECTS agrees to provide IBM reasonable assistance in registering any Product. 10.7 ORDER OF PRECEDENCE. If there is a conflict among the terms of this base License Agreement and its Exhibits, the terms of this base License Agreement prevail over those of the Exhibits, unless the parties expressly indicate in the Attachments that particular terms within the Exhibits prevail. Inconsistent terms in IBM's purchase orders and NETOBJECTS' invoices or acknowledgments, if any, are void. 10.8 HEADINGS. The headings of this Agreement are for reference only. They will not affect the meaning or interpretation of this Agreement. 10.9 COUNTERPARTS. This Agreement may be signed in one or more counterparts, each of which will be considered an original, but all of which together form one and the same instrument. 11 10.10 AMENDMENT AND WAIVERS. For a change to this Agreement to be valid, both parties must sign it. No approval, consent or waiver will be enforceable unless signed by the granting party. Failure to insist on strict performance or to exercise a right when entitled does not prevent a party from doing so later for that breach or a future one. 10.11 ACTIONS. Neither party will bring a legal action relating to the subject matter of this Agreement, against the other more than two (2) years after the cause of action arose, except in the case of indemnification for infringement, in which case this period runs for two (2) years after the award or settlement was made. 10.12 GOVERNING LAW. The laws of the State of N.Y. (irrespective of its choice of law principles) shall govern the enforceability and validity of this Agreement, the construction of its terms, and the interpretation of enforcement of the rights and duties of the parties hereto. 10.13 DISPUTE RESOLUTION. In the event of any problem, claim, or dispute arising from, out of, or based upon this Agreement, the aggrieved party shall promptly notify the other party of the existence of the problem, claim, or dispute, and such other party shall promptly undertake all reasonable efforts, including but not limited to, submitting such problem, claim or dispute for resolution to a Manager (as defined below) of each Technical Coordinator. For the purposes of this Section "Manager" shall mean someone in the management chain of the applicable Technical Coordinator who is senior to such Technical Coordinator in terms of responsibility, and who is familiar with the administration of this Agreement. The Managers shall make a reasonable effort to resolve the dispute as quickly as possible. In the event that the Managers cannot resolve such dispute within sixty (60) business days the matter may at the option of either party, be submitted for resolution to each party's executive with overall responsibility for the subject matter in dispute. If the matter is not resolved at the executive level, the parties may then pursue any remedies available to them in law or equity. Each party agrees to waive its rights to a jury trial in any litigation resulting from a dispute between the parties concerning this Agreement. 12 EXHIBIT A Description of Licensed Work Object Code Licensed Work: NETOBJECTS Fusion and all future updates and versions, and all replacements. Delivery of Licensed Works: Within fifteen (15) days after the Effective Date, NETOBJECTS will deliver to IBM two (2) golden master disks in CD ROM format containing the Licensed Work in English and all foreign language translations then commercially available, as well as all on-line documentation and end-user documentation and other related documentation and installation procedures in camera-ready copy form ("Licensed Work Materials"). For all Enhancements, NETOBJECTS will deliver the Licensed Work Materials to IBM as soon as possible, but no later than five (5) days prior to the general availability of such Enhancements. National Language Version: Within seventy-five (75) days after the Effective Time, NETOBJECTS will present to IBM a detailed outline of its planned development and delivery of internationalized Licensed Works and translations of the Licensed Works into languages other than U.S. English ("NLVs"), identifying, at a minimum, any differences between the U.S.English version of the Licensed Works and any NLV, the supported languages and the delivery dates of the NLVs ("NLV Plan"). Within fifteen (15) days after its receipt of the NLV Plan, IBM will either accept the NLV Plan or offer an alternate NLV Plan. Products: IBM shall be entitled to add any or all future NETOBJECTS products to the Agreement (which shall be licensed to IBM at reasonable mutually agreed upon royalties, and in accordance with the most favored customer pricing terms contained in Section 5.5 of the Agreement). EXHIBIT B ROYALTY RATE FOR LICENSED WORKS 1.0 The amounts which shall be payable to NETOBJECTS as royalties shall be determined by application of the royalty rates for the Licensed Work as set forth in this Exhibit B ("Royalty Rates"). 2.0 All pricing terms and conditions contained in this Exhibit B are subject to the most favored customer terms and conditions set forth in Section 5.5 of the Agreement. In addition, in the event that any pre-existing customers of NETOBJECTS have not converted their current pricing and discount schedules for the Licensed Works to be the same as those reflected in this Exhibit B as of June 30, 1998, NETOBJECTS will as of June 30, 1998 offer to IBM such prices to the extent that they are more favorable to IBM than the prices reflected in this Exhibit B, and upon acceptance by IBM such prices shall become effective. 3.0 Royalty Rate Tables 3.1 The "List Price" shall be NETOBJECTS' current list price for the Licensed Work at the time that the sale of the Licensed Work is made. 3.2 The Royalty Rate table in this Section 3.2 is for offerings that contain the Licensed Work and add significant function or value to the Licensed Work by integrating, embedding, bundling or incorporating the Licensed Work into or with other software or hardware, where the reasonable commercial value of such other software or hardware is at least equivalent to the reasonable commercial value of the Licensed Work it is Bundled with ("Hard Bundle"):
Licensed Work Cumulative Number Royalty Rate of Units % Discount Per Year off List Price --------------------------------------------------------- "NetObjects FUSION" 1 - 2,500 [***]% 2,501 - 5,000 [***]% 5,001 - 10,000 [***]% 10,001 - 25,000 [***]% 25,001 - 50,000 [***]% 50,001 - 100,000 [***]% 100,001 and above [***]%
*** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. 3.3 The Royalty Rate in this Section 3.3 is for offerings that contain the Licensed Work and add other function or value to the Licensed Work, where the added function or value is not sufficient to qualify as a Hard Bundle, but whose reasonable commercial value is a) at least equivalent to 40% of the reasonable commercial value of the Licensed Work it is Bundled with, or b) any other Bundle which is approved by NETOBJECTS (collectively referred to as a "Soft Bundle"):
Licensed Work Cumulative Number Royalty Rate of Units Discount % Per Year off List Price --------------------------------------------------------- "NetObjects FUSION" 1 - 2,500 [***]% 2,501 - 5,000 [***]% 5,001 - 10,000 [***]% 10,001 - 25,000 [***]% 25,001 - 50,000 [***]% 50,001 - 100,000 [***]% 100,001 and above [***]%
The following Bundles which include the Licensed Work are approved by NETOBJECTS as Soft Bundles: a) Licensed Work Bundled with "Kona" components; and b) Licensed Work Bundled with Java components. 3.4 The Royalty Rate for Licensed Works that are not Bundled with any hardware or software, and for which NetObjects provides level 3 support ("N.O. Package") is a [***]% discount off NETOBJECTS' List Price for the Licensed Work.. NETOBJECTS shall include with each N.O. Package sufficient information to inform end users of IBM's contact information for Level 1 and Level 2 support, and IBM shall provide Level 1 and Level 2 support for the N.O. Package. 3.5 A) The Royalty Rates shall apply to the units sold by IBM or any of its Subsidiaries in any calendar year during the Term, except as set forth in Section 5.0, below. Volumes shall be aggregated between Hard Bundle, Soft Bundle and N.O. Package units sold during a calendar year for the purpose of determining the applicable Royalty Rates (i.e., in a calendar year, the first 2500 units sold by IBM and its Subsidiaries shall result in the following Royalty Rates: for each such unit which is a Hard Bundle the Royalty Rate shall be [***]% off of List Price; and each such unit which is a Soft Bundle shall be [***]% off of List Price; and each such unit which is a N.O. Package shall be [***]% off of List Price, all subject to Section 2.0, above. The next 2500 units sold by IBM or any of its Subsidiaries during that calendar year shall result in the following Royalty Rates: Hard Bundle units = [***]% off of List Price; Soft Bundle units = [***]% off of List Price; and N.O. Package units = [***]% off of List Price. Subsequent units sold in that calendar *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. year would follow the same process through the Royalty Rate tables set forth in this Exhibit B.) B) i. Notwithstanding Section 3.5 A), above, IBM shall have the option, for any calendar year(s) during the Term to make a Volume Commitment. The "Volume Commitment" for any calendar year during the Term shall be made in writing and provided to NETOBJECTS, and shall consist of the number of Hard Bundle, Soft Bundle and N.O. Package units that IBM and its Subsidiaries commit to sell during that calendar year, if any. Where IBM elects to make a Volume Commitment for a calendar year, each unit sold by IBM or any of its Subsidiaries during such calendar year, up to the Volume Commitment number, shall be subject to the Royalty Rate applicable to the Volume Commitment amount. Units sold during such calendar year which are in excess of the Volume Commitment shall be subject to the Royalty Rate applicable to the actual unit volumes, as described in Section 3.5 A), above (i.e., in a calendar year where IBM makes a Volume Commitment of 55,000 units of Hard Bundle and 30,000 units of Soft Bundle, each of the first 55,000 units which is a Hard Bundle shall have a Royalty Rate of [***]% off of List Price; each of the first 30,000 units which are Soft Bundle units shall have a Royalty Rate of [***]% off of List Price; and each of the units which are N.O. Package units shall have a Royalty Rate of [***]% off of List Price, all subject to Section 2.0, above). Notwithstanding the foregoing, all of the cumulative unit volumes sold by IBM and its Subsidiaries in the calendar year shall be aggregated for the purpose of determining whether IBM achieved its Volume Commitment for the calendar year (i.e., using the foregoing example, IBM's Volume commitment of 55,000 Hard Bundle units and 30,000 Soft Bundle units would be added (55,000 + 30,000 = 85,000) and the actual number of cumulative units sold would be added). The difference between the cumulative number of units sold (adding Hard Bundle units, Soft Bundle units and N.O. Package units sold) and the cumulative Volume Commitment would be calculated. A "Shortfall" would exist if the number of total number of cumulative units committed exceeds the total number of cumulative units sold. ii. At the conclusion of any calendar year in which IBM has made a Volume Commitment, IBM shall be obligated to pay the applicable Royalty Rate for units that make up the Shortfall, if any, between the units in the Volume Commitment and the actual number of units sold by IBM and its Subsidiaries in such calendar year. Any units which are paid for but unsold as a result of a Shortfall may be sold by IBM in subsequent periods but would not be counted against unit volumes in subsequent years. Notwithstanding the foregoing, IBM shall not be obligated to pay for any Shortfall pursuant to this Agreement in the event that: a)Netobjects has as of the Effective Date or does in the future enter into any agreement pursuant to which a party receives the right to distribute, resell or sublicense any of the Licensed Works, and b) where such party receives a royalty rate more advantageous than the Royalty Rate applicable to the first unit sold by IBM hereunder without the requirement to make a firm volume commitment (where a firm volume commitment means that the party must commit to sell a certain volume of the Licensed Works and where such party must pay the applicable royalty based upon NETOBJECTS standard Royalty Rate schedules for the Licensed Work for such units which make up the committed volume, whether or not such party actually sells such committed volume of units), or c) where such party, having made a volume commitment is not required to actually pay NETOBJECTS the applicable royalty for units which make up the shortfall between their volume commitment and the actual number of units sold. Netobjects shall promptly inform IBM if either b) or c), above, occur. 3.6 The determination of whether a package which includes a Licensed Work is a Hard Bundle or a Soft Bundle shall be made by IBM, exercising reasonable judgment. If NETOBJECTS does not agree with IBM's determination, the parties shall follow the dispute resolution process outlined in Section 10.13 of this Agreement. The following examples are provided for the purpose of illustrating the distinction between a Hard Bundle, a Soft Bundle and a N.O. Package: a. EXAMPLES OF HARD BUNDLE: - -An offering which contains the Licensed Work packaged with Domino. Lotus manufactures the product and provides level 1 and 2 support; - -An offering which contains the Licensed Work preloaded on a Network Station. IBM manufactures the hardware, and preloads the Licensed Work, and an IBM OEM reseller provides level 1 and 2 support; - -An offering which contains the Licensed Work packaged with the IBM Internet Connection Secure Server. IBM distributes the product through an electronic sales channel through an IBM web site, and IBM provides level 1 and 2 support. b. EXAMPLES OF A SOFT BUNDLE: - -An offering which contains the Licensed Work packaged with Applet Author and a browser. Lotus manufactures the product and provides level 1 and 2 support; c. N.O. PACKAGE: - - A N.O. Package is a copy of a Licensed Work which was manufactured by NetObjects, and which is not Bundled with other hardware or software. 4.0 The Royalty Rate for new versions or upgrades will be determined by applying the same discount percentage as set forth above to the published list price for the new products or upgrades. 5.0 Notwithstanding anything in this Exhibit B to the contrary, the period commencing with the Effective Time, and ending 12/31/98 (the "Initial Period") shall be considered to be the first year of the Agreement for the purpose the Royalty Rate tables set forth in this Exhibit B, and IBM's Volume Commitment for the Initial Period shall be [***] units of Hard Bundle and [***] units of Soft Bundle. DURING THE INITIAL PERIOD, IBM SHALL MAKE THE FOLLOWING NONREFUNDABLE PAYMENTS WHICH SHALL BE CREDITABLE AGAINST ROYALTIES AND PAYMENTS WHICH BECOME DUE PURSUANT TO THIS AGREEMENT. In the event that royalties which become due during the Initial Period are not sufficient to fully exhaust the foregoing credit, the remainder of the credit shall be applied against royalties and payments which become due in subsequent years: *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. April 1, 1997 (or the Effective Time, whichever is later) - $1,493,257.00 July 1, 1997 - $1,493,257.00 October 1, 1997 -$1,493,257.00 January 1, 1998-$1,493,257.00 April 1, 1998 -$1,493,257.00 July 1, 1998 -$1,493,257.00 October 1, 1998 -$1,493,258.00 In the event that IBM and its Subsidiaries sell greater than 100,000 cumulative units of Hard Bundle, Soft Bundle and N.O. Package units during the Initial Period, IBM shall receive a credit of $250,000. which shall be applied in calendar year 1999 against royalties due pursuant to this Agreement, to be applied in 4 (four) equal quarterly amounts of $62,500. EXHIBIT C SOURCE CODE CUSTODY AGREEMENT BASE AGREEMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This Source Code Custody Agreement ("SCCA") between NetObjects Corporation ("NetObjects"), __________________ ("Custodian") and International Business Machines Corporation ("IBM") describes the rights and obligations of the parties for the Escrowed Works that NetObjects delivers to Custodian. This SCCA supplements the NetObjects License Agreement number L97063 ("NLA"). The SCCA consists of this Base Agreement and its DESCRIPTIONS OF ESCROWED WORK ("DEWs"). Each DEW together with this SCCA forms a separate agreement. The SCCA is our complete agreement and replaces all prior oral or written communications between us regarding the Custodian's holding of the Escrowed Works in escrow. By signing below for our companies, the parties agree to the terms of this Base Agreement. Once signed, 1) all parties agree any reproduction of the SCCA made by reliable means (for example, photocopy or facsimile) is an original unless prohibited by local law and 2) all Escrowed Works are subject to it. Agreed To: Agreed To: NetObjects Corporation ("NetObjects") International Business Machines Corporation Corporation ("IBM") ----------------------------- By: By: ----------------------------------- ------------------------------- AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE Name: Name: ----------------------------------- ------------------------------- Date: Date: ----------------------------------- ------------------------------- NetObjects Address: IBM Office Address: Carolyn Kelly Route 100 ----------------------------------- Somers, NY 10589 ----------------------------------- Mail Drop 1139 ----------------------------------- IBM Source Code Custody Agreement #: ---------- Agreed To: - ---------------------------------------- License Agreement #: L97063 CUSTODIAN NAME By: IBM/NetObjects Confidentiality Agrmt. dated 4/29/96 ------------------------------------- Areement Agrm A AUTHORIZED SIGNATURE Name: ----------------------------------- Date: ----------------------------------- Custodian Address: ----------------------------------- ----------------------------------- -----------------------------------
IBM SOURCE CODE CUSTODY AGREEMENT BASE AGREEMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART 1 DEFINITIONS Capitalized terms in the SCCA have the following meanings. A DEW may define additional terms. However, those terms apply only to that DEW. PART 1.1 CODE is computer programming code including both Object Code and Source Code. a) OBJECT CODE is the computer programming code substantially in binary form, and includes header files of the type necessary for use or interoperation with other computer programs. It is directly executable by a computer after processing or linking, but without compilation or assembly. Object Code is all Code other than Source Code. b) SOURCE CODE is the computer programming code that may be displayed in a form readable and understandable by a programmer of ordinary skill. It includes related source code level system documentation, comments and procedural code. Source Code does not include Object Code. PART 1.2 DELIVERABLE is any item that NetObjects provides under the NLA. PART 1.3 DERIVATIVE WORK is a work that is based on an underlying work and that would be a copyright infringement if prepared without the authorization of the copyright owners of the underlying work. Derivative Works are subject to the ownership rights and licenses of a party or of others in the underlying work. PART 1.4 ENHANCEMENTS are changes or additions including versions and releases, other than Error Corrections, to the Licensed Work during the term of the NLA. PART 1.5 ERROR CORRECTIONS are revisions that correct errors and deficiencies (collectively referred to as "Errors") in the Licensed Work created during the term of the NLA. PART 1.6 ESCROWED WORKS are the materials, including all updates to them, that are described in a Description for Escrowed Work ("DEW"). They include: a) the Source Code for the Licensed Work in machine-readable form, including all updates to it, and the Source Code level system documentation in hard and soft copy form; b) a list of all Source Code modules of the Licensed Work; c) a directory listing for each machine-readable medium; d) commentary required to understand and use the Source Code; e) a list of all Tools, both those that are commercially available, and those that are not provided by IBM and are not commercially available; and f) the Tools that NetObjects is required to escrow under the License Agreement. PART 1.7 EXTERNALS are (1) any pictorial, graphic, and audiovisual works (such as icons, screens, sounds, toolbars, palettes and characters) generated by execution of Code, and (2) any programming interfaces, languages or protocols implemented in Code to enable interaction with other computer programs or the end user, including application program interfaces ("API"). Externals do not include the Code that implements them. PART 1.8 LICENSE AGREEMENT is the NetObjects License Agreement between IBM and NetObjects Corporation number L97063, dated March 18, 1997 ("NLA"). PART 1.9 LICENSED WORK is (1) any material described in EXHIBIT A "Description of Licensed Work", or that is delivered to IBM as the Licensed Work, including (but not limited to) Code, associated documentation, and Externals, and (2) Error Corrections and Enhancements. PART 1.10 PRODUCT is an offering to customers or other users, whether or not branded by IBM or its Subsidiaries, that includes the Licensed work or a Derivative Work of the Licensed Work. PART 1.11 RELEASE EVENTS are the following occurrences when IBM may demand that Custodian deliver the Escrowed Works to IBM: a) NetObjects has voluntarily filed a petition under any insolvency or bankruptcy statute in the United States; b) NetObjects has voluntarily sought reorganization under any insolvency or bankruptcy statute; c) NetObjects has acknowledged in writing its insolvency or inability to pay its debts as they become due; d) A petition has been filed or a proceeding commenced against NetObjects by a third party under any bankruptcy or insolvency statute, which has resulted in an order for relief or which has not been discharged by NetObjects within one hundred eighty (180) days of such filing or commencement of proceedings, whichever comes first; e) NetObjects has materially failed to comply with its obligations to provide maintenance and support under the NLA; or f) NetObjects has materially failed to comply with its obligation to improve and enhance its FUSION product as set forth in EXHIBIT D of the NLA. PART 1.12 TOOLS include devices, compilers, programming documentation, media or other items required for the development, maintenance or implementation of a Licensed Work or other Deliverable that are not commercially available. PART 2 ESCROWED WORKS DEPOSITS PART 2.1 NetObjects will: a) deposit with Custodian two (2) copies of Escrowed Works for each Licensed Work described in a DEW. NetObjects will identify each item in the deposit by labeling it; b) deliver the Escrowed Works in good condition in sealed containers; c) provide Custodian with a nonconfidential notice of all items contained in each container; and d) replace all lost or damaged Escrowed Works within three (3) days of notice from Custodian. PART 2.2 Custodian will: a) accept each Escrowed Works deposit in trust for IBM and send IBM a notice confirming receipt within three (3) business days; b) retain both the original Escrowed Works and any updates to them. Together, these will comprise Escrowed Works; c) match all items on the nonconfidential notice to the labels on Escrowed Works; d) take all reasonable steps to protect and store Escrowed Works in appropriate containers and atmospheric conditions, segregated from other materials; e) promptly provide notice to IBM and NetObjects in the event of lost or damaged Escrowed Works; and f) store a copy of this SCCA and the nonconfidential notice of items with Escrowed Works. PART 2.3 If IBM provides Custodian notice to return to NetObjects or to destroy certain portions of Escrowed Works, Custodian will do so and provide notice to NetObjects and IBM when complete. PART 3 ESCROWED WORKS VERIFICATION PART 3.1 Unless IBM and Custodian agree in writing, Custodian is not responsible for technical verification that Escrowed Works are complete, accurate and current. IBM may, at its expense, hire a party qualified to do this verification. NetObjects will reimburse IBM's expenses if the Escrowed Works do not comply with the requirements of this SCCA. PART 3.2 Verification includes generating Object Code from Source Code for each Licensed Work. The verifier will witness the transfer of the verified Source Code to deposited media. NetObjects will supervise the verification which will be conducted at NetObjects' facilities unless otherwise agreed by IBM and NetObjects. PART 3.3 One technical IBM employee may witness verification. To the extent possible, verification will be done in a way that does not expose the Source Code to the IBM employee. If this is not possible, the IBM employee will treat the Source Code according to Section 4.3d of this SCCA. PART 4 RELEASE OF ESCROWED WORKS PART 4.1 In the event that IBM seeks to obtain any release of the Escrowed Works, IBM will give NetObjects and Custodian a written notice describing the Release Event which it believes has occurred. The notice will state that IBM intends to demand release of the Escrowed Works, and will describe the Release Event in detail. If the Release Event is any one or more of the Release Events described in Sections 1.11 (a) - (d) of this SCCA, Custodian will deliver the Escrowed Works to IBM five (5) business days after receipt of the above described notice, unless NetObjects has given Custodian and IBM written notice that the Release Event does not exist or has been cured and provides substantiating documentation thereof, together with IBM's written concurrence that the Release Event did not occur or was cured. If this occurs, Custodian will not release the Escrowed Works to IBM. If the Release Event described in IBM's notice is described in Section 1.11(e), Custodian will deliver the Escrowed Works to IBM five (5) business days after receipt of the notice from IBM, unless NetObjects has provided written notice to Custodian and IBM that it contests that the Release Event has occurred. In such case, IBM and NetObjects will not use the dispute resolution process provisions of Section 10.13 of the NLA, but will attempt to resolve the matter within the next five (5) business days. If they are unable to resolve the disagreement within that time, Custodian will release the Escrowed Works to IBM and IBM shall solely be entitled to use such works for the purpose of performing NetObjects' maintenance and support obligations. Thereafter, NetObjects will be entitled to invoke the dispute resolution provisions of Section 10.13 of the NLA, and if NetObjects prevails in such proceeding, IBM will return the Escrowed Works to Custodian when a court of competent jurisdiction finally determines that a Release Event under Section 1.11(e) has not occurred. If the Release Event described in IBM's notice is described in Section 1.11 (f), Custodian will deliver the Escrowed Materials to IBM five (5) business days after receipt of the notice from IBM unless NetObjects has provided written notice to Custodian and IBM that it contests that the Release Event has occurred. In such case, NetObjects will be entitled to invoke the dispute resolution provisions of Section 10.13 of the NLA. If the dispute is not resolved within sixty (60) days, Custodian will deliver the Escrowed Works to IBM for its use solely for the purpose of performing NetObjects' product improvement and enhancement obligations as provided in the NLA. If NetObjects prevails in such proceeding, IBM will return the Escrowed Works to Custodian when a court of competent jurisdiction finally determines that a Release Event under Section 1.11 (f) has not occurred. In no event will Custodian be required to independently verify that a Release Event has occurred. PART 4.2 If IBM determines that it does not have a complete set of Escrowed Works, IBM may request them from NetObjects. NetObjects will provide the materials required within three (3) days of IBM's request. PART 4.3 IBM will: a) use Escrowed Works solely as permitted under the NLA; b) own any Derivative Works of Escrowed Works that it creates, subject to NetObjects' rights in the underlying work; c) pay NetObjects the royalties specified in the NLA to maintain its rights to the Licensed Works; and d) treat Escrowed Works according to the AECI. In addition to the confidentiality obligations set forth in the AECI, IBM agrees that for a period of ten (10) years from the date of receipt of Licensed Work Source Code: i) to only make available the Licensed Work Source Code to IBM's employees, its agents, subsidiaries and subcontractors on a "need to know basis"; and ii) to only use Source Code in accordance with the terms of the NLA, and not to disclose it to others except as set forth herein. IBM shall protect the Source Code using at least the same degree of care as it uses to protect its own Source Code of a like nature, and in no event less than reasonable care. PART 4.4 The occurrence of Release Events does not relieve NetObjects of its obligations under the SCCA. PART 4.5 When NetObjects signs the DEW, NetObjects grants IBM, its subsidiaries, successors and assigns all right and title to the media containing the Escrowed Works. PART 4.6 If Escrowed Works are released to IBM, IBM retains its rights to the Licensed Works as provided in the NLA. This includes IBM's right to use NetObjects' trademarks and product names. PART 5 NETOBJECTS' WARRANTY NetObjects represents and warrants that: a) it has all rights necessary for IBM to maintain, support and modify the Licensed Works; b) it has the authority to deliver the Escrowed Works to the Custodian; c) Escrowed Works are sufficient to allow a programmer of ordinary skill to understand, maintain and prepare Derivative Works using the Source Code version of the Licensed Work; and d) Escrowed Works are complete, accurate and current. PART 6 LIABILITY AND INDEMNIFICATION PART 6.1 Custodian will take all reasonable precautions to prevent disclosure of Escrowed Works to unauthorized third parties. PART 6.2 Custodian is liable only for willful misconduct, gross negligence and fraud in performing its duties under this SCCA. Custodian is not liable if NetObjects or IBM fails to comply with any provision of the NLA or this SCCA. Custodian is not liable for acting on any notice that it in good faith believes to be genuine and legitimate. PART 6.3 If a third party makes a claim against Custodian: a) NetObjects will indemnify Custodian for claims based on NetObjects' failure to comply with this SCCA; and b) IBM will indemnify Custodian for claims based on IBM's failure to comply with this SCCA. These indemnities do not apply where it is found that Custodian acted with willful misconduct, gross negligence or fraud. PART 6.4 The indemnifying party will pay any settlement amount that it authorizes and all costs, damages and attorney's fees that a court finally awards if Custodian: a) promptly provides the indemnifying party notice of the claim; and b) allows the indemnifying party to control and cooperates with it in the defense of the claim and settlement negotiations. Custodian may participate in the proceedings at its option and expense. PART 7 TERM AND TERMINATION PART 7.1 This SCCA begins when all parties sign it and continues until terminated. The terms of the SCCA apply to a Licensed Work when the parties sign the associated DEW. IBM may, at its option, extend the term of any DEW for additional years as described in PAYMENT. IBM may, for its convenience, terminate this SCCA or any DEW on notice to Custodian and NetObjects. However, this SCCA will continue for any DEWs already in place until they are terminated or expire. PART 7.2 Custodian will destroy any remaining Escrowed Works thirty (30) days after the expiration or termination of the DEW unless IBM provides notice otherwise. PART 7.3 Any terms of this SCCA that by their nature extend beyond its termination (for example, RELEASE OF ESCROWED WORKS, LICENSE TO ESCROWED WORKS and LIABILITY AND INDEMNIFICATION) will survive. These terms will apply to the parties' respective successors and assigns. PART 7.4 If Custodian cannot continue its responsibilities, Custodian may resign by giving IBM and Netobjects ninety (90) days' notice. IBM will select a successor custodian to assume Custodian's responsibilities. PART 8 COORDINATORS PART 8.1 SCCA Coordinators responsible to administer all matters associated with this SCCA and its exhibits are: FOR: IBM FOR: NETOBJECTS CORPORATION ----------------------------- ---------------------------- CORPORATIONETOBJECTS Name: Carolyn Kelly Name: Michelle Smith ----------------------------- ---------------------------- Title/Dept: Procurement Professional Title/Dept: Engineering Products Manager ----------------------------- ---------------------------- Address: Rte. 100 Address: 2055 Woodside Road ----------------------------- ---------------------------- Somers, NY 10589 Redwood City, CA 94061 ----------------------------- ---------------------------- MD# 1139 ----------------------------- ---------------------------- Phone: 914-766-1732 Phone: ----------------------------- ---------------------------- Facsimile: 914-766-1789 Facsimile: ----------------------------- ---------------------------- FOR: ------------------------------- Name: ------------------------------- Title/Dept: ------------------------------- Address: ------------------------------- ------------------------------- ------------------------------- Phone: ------------------------------- Facsimile: -------------------------------
PART 1.1 Each of us will assign an Escrowed Work Coordinator in the DEW. These coordinators are responsible to administer matters associated with the DEW. The SCCA Coordinator and the Escrowed Work Coordinator may be the same person. A party will provide notice to the others when coordinators change. PART 2 PAYMENT PART 2.1 IBM will pay Custodian within thirty (30) days after receipt of an acceptable invoice for services under active DEWs. All payments will be made in U.S. dollars. The EXHIBIT: FEE SCHEDULE identifies the specified period of Custodian's services and the firm fees for that period. Custodian may propose a revised fee schedule to the IBM SCCA Coordinator no later than ninety (90) days before the end of the specified period. The IBM SCCA Coordinator will notify Custodian if it accepts or rejects the proposed fee schedule. If rejected, the IBM and Custodian SCCA Coordinators will negotiate a new fee schedule for the next period. The IBM and Custodian SCCA Coordinators add the new fee schedule to the SCCA by initialing and dating it. If IBM and Custodian cannot agree to a new fee schedule for an active DEW, it will expire at the end of its term and IBM may select a successor custodian. Custodian will provide all assistance required to move the Escrowed Works to the successor custodian. PART 2.2 Custodian will invoice IBM for: a) all services to be performed under a DEW for one (1) year; and b) renewal of a DEW sixty (60) days before it expires. IBM may renew the DEW for an additional year by paying the renewal fees. If Custodian does not receive the renewal fees within thirty (30) days, it will notify the IBM Escrowed Work Coordinator. If IBM does not pay the fees by the expiration date of the DEW, that DEW will expire. In addition to information required by the DEW, the invoice will identify this SCCA, the DEW and the services invoiced plus their associated fees. Custodian will submit all invoices as identified in the DEW. PART 3 GENERAL PART 3.1 Each party will comply with all applicable laws and regulations at its expense. This includes all export and import laws and regulations. PART 3.2 Except as provided in the SCCA, none of the parties may assign or transfer the SCCA or its rights under it or delegate or subcontract its obligations without the prior written approval of the other parties. Any attempt to do so is void. PART 3.3 If any provision of the SCCA is unenforceable at law, the rest of the provisions remain in effect. The headings in the SCCA are for reference only. They will not affect the meaning or interpretation of the SCCA. PART 3.4 No party will bring a legal action against another party more than two (2) years after the cause of action arose. All parties will act in good faith to resolve disputes. All parties waive their rights to a jury trial in any resulting litigation. Litigation will only be commenced in the State of New York. PART 3.5 All notices must be in writing. Except as provided in the SCCA, for a change to the SCCA to be valid, IBM and NetObjects must sign it. Other than changes to the Release Events, Custodian must also sign changes that affect its rights or obligations under the SCCA. IBM will provide Custodian with copies of all changes that Custodian is not required to sign. No approval, consent or waiver will be enforceable unless signed by the granting party. Failure to insist on strict performance or to exercise a right when entitled does not prevent a party from doing so later for that breach or a future one. PART 3.6 The substantive laws of the State of New York govern the SCCA. EX-10.4-1 21 EXHIBIT 10.4.1 EXHIBIT 10.4.1 April 30, 1997 Mr. Morris Taradalsky Executive Vice President NetObjects, Inc. 2055 Woodside Road Redwood, CA 94061 Dear Mr. Taradalsky: This is Amendment Number 1 to NetObjects License Agreement L97063, between International Business Machines Corporation and NetObjects, Inc. dated March 18, 1997 (the "Agreement"). Capitalized terms used herein shall have the meanings set forth in the Agreement. The following section shall be added to Exhibit B to the Agreement, entitled "Royalty Rate for Licensed Works": Section 3.7 "Internal Copies" shall mean copies of the Licensed Works which are provided to Employees of IBM and IBM Subsidiaries, as well as agents and contractors working for and on behalf of IBM or an IBM Subsidiary, where such copies are intended for use by such persons to perform productive work on behalf of IBM or any IBM subsidiary, and not for resale. In lieu of the Royalty Rates set forth in 3.1 through 3.5 of this Exhibit B, IBM shall pay NetObjects a one time fee of [***] dollars ($[***].00), within 45 days after this Amendment is executed by both parties, for all Internal Copies of NetObjects Fusion 2.0, and all upgrades thereto which are made available by NetObjects during the first 12 months after the date of this Amendment. After the initial 12 month period, at IBM's option, and subject to the most favored customer pricing terms contained in Section 5.5 of the Agreement, IBM may elect: 1) to pay for individual Internal Copy upgrades at the per copy Royalty Rates set forth in Sections 3.1 though 3.5 of this Agreement, or 2) to pay a single Upgrade Fee for all copies calculated as follows: Internal Copies Upgrade Fee = $[***]. multiplied by (retail price of upgrade divided by $[***].00) *** Portions of this exhibit has been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. Mr. Taradalsky Page 2 April 30, 1997 Upon receipt of the payment required in this Section 3.7, three thousand (3,000) units shall be counted towards IBM's fulfillment of its Volume Commitment for the Initial Period. However, IBM shall be entitled to an unlimited number of Internal Copies of NetObjects Fusion 2.0. All other terms and conditions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment Number 1 to be executed below by their duly authorized representatives. ACCEPTED AND AGREED TO: INTERNATIONAL BUSINESS NETOBJECTS, INC. MACHINES CORPORATION BY: /s/ R.G. Anderegg BY: /s/ Morris Taradalsky NAME: R.G. Anderegg NAME: Morris Taradalsky TITLE: Assistant General Counsel TITLE: EVP Business Development Date: 4/30/97 Date: 4/30/97 EX-10.4-2 22 EXHIBIT 10.4.2 EXHIBIT 10.4.2 SECOND AMENDMENT TO NETOBJECTS LICENSE AGREEMENT Agreement Number: L97063 This is the Second Amendment to the NetObjects License Agreement Number L97063, dated March 18, 1997 (the "Agreement"). This Second Amendment to the Agreement between NetObjects Corporation with an address at 2055 Woodside Road, Redwood City, California 94062 ("NetObjects") and International Business Machines Corporation with an address at Route 100, Somers, New York 10589 ("IBM") ("Amendment") is effective as of October 7, 1997. All capitalized terms and definitions used in this Amendment and not otherwise defined herein shall have the meanings given them in the Agreement. In consideration of the covenants and agreements contained herein, the parties hereto agree to amend the Agreement as follows: I. THE FOLLOWING IS HEREBY ADDED TO SECTION 5.0 OF EXHIBIT B OF THE AGREEMENT AS THE THIRD PARAGRAPH OF SECTION 5.0 (FOLLOWING THE PAYMENT SCHEDULE): In the even NetObjects requests that IBM make a payment in advance of the date such payment becomes due under the above schedule, IBM shall make this payment and NetObjects agrees to pay IBM interest on the advance payment at rate of 7.5% per annum. This interest will start accruing on the date that such advance payment is made by IBM, and will continue to accrue until the date that such payment becomes due under the foregoing payment schedule. The interest expense incurred by NetObjects is payable to IBM quarterly, on the last day of each calendar quarter. The sum of all payments made under the above schedule and the advance payments made by IBM to NetObjects hereunder will not exceed the total amount due NetObjects under the foregoing schedule (i.e. $10,452,800.00). For example, if IBM pays NetObjects a $3,000,000.00 advance on August 1, 1997, 7.5% interest will accrue on the full $3,000,000.00 from August 1 until September 30, 1997. On September 30, the 7.5% interest payment that has accrued from August 1 until September 30 will be paid to IBM. On October 1, 1997, a payment of $1,493,257.00 becomes due under the foregoing schedule. From October 1, 1997 until January 1, 1998, 7.5% interest will continue to accrue on the remaining $1,506,743.00 ($3,000,000.00 - $1,493,257.00). On December 31, the 7.5% interest payment that has accrued from September 30 until December 31 will be paid to IBM, and on January 1, 1998 a payment of $1,493,257.00 becomes due under the foregoing schedule, so that interest will continue to accrue only on the $13,486 that remains outstanding. The Agreement remains in full force and effect in accordance with its terms, except as such terms have been expressly modified by this Amendment. In the event of any conflict between the terms of this Amendment and the terms of the Agreement, this Amendment shall control. This Amendment constitutes the entire understanding of the parties with respect to its subject matter and merges and supersedes all prior communications, understandings and agreements between the parties concerning the subject matter hereof. This Agreement shall not be modified except by a writing subsequently dated, signed on behalf of each party by a duly authorized representative. This Amendment is executed by the authorized representatives of the parties as of this date first set forth above. NETOBJECTS, INC. By: /s/ Michael J. Shannahan Name: Michael J. Shannahan Title: Chief Financial Officer Date: Sept. 30, 1997 ------------------------------- INTERNATIONAL BUSINESS MACHINES CORPORATION By: Name: Title: Date: ------------------------------- EX-10.4-3 23 EXHIBIT 10.4.3 EXHIBIT 10.4.3 THIRD AMENDMENT TO NETOBJECTS LICENSE AGREEMENT Agreement Number: L97063 Third Amendment, effective December 16, 1997 (the "Amendment) to the NetObjects License Agreement, dated March 18, 1997 (the "Agreement"), between NetObjects Corporation with an address at 602 Galveston Drive, Redwood City, California 94063 ("NETOBJECTS") and International Business Machines Corporation with an address at Route 100, Somers, New York 10589 ("IBM"). All capitalized terms and definitions used in this Amendment and not otherwise defined herein shall have the meanings given them in the Agreement. In consideration of the covenants and agreements contained herein, the parties hereto agree to amend the Agreement as follows: I. EXHIBIT A OF THE AGREEMENT IS HEREBY AMENDED AS FOLLOWS. The definition of Object Code Licensed Work is hereby deleted in its entirety and replaced with the following: "Object Code Licensed Work: NETOBJECTS Fusion ("Fusion"), Team Fusion ("Team Fusion") and all future updates, versions, successor products and derivative works of each of the foregoing products." II. THE FOLLOWING IS HEREBY ADDED TO THE AGREEMENT AS SECTION 11. 11.0 LOCALIZATION OF LICENSED WORK 11.1 NETOBJECTS grants to IBM, a nonexclusive, worldwide right and license, without right to sublicense (except to its Subsidiaries and subcontractors), to use the Licensed Work in source code form and related documentation and specifications solely for the purpose of enabling it and translating it into all IBM Group 1 languages (attached as Appendix A), (the "Translated Versions"). Each Translated Version shall be deemed a Derivative Work as defined in the Agreement. The rights and licenses granted by NETOBJECTS to IBM under this Section 11.1 include the right of IBM to authorize or sublicense its Subsidiaries and subcontractors, to exercise any of the rights granted to IBM hereunder. The Translated Versions shall be created by Lotus Development Corporation, a wholly owned subsidiary of IBM ("LOTUS"). 11.2 Promptly following execution of this Amendment, NETOBJECTS AND LOTUS shall jointly develop and agree upon a project plan (the "Project Plan") for creation of the Translated Versions. NETOBJECTS shall provide engineering and business assistance to LOTUS, as may be required, to support LOTUS in completing the work under the Project Plan. The Project Plan shall include a projected budget for the total cost of developing the Translated Versions (the "Budget"), projected expenses for each Translated Version, and the projected date of completion for each Translated Version. In the fourth quarter of each calendar year, LOTUS shall provide NETOBJECTS with an updated Budget and an estimate of the expenditures for the coming year. Any changes to the Budget and/or completion dates, shall be agreed to in advance by both parties. 11.3 TRANSLATION COST. Lotus shall track the amount spent developing the Translated Versions and shall submit the amount to NETOBJECTS in quarterly invoices. The total amount spent by LOTUS, on the Translated Versions, from the date the development work begins until December 31, 1999 shall be referred to herein as the ("Translation Cost"). 11.4 Lotus shall perform the development work to enable Fusion, version 2, to be translated. Until December 31, 1999, Lotus shall be responsible for translating Fusion into the IBM Group 1 languages; thereafter, NETOBJECTS may elect to have Lotus continue the translation work or may seek an alternative vendor. 11.5 NETOBJECTS shall own all rights, title and interest in and to the Translated Versions. LOTUS hereby assigns and transfers to NETOBJECTS all ownership rights it may have in the Translated Versions. LOTUS shall transfer source code and the Translated Versions to NETOBJECTS upon completion of agreed to Project Plan for each language. 11.6 ENABLEMENT OF FUSION 3.0. (a) Ninety (90) days after first customer ship of Fusion 3.0, NETOBJECTS shall deliver to Lotus a version of Fusion 3.0 that is fully enabled for international use and ready for translation. LOTUS and IBM shall assist NETOBJECTS by consulting on this process and by providing NETOBJECTS with a copy of Lotus' enablement procedures contained in the "ISV Development Checklist" which is attached as Exhibit A and incorporated by reference. (b) In the event that NETOBJECTS is unable to deliver the fully-enabled version of Fusion 3.0 in the time frame provided above, Lotus may, at its option, enable Fusion 3.0 and the cost of such development work shall be included in the Translation Cost. 11.7. DISTRIBUTION. (a) NETOBJECTS hereby grants IBM a nonexclusive, worldwide, irrevocable license during the Term (as defined in Section 8.1) to use, execute, reproduce, display, perform, transfer, distribute, transmit and sublicense the Translated Versions in Object Code form, in any medium or distribution technology whatsoever, whether now known or hereafter invented. The rights and licenses granted by NETOBJECTS to IBM under this Section 11.8 include the right of IBM to authorize or sublicense its Subsidiaries, subcontractors, and Distributors to exercise any of the rights granted to IBM hereunder. (b) NETOBJECTS will establish an Estimated Retail Price ("ERP") for each of the Translated Versions. (c) Maintenance and support for the Licensed Works shall be provided, in accordance with Exhibit F of the Agreement. 11.8 REPAYMENT. (a) NETOBJECTS shall reimburse IBM by giving it a [***] percent ([***]%) discount off of royalties owed, under the Agreement, for sales of the Licensed Work in markets outside of the U.S. (the "Royalty Discount"). The cumulative Royalty Discount shall be tracked and reported to NETOBJECTS on a quarterly basis. The Royalty Discount shall be IBM's sole means of recovering the Translation Cost. (b) If on or before December 31, 1999, the cumulative Royalty Discount is equal to or greater than the Translation Cost multiplied by [***], then the Translation Cost will have been repaid in full and Royalty Discount shall no longer remain in effect. (c) Between December 31, 1999 and December 31, 2000, if the cumulative Royalty Discount is equal to or greater than the Translation Cost multiplied by [***], then the Translation Cost will have been repaid in full and the Royalty Discount shall no longer remain in effect. (d) If on or before December 31, 2000, the cumulative Royalty Discount is not equal to or greater than the Translation Cost multiplied by [***], then IBM shall continue to receive the Royalty Discount until such time as the cumulative Royalty Discount equals the Translation Cost multiplied by [***]. 11.9 PUBLIC ANNOUNCEMENTS. Prior to execution of this Amendment, neither party shall make any public announcements about this Amendment or the parties' discussions without the other party's prior written consent. The parties agree that any announcements concerning this Amendment shall be a mutually agreed upon joint announcement. The Agreement remains in full force and effect in accordance with its terms, except as such terms have been expressly modified by this Amendment. In the event of any conflict between the terms of this Amendment and the terms of the Agreement, this Amendment shall control. This Amendment constitutes the entire understanding of the parties with respect to its subject matter and merges and supersedes all prior communications, understandings and agreements between the parties concerning the subject matter hereof. This Agreement shall not be modified except by a writing subsequently dated, signed on behalf of each party by a duly authorized representative. Executed by the authorized representatives of the parties as of the date first set forth above. NETOBJECTS, INC. INTERNATIONAL BUSINESS MACHINES CORPORATION By: By: Name: Name: Title: Title: Date:_________________________________ Date:_________________________________ *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. EX-10.4-4 24 EXHIBIT 10.4.4 EXHIBIT 10.4.4 FOURTH AMENDMENT TO NETOBJECTS LICENSE AGREEMENT Agreement Number: L97063 Fourth amendment, dated April 27, 1998 (the "Amendment) to the NetObjects License Agreement, dated March 18, 1997, including all amendments thereto (the "Agreement"), between NetObjects Corporation with an address at 602 Galveston Drive, Redwood City, California 94063 ("NETOBJECTS") and International Business Machines Corporation with an address at Route 100, Somers, New York 10589 ("IBM"). All references herein to "LOTUS" shall mean Lotus Development Corporation, an IBM subsidiary, with an address at 55 Cambridge Parkway, Cambridge, Massachusetts 02142. All capitalized terms and definitions used in this Amendment and not otherwise defined herein shall have the meanings given them in the Agreement. In consideration of the covenants and agreements contained herein, the parties hereto agree to amend the Agreement as follows: 1. The following definition is hereby added to the Agreement as Section 1.15: "Average Selling Price" or "ASP" is the average amount of net revenue that IBM and LOTUS are able to recognize for the standalone license of the Licensed Work over the course of a calendar quarter." 2. The following definition is hereby added to the Agreement as Section 1.16: "Maintenance" is the right, at IBM'S or LOTUS'S option, to receive, install and use commercially-available upgrades to the Licensed Work. Maintenance is sold on an annual basis." 3. The first paragraph of Exhibit A is hereby deleted in its entirety and replaced with the following: "Object Code Licensed Work: NETOBJECTS Fusion ("Fusion"), NETOBJECTS TeamFusion ("TeamFusion"), NETOBJECTS ScriptBuilder ("ScriptBuilder") and all future updates, versions, successor products and derivative works of each of the foregoing products." 4. The Royalty Rate table in Exhibit B, Section 3.2 is hereby deleted in its entirety and replaced with the following: "The Hard Bundle Royalty Rate is [***]% of ASP of the Licensed Work." 5. The Royalty Rate table in Exhibit B, Section 3.3 is hereby deleted in its entirety and replaced with the following: *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. "The Soft Bundle Royalty Rate is [***]% of ASP of the Licensed Work." 6. Section 3.4 of Exhibit B is hereby deleted in its entirety and replaced with the following: "A. "The Royalty Rate for Licensed Works that are not Bundled with any hardware or software, and for which NETOBJECTS provides level 3 support ("N.O. Package") is [***]% of ASP for the Licensed Work. NETOBJECTS shall include with each N.O. Package sufficient information to inform end users of IBM'S contact information for Level 1 and Level 2 support, and IBM shall provide Level 1 and Level 2 support for the N.O. Package. B. The Royalty Rate for Volume N.O. Packages may be renegotiated, at LOTUS'S and/or IBM'S option, three months after the date of execution of this Amendment and thereafter whenever the pricing structure of either the Licensed Work or LOTUS'S and/or IBM'S volume sales program is adjusted." C. The Royalty Rate for Maintenance of the Licensed Work is [***]% of the applicable Royalty Rate for such Licensed Work." 7. Section 3.5 of Exhibit B is hereby deleted in its entirety and replaced with the following: "A. IBM, LOTUS and NETOBJECTS agree to negotiate, in good faith, separate royalty arrangements for special (e.g., OEM) or promotional bundles. B. In the event that IBM or LOTUS desire to materially discount the price of the Licensed Work, IBM/LOTUS shall involve NETOBJECTS in IBM/LOTUS'S applicable 'Pricing Exception Process' and the parties agree to promptly negotiate in good faith an appropriate reduction in the applicable Royalty Rate." 8. Section 3.7 of Exhibit B is hereby deleted in its entirety and replaced with the following: "SECTION 3.7 INTERNAL USE LICENSES. 3.7.1 "Internal Copies" shall have the following meaning: * for IBM, copies of the Licensed Works which are provided to Employees of IBM and IBM Subsidiaries, as well as agents and contractors working for and on behalf of IBM or an IBM Subsidiary, where such copies are intended for use by such persons to perform productive work on behalf of IBM or any IBM Subsidiary, and not for resale; and * for NETOBJECTS, copies of LOTUS SmartSuite, LOTUS Domino and LOTUS Notes which are provided to Employees of NETOBJECTS, as well as agents and contractors working for and on behalf of NETOBJECTS, where such copies are *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. intended for use by such persons to perform productive work on behalf of NETOBJECTS, and not for resale. NETOBJECTS agrees to use all such Internal Copies in accordance with the LOTUS Software Agreement governing the use of such LOTUS products. 3.7.2 In lieu of the Royalty Rates set forth in Sections 3.1 through 3.5 of this Exhibit B, IBM has paid NETOBJECTS a one time fee of [***] dollars ($[***].00) for all Internal Copies of NETOBJECTS Fusion 2.0 and all upgrades thereto which are made available by NETOBJECTS through April 30, 1998. After April 30, 1998, at IBM'S option, and subject to the most favored customer pricing terms contained in Section 5.5 of the Agreement, IBM may elect 1) to pay for individual Internal Copy upgrades at the per copy Royalty Rates set forth in Sections 3.1 though 3.5 of this Agreement, or 2) to pay [***]% of the Internal License Fee, per annum, for upgrades for all of the Internal Copies. 3.7.3 IBM has agreed, during the Term of this Agreement, to provide to NETOBJECTS Internal Copies of LOTUS SmartSuite, LOTUS Domino and LOTUS Notes in exchange for NetObject's agreement, during the Term of this Agreement, to provide to IBM Internal Copies of TeamFusion and Scriptbuilder. The Internal Copies for the products set forth in this Section 3.7.3 include all Enhancements and Error Corrections thereto made commercially available during the term of this Agreement. Support for the LOTUS/IBM products set forth in this Section 3.7.3 is NOT included, and may be separately acquired (for a fee) by NETOBJECTS. Either party may terminate the license to these Internal Copies as follows: i) within thirty days following notice of material breach given to licensee, provided that such breach has not been cured within such thirty day period, or ii) for convenience upon no less than ninety (90) days' prior written notice; provided, however, that such termination shall apply solely to the deployment of: i) new copies of the Internal Copies, and ii) any Enhancements and/or Error Corrections to the Internal Copies. 9. Modify Section 5.0 of Exhibit B as follows: Delete the first paragraph in its entirety, and delete and replace the first sentence of the second paragraph with the following: "During the period commencing with the Effective Time, and ending 12/31/98 (the "Initial Period"), IBM shall make the following nonrefundable payments which shall be creditable against royalties and payments which become due pursuant to this Agreement." 10. All changes to Royalty Rates made in this Amendment shall be deemed effective as of September 1, 1997 and shall apply to all sales of the Licensed Works made since that date. *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment Rule 406. The Agreement remains in full force and effect in accordance with its terms, except as such terms have been expressly modified by this Amendment. In the event of any conflict between the terms of this Amendment and the terms of the Agreement, this Amendment shall control. This Amendment constitutes the entire understanding of the parties with respect to its subject matter and merges and supersedes all prior communications, understandings and agreements between the parties concerning the subject matter hereof. This Agreement shall not be modified except by a writing subsequently dated, signed on behalf of each party by a duly authorized representative. Executed by the authorized representatives of the parties as of the date first set forth above. NETOBJECTS, INC. INTERNATIONAL BUSINESS MACHINES CORPORATION By: /s/ Michael J. Shannahan By: ------------------------------ ------------------------------ Name: Michael J. Shannahan Name: ---------------------------- ---------------------------- Title: VP & CFO Title: --------------------------- --------------------------- Date: 4/27/98 Date: ---------------------------- ---------------------------- EX-10.4-5 25 EXHIBIT 10.4.5 EXHIBIT 10.4.5 FIFTH AMENDMENT TO NETOBJECTS LICENSE AGREEMENT Agreement Number: L97063 Fifth amendment, effective January 14, 1999 (the "Amendment") to the NetObjects License Agreement, dated March 18, 1997, including all amendments thereto (the "Agreement"), between NetObjects Corporation with an address at 301 Galveston Drive, Redwood City, California 94063 ("NETOBJECTS") and International Business Machines Corporation with an address at Route 100, Somers, New York 10589 ("IBM"). All capitalized terms and definitions used in this Amendment and not otherwise defined herein shall have the meanings given them in the Agreement. In consideration of the covenants and agreements contained herein, the parties hereto agree to amend the Agreement as follows: The following sections are added to Exhibit B of the Agreement, entitled "Royalty Rate for Licensed Works": 3.8 Business Partner Package 3.8.1 "Business Partner Package" shall mean a copy of a Licensed Work that is not Bundled with any hardware or software, and is licensed to IBM Business Partners (as defined below) in accordance with the terms of the applicable NetObjects end user license for the Licensed Work. 3.8.2 "IBM Business Partner" shall mean a business entity through which IBM or its Subsidiaries, directly or indirectly, markets products or services to customers in the regular course of business, including IBM's Subsidiaries or its or their agents, distributors, dealers, resellers, remarketers, solution providers, and integrators, pursuant to (i) a written agreement or (ii) qualification under an approved business partner program. 3.8.2 Business Partner Packages may be distributed by IBM to IBM Business Partners from the effective date of this Amendment and continuing for the term of the Agreement. 3.8.3 In lieu of the Royalty Rates set forth in Sections 3.1 through 3.5 of Exhibit B, the Royalty Rate for Business Partner Packages is [***]% of the Royalty Rate for N.O. Packages. *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. All other terms of the Agreement remain in full force and effect and shall apply to Business Partner Packages, except as expressly provided above. Any copy of this Amendment by reliable means, for example photocopy or facsimile, shall be deemed an original. This Amendment shall not be altered except in a writing executed by the parties. This Amendment and the Agreement supersede all previous agreements relating to the subject matter hereof, whether oral or in writing, and constitute the entire agreement of the parties with respect to this subject matter IN WITNESS WHEREOF, the parties have caused this Amendment Number 5 to be executed below by their duly authorized representatives. INTERNATIONAL BUSINESS NETOBJECTS, INC. MACHINES CORPORATION BY: /s/ Eugenia C. Rerros BY: /s/ E. Cicogna ------------------------------- ----------------------------- NAME: Eugenia C. Rerros NAME: E. Cicogna ----------------------------- ---------------------------- TITLE: Contract Relations Advisor TITLE: VP Finance ---------------------------- --------------------------- DATE: 1/15/99 DATE: 1/15/99 ----------------------------- ---------------------------- EX-10.4-6 26 EXHIBIT 10.4.6 EXHIBIT 10.4.6 AMENDMENT NO. 6 TO NETOBJECTS LICENSE AGREEMENT This Amendment Number 6 to the NetObjects License Agreement, dated March 18, 1997 ("Agreement") between NetObjects Corporation ("NetObjects") with an address at 602 Galveston Drive, Redwood City, California 94063 and International Business Machines Corporation ("IBM") with an address at Route 100, Somers, New York 10589 is entered into on September 18, 1998 ("Effective Date"). All capitalized terms and definitions used in this Amendment and not otherwise defined herein shall have the meanings given them in the Agreement. In consideration of the covenants and agreements contained herein, the parties hereto agree to amend the Agreement as follows: 1. The following section is hereby added as Section 12 of the Agreement: 12.0 WebSphere Deliverables 12.1 Definitions. 12.1.1 "WebSphere Deliverables" shall mean the deliverables described on Exhibit 1 hereto. WebSphere Deliverables are Enhancements as defined in Section 1.7 of the Agreement. 12.1.2. "WebSphere Net Revenue" shall mean the gross revenue amount recorded by IBM in consideration for the licensing of a Bundle within which a WebSphere Version is integrated, excluding any amount received by IBM for sales and use taxes, shipping, insurance and duties, and reduced by discounts and refunds granted to customers and distributors. 12.1.3 "WebSphere Version" shall mean a Licensed Work that includes a WebSphere Deliverable. 12.2 NetObjects Responsibilities. NetObjects shall perform the activities described in Exhibit 1 hereto and will deliver the WebSphere Deliverables to IBM in accordance with Exhibit 1 hereto (including but not limited to the delivery schedule included in Exhibit 1). 12.3 IBM Responsibilities. 12.3.1 In consideration for the services performed by NetObjects to develop the WebSphere Deliverables, NetObjects shall bill IBM an amount equal to NetObjects' reasonable and actual time (e.g., employee hours) and materials (e.g., software development tools) cost for developing the WebSphere Deliverables ("Development Cost") plus [***] percent of the Development Cost (collectively, "IBM Payment"), provided that the maximum IBM Payment is [***] U.S. dollars [***]. NetObjects shall maintain detailed records according to generally-accepted accounting principles to support the amount of the Development Cost. 12.3.2 If the parties discuss or agree to material changes to Exhibit 1 hereto ("Statement of Work"), or if work is performed that is materially different from the work outlined in the Statement of Work, the IBM Payment will not exceed the maximum payment listed in Section 12.3.1 above (i.e., [***]) unless the parties first sign a written agreement to that effect. 12.3.3 The IBM Payment will be made in twelve (12) equal monthly installments beginning on the date of the Acceptance of the WebSphere Deliverables by IBM (as defined below), and the IBM Payment is to be applied against the prepaid royalties made by IBM in accordance with Section 5 of Exhibit B to the Agreement (i.e., on a monthly basis, NetObjects is to deduct the amount of the IBM Payment from the balance of IBM prepaid royalties which have not yet been credited against royalties for the Licensed Work). If the balance of royalties that have been prepaid by IBM in accordance with Section 5 of Exhibit B to the Agreement have been fully credited against royalties and payments for the Licensed Work in accordance with the Agreement before all twelve (12) installments of the IBM Payment have been made in accordance with this Section 12.3.3., IBM will pay any of the outstanding twelve (12) monthly installments on a monthly basis net thirty (30) days from the date of IBM's receipt of an acceptable invoice. 12.3.4 "Acceptance of the WebSphere Deliverables by IBM" or "Acceptance" shall mean the date on which IBM sends written notice to NetObjects of its acceptance of the WebSphere Deliverables. IBM will provide NetObjects with its Acceptance of the WebSphere Deliverables that conform to the acceptance criteria contained in Exhibit 1 no later than January 31, 1999 provided that NetObjects fulfills its obligations in accordance with Exhibit 1 hereto. 12.3.5 For the twelve (12) month period immediately following Acceptance ("First Year"), the WebSphere Versions will be provided to IBM hereunder royalty-free. After the First Year, the Royalty Rate for the WebSphere Version will be [***]% of the WebSphere Net Revenue instead of the Royalty Rate set forth in Exhibit B. On each anniversary of the Effective Date (i.e., September 18, 1999, September 18, 2000, September 18, 2001), the percentage used to calculate the Royalty Rate for a WebSphere Version will be subject to change by either party in *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. 2 accordance with the following process, provided that the maximum Royalty Rate for a WebSphere Version will be no more than [***] percent ([***]%) of the Royalty Rate for a Hard Bundle or Soft Bundle (whichever is applicable to the Bundle within which the WebSphere Version is integrated): 1. no later than ninety (90) days prior to the annual anniversary date of the Effective Date, either party may provide written notice ("Notice") to the other party requesting a change in the Royalty Rate for the WebSphere Version due to a change in the reasonable commercial value of the function of the WebSphere Version as compared to the reasonable commercial value of the function of the Bundle within which the WebSphere Version is integrated. At a minimum, such Notice will include a detailed list of all of the function and value included in the Bundle within which the WebSphere Version is included, and the corresponding reasonable commercial value of each item of function or value contained therein, including the WebSphere Deliverable; 2. the recipient of the Notice ("Recipient") will be provided with three (3) business days to ask the other party questions regarding the Notice, and all such questions will be answered within three (3) business days of their receipt; 3. if the Recipient accepts the revised Royalty Rate included in the Notice, the Royalty Rate for the WebSphere Version will be adjusted accordingly once the Recipient indicates its agreement by singing an acknowledgment line on the Notice; 4. if the Recipient does not agree to the newly proposed Royalty Rate included in the Notice, within seven (7) business days of its receipt of such Notice, the Recipient is to provide a detailed written justification for the existing Royalty Rate for the WebSphere Deliverable to the other party ("Justification"). At a minimum, such Justification shall include a detailed list of all of the function and value included within the Bundle within which the WebSphere Version is included and the reasonable commercial value of each item of function or value contained therein, including the WebSphere Deliverable; 5. the recipient of the Justification will be provided with three (3) business days to ask questions of the other party regarding the Justification, and all such questions will be answered within three (3) business days of their receipt; 6. within seven (7) business days after the Justification is received by the other party, the parties will meet to discuss the Notice and Justification, and potential resolution; and if no resolution is reached within five (5) business days after this meeting, upon mutual agreement of the parties, they may submit the Justification and Notice to a jointly chosen independent consulting group. The consulting group will be requested to *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. 3 issue an opinion which the parties may accept or reject. The consultant's fee will be paid by the parties equally; and 7. if no resolution is reached within five (5) business days following the consultant review above, the parties will submit the Notice and Justification (which the parties may revise as a result of the consultant review) to the dispute resolution process outlined in Section 10.13 of the Agreement Example as of October 1999 - THESE PRICES ARE HYPOTHETICAL AND DO NOT REFLECT IBM'S OR NETOBJECTS' PLANS
Proportion of Value at Execution of Contract --------------------------------------------- Reasonable Commercial Value of WebSphere Version - (current Team Fusion Estimated Selling Price) [***] Reasonable Commercial Value of additional function or value in the bundle - WebSphere Application Server [***] - Bean Machine [***] - Visual Age (Java Version) [***] ------ Proportion of Value = [***]/[***] = [***] [***] Proportion of Value as of October 1999 -------------------------------------- Reasonable Commercial Value of WebSphere Version - (future Team Fusion Estimated Selling Price) [***] Reasonable Commercial Value of additional function or value in the Bundle - WebSphere Application Server [***] - Bean Machine [***] - Visual Age (Java Version) [***] - Additional function or value [***] ------ [***] Proportion of Value = [***]/[***] = [***] ADJUSTED WEBSPHERE VERSION ROYALTY RATE AS OF OCTOBER 1999
*** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. 4 New Proportion of Value ------------------------------ X WebSphere Version Royalty Rate at Contract Execution = New Rate Old Proportion of Value [***]/[***] X [***]% = [***]% 12.3.5 At any time within six (6) months following Acceptance, and on thirty (30) days written notice to NetObjects, IBM shall be entitled, at its own expense, to retain an independent certified public accountant to review the books and records of NetObjects solely for the purpose of verifying the actual cost of developing the WebSphere Deliverables (i.e., verify the Development Cost). If such independent accountant determines that the actual cost of developing the WebSphere Deliverables is less than the Development Cost, then IBM shall only be required to pay to NetObjects such actual cost of development, and such actual cost of development shall be considered the Development Cost for the purposes of Section 22.3.1(a), 12.3.1(b), and 12.3.2 above. 2. The Agreement remains in full force and effect in accordance with its terms, except as such terms have been expressly modified by this Amendment. This Amendment and the Agreement constitute the entire understanding of the parties with respect to this subject matter and supersede all prior communications, understandings and agreements between the parties concerning the subject matter hereof. A copy of this Amendment by reliable means (e.g., facsimile or photocopy) will be deemed an original. ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO: INTERNATIONAL BUSINESS NETOBJECTS, INC. MACHINES CORPORATION BY: /s/ Eugenia C. Rerros BY: /s/ Ernest J. Cicogna ------------------------------ -------------------------- NAME: Eugenia C. Rerros NAME: Ernest J. Cicogna ---------------------------- ------------------------- TITLE: Contract Relations Advisor TITLE: VP Finance ---------------------------- ------------------------ DATE: 9/18/98 DATE: 9/18/98 ------------------------- ------------------------ *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. 5 EX-10.4-7 27 EXHIBIT 10.4.7 EXHIBIT 10.4.7 SEVENTH AMENDMENT TO NETOBJECT LICENSE AGREEMENT Agreement Number: L97063 Seventh Amendment, effective January 15, 1999, to the NetObjects License Agreement Number L97063 dated March 18, 1997 as amended ("Agreement") between NetObjects, Inc. with an address at 301 Galveston Drive, Redwood City, California 94063 ("NetObjects") and International Business Machines Corporation with an address at Route 100, Somers, New York 10589 ("IBM"). All capitalized terms and definitions used in the Amendment and not otherwise defined herein shall have the meanings give them in the Agreement. In consideration of the covenants and agreements contained herein, the parties hereto agree to amend the Agreement as follows: 1. Subparagraph (b) of the Section 11.8 titled "Repayment" is hereby deleted in its entirety and replaced with the following: "(b) Once the cumulative Royalty Discount, received by IBM is equal to or greater than the Translation Cost multiplied by [***], then the Translation Cost will have been repaid in full and Royalty Discount shall no longer remain in effect." 2. Subparagraphs (c) and (d) of the Section 11.8 titled "Repayment" are hereby deleted in their entirety. The Agreement remains in full force and effective in accordance with its terms, except as such terms have been expressly modified by the Amendment. In the event of any conflict between the terms of the Amendment and the terms of the Agreement, the Amendment shall control. This Amendment constitutes the entire understanding of the parties with respect to its subject matter and merges and supersedes all prior communications, understandings and agreements between the parties concerning the subject matter hereof. This Agreement shall not be modified except in writing subsequently dated, signed on behalf of each party by a duly authorized representative. Executed by the authorized representatives of the parties as of the date first set forth above. NETOBJECTS,INC INTERNATIONAL BUSINESS MACHINES CORPORATION By: /s/ E. Cicogna By: /s/ R.G. Anderegg -------------------------- ------------------------------- Name: E. Cicogna Name: R.G. Anderegg -------------------------- ------------------------------- Title: V.P. Finance Title: VP & Asst. General Counsel -------------------------- ----------------------------- Date: 1/18/99 Date: 1/22/99 -------------------------- ----------------------------- *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. EX-10.4-8 28 EXHIBIT 10.4.8 EXHIBIT 10.4.8 EIGHTH AMENDMENT TO NETOBJECT LICENSE AGREEMENT Agreement Number: L97063 This is the Eighth Amendment, effective September 18, 1998, to the NetObjects License Agreement Number L97063 dated March 18, 1997 as amended ("Agreement") between NetObjects, Inc. with an address at 301 Galveston Drive, Redwood City, California 94063 ("NetObjects") and International Business Machines Corporation with an address at Route 100, Somers, New York 10589 ("IBM"). All capitalized terms and definitions used in the Amendment and not otherwise defined herein shall have the meanings give them in the Agreement. In consideration of the covenants and agreements contained herein, the parties hereto agree to amend the Agreement as follows: 1. Section 12.3.1 of the Agreement (added thereto in Amendment Number 6) is hereby deleted in its entirety and replaced with the following: In consideration for the services performed by NetObjects to develop the Websphere Deliverables, NetObjects shall bill IBM an amount equal to NetObjects' reasonable and actual time (i.e., employee hours) and materials (e.g., software development tools, reasonable overhead) cost expended prior to February 28, 1999 in the development of the WebSphere Deliverables ("Development Costs") plus five percent of the Development costs (collectively the "IBM Payment"), provided that the maximum IBM Payment is [***] dollars ($[***]). NetObjects shall maintain detailed records according to generally accepted accounting principles to support the amount of the Development Costs. 2. The dollar amount (i.e., $[***]) in Section 12.3.2 of the Agreement (added thereto in Amendment Number 6) is hereby deleted and replaced with the dollar amount $[***]. 3. Section 12.3.3 of the Agreement (added thereto in Amendment No. 6) is hereby deleted in its entirety and replaced with the following: Between the Acceptance of the WebSphere Deliverables (as defined below) and March 30, 1999, on a quarterly basis, NetObjects will provide IBM a detailed summary of the Development Costs incurred. The IBM Payment is to be applied against prepaid royalties made by IBM in accordance with Section 5 of Exhibit B to the Agreement (i.e., on a quarterly basis, NetObjects is to deduct the amount of the IBM Payment from the balance of the IBM prepaid royalties which have not yet been credited against royalties for the Licensed Work). If the balance of royalties that have been prepaid by IBM in accordance with Section 5 of Exhibit B to the Agreement have been fully credited against royalties and payments for the Licensed Work in accordance with the Agreement before all of the quarterly bills have been submitted to IBM in accordance with Section 12.3.1, and all of the quarterly bills have been submitted to IBM prior to March 30, 1999, then IBM will *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. pay the quarterly bill within thirty (30) days from the date of IBM's receipt of an acceptable invoice. 4. The first two sentences in Section 12.3.5 of the Agreement (added thereto in Amendment Number 6) are hereby deleted in their entirety and replaced with the following: The Royalty Rate for the WebSphere Version will be [***] percent ([***]%) of the Royalty Rate for the Licensed Work set forth in Exhibit B of the Agreement instead of the Royalty Rate set forth in Exhibit B. (e.g., For a Hard Bundle where the WebSphere Version constitutes the Licensed Work, the Royalty Rate will be [***]% of ASP of the applicable Licensed Work, Fusion or TeamFusion.) 5. The second Section 12.3.5 of the Agreement (added thereto on page three of Amendment Number 6) shall not be modified in any way by this Amendment Number 8, but shall be renumbered as Section 12.3.6. 6. The following shall be added to Exhibit 1 to Amendment Number 6 to the Agreement, (the Statement of Work), as Section 7: NetObjects will complete the engineering work for the first phase of abstracting the NetObjects Authoring Server Suite such that it will integrate with IBM Universal Database instead of Sybase SQL Anywhere. This first phase entails only engineering coding to modify or extend portions of the NetObjects Authoring Server Suite software and does not include testing and meeting product release criteria. In addition, the first phase does not include modifying or extending the following elements of NetObjects Authoring Server Suite: Site Utilities, Publish, Preview, Content Contributor. The work for the first phase will be completed no later than January 28, 1999, and made available to IBM no later than February 28, 1999. 7. The following is hereby added as Section 12.3.7 of the Agreement: IBM may provide NetObjects with written notice that all further development work associated with Section 12 of the Agreement is to be terminated. Upon receipt of such notice, NetObjects is to immediately stop all further activites associated with Section 12 of the Agreement. NetObjects will be paid in accordance with Section 12.3 of the Agreement for the work performed by NetObjects in accordance with this Amendment and Exhibit 1 hereto through the date of NetObjects' receipt of IBM's notice. The Agreement remains in full force and effect in accordance with its terms, except as such terms have been expressly modified by the Amendment. In the event of any conflict between the terms of the Amendment and the terms of the Agreement, the Amendment shall control. This Amendment and the Agreement constitute the entire understanding of the parties with respect to its subject matter and merges and supersedes all prior *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. communications, understandings and agreements between the parties concerning the subject matter hereof. This Agreement shall not be modified except in writing subsequently dated, signed on behalf of each party by a duly authorized representative. A copy of this Amendment by reliable means (e.g., photocopy or facsimile) will be deemed an original. Executed by the authorized representatives of the parties as of the date first set forth above. NETOBJECTS, INC INTERNATIONAL BUSINESS MACHINES CORPORATION By: /s/ E. Cicogna By: /s/ R.G. Anderegg ------------------------ ------------------------------ Name: E. Cicogna Name: R.G. Anderegg ------------------------ ------------------------------ Title: VP Finance Title: VP & Asst. General Counsel ------------------------ ------------------------------ Date: 1/28/99 Date: 1/29/99 ------------------------ ------------------------------ EX-10.4-9 29 EXHIBIT 10.4.9 EXHIBIT 10.4.9 AMENDMENT NO. 9 TO NETOBJECTS LICENSE AGREEMENT This Amendment Number 9 to the NetObjects License Agreement, dated March 18, 1997 ("Agreement") between NetObjects Corporation ("NetObjects") with an address at 602 Galveston Drive, Redwood City, California 94063 and International Business Machines Corporation ("IBM") with an address at Route 100, Somers, New York 10589 is entered into on January 21, 1999 ("Effective Date"). All capitalized terms and definitions used in this Amendment and not otherwise defined herein shall have the meanings given them in the Agreement. In consideration of the covenants and agreements contained herein, the parties hereto agree to amend the Agreement as follows: 1. The following section is hereby added as Section 13 of the Agreement: 13.0 WIRELESS MARKUP LANGUAGE DELIVERABLES 13.1 "Wireless Markup Language ("WML") Deliverables" shall mean the deliverables described on Exhibit 1 to this Amendment, which is attached hereto and incorporated by reference. WML Deliverables are Enhancements as defined in Section 1.7 of the Agreement. 13.2 NetObjects Responsibilities. 13.2.1 NetObjects shall provide all development, integration and testing required to perform the activities and provide the functionality described in Exhibit 1 hereto and will deliver the WML Deliverables to IBM in accordance with Exhibit 1 hereto (including but not limited to the delivery schedule included in Exhibit 1). 13.2.2 NetObjects' marketing materials for ScriptBuilder, including, but not limited to the NetObjects web site located at http://www.netobjects.com ("NetObjects Web Site"), shall identify, describe and promote the WML functions listed in Exhibit 1 ("WML Functions"). NetObjects will also add a page to the NetObjects Web Site which shall only contain promotional material for the WML Functions. NetObjects shall make all necessary updates or additions to the ScriptBuilder marketing materials to describe the WML Functions by January 30, 1999. 13.2.3 NetObjects shall replace ScriptBuilder 3.0 with ScriptBuilder 3.01 as the version of ScriptBuilder which NetObjects makes generally available to its customers, following delivery to IBM of the WML Deliverable set forth in Section 9(d) of Exhibit 1 hereto, but in no event later than April 30, 1999. NetObjects shall also make available to existing ScriptBuilder 3.0 customers a software upgrade which will add the WML Functions to ScriptBuilder 3.0. This software upgrade shall be made available, at a minimum, via download from the NetObjects web site concurrent with the delivery of the WML Deliverable set forth above. NetObjects shall, at a minimum, notify customers of the availability of this upgrade software on the NetObjects Web Site. 13.3 IBM Responsibilities. 13.3.1 In consideration for the services performed by NetObjects to develop the WML Deliverables, IBM shall pay to NetObjects the total amount of $[***] upon (i) delivery of all Deliverables as set forth in Exhibit 1 and (ii) acceptance of those Deliverables as defined in 13.3.2below. Payment shall be made to NetObjects net thirty (30) days after receipt of an acceptable invoice from NetObjects. An acceptable invoice shall contain at a minimum the purchase order number and supporting documentation for the work performed. The purchase order number will be provided to NetObjects by IBM after the execution of this Amendment. All billings shall be addressed to: IBM Corporation Accounts Payable P.O. Box 8099 Endicott, NY 13761-8099 13.3.2 "Acceptance of the WML Deliverables by IBM" or "Acceptance" shall mean the date on which IBM sends written notice to NetObjects of its acceptance of the WML Deliverables in accordance with Exhibit 1 hereto. 2. Section 6.0 REPRESENTATIONS AND WARRANTIES, is amended to add the following: "g. throughout the term of the Agreement, the Licensed Works are Year 2000 ready, meaning they are capable of correctly processing, providing, receiving and displaying date data, as well as exchanging accurate date data with all products with which they are intended to be used, within and between the twentieth and twenty-first centuries." 3. The Agreement remains in full force and effect in accordance with its terms, except as such terms have been expressly modified by this Amendment. This Amendment and the Agreement constitute the entire understanding of the parties with respect to this subject matter and supersede all prior communications, understandings and agreements between the parties concerning the subject matter hereof. A copy of this Amendment by reliable means (e.g., facsimile or photocopy) will be deemed an original. ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO: INTERNATIONAL BUSINESS NETOBJECTS, INC. MACHINES CORPORATION BY: /s/ R.A. Anderegg BY: ----------------------- ------------------------ NAME: R.A. Anderegg NAME: --------------------- ---------------------- TITLE: VP & Asst. General TITLE: Counsel ---------------------- -------------------- DATE: DATE: --------------------- ---------------------- *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. EX-10.4-10 30 EXHIBIT 10.4.10 EXHIBIT 10.4.10 AMENDMENT NO. 10 TO NETOBJECTS LICENSE AGREEMENT THIS AMENDMENT NO. 10 TO NETOBJECTS LICENSE AGREEMENT ("Amendment"), dated as of February 4, 1999, by and between International Business Machines Corporation ("IBM"), and NetObjects, Inc. (the "NetObjects") further amends the NetObjects License Agreement dated as of March 18, 1997, as amended to date ("Agreement"). WHEREAS, Exhibit C to the Agreement, the IBM Source Code Custody Agreement ("SCCA") (sometimes referred to as the Source Code Escrow Agreement), including its attachments, provides for the escrow of source code and other materials relating to NetObjects products; and WHEREAS, NetObjects and IBM desire to amend the Agreement and SCCA with respect to IBM's rights to use escrowed materials of NetObjects products upon their release from escrow under the terms of the SCCA. NOW, THEREFORE, in consideration of the mutual covenants and Agreements contained herein, the parties hereto hereby agree as follows: 1. Capitalized terms not otherwise defined herein shall have the same as meaning as provided by the Agreement or the SCCA, as the case may be. 2. The following amendments are made effective as of the closing date of the Initial Public Offering of the common stock of NetObjects as such term is defined in the Restated Certificate of Incorporation of NetObjects: a. Section 4.2 of the Agreement is deleted in its entirety and the following is substituted herefor: 4.2. NETOBJECTS hereby grants IBM a nonexclusive, worldwide, irrevocable license during the Term to use, execute, reproduce and have reproduced, and to prepare and have prepared Derivative Works of the Licensed Works and Tools in Source Code form for use in connection with the purposes and subject to the Release Events set forth in Exhibit C, the Escrow Agreement; PROVIDED, HOWEVER, THAT IF THE SPECIFIED RELEASE EVENT IS FAILURE TO PROVIDE MAINTENANCE AND SUPPORT AS PROVIDED IN SECTION 1.11(e) ANY SUCH DERIVATIVE WORK MAY BE PREPARED ONLY FOR THE PURPOSE OF EFFECTING ERROR CORRECTIONS, MAINTENANCE, REPAIR, SUPPORT AND CREATING APPLICATION PROTOCOL INTERFACES FOR ANY LICENSED WORKS DELIVERED TO IBM PRIOR TO THE DATE OF THE SUCH RELEASE EVENT. The rights and licenses granted by NETOBJECTS to IBM under this Section 4.2 include the right of IBM to authorize or sublicense its Subsidiaries and subcontractors to exercise any of the rights granted to IBM hereunder. b. Section 1.11(c) of the SCCA, is hereby amended toread as follows: "NetObjects is unable to pay its debts as they become due." c. Section 1.11(f) of the SCCA, which provides for a Release Event if NetObjects fails to comply with its obligation to improve and enhance FUSION, is deleted in its entirety. d. The SCCA shall be, and hereby is, amended effective as of this date to delete the present Section 4.3(b) in its entirety and substitute therefor the following: 4.3 IBM will: --- (b) own any Derivative Works of Escrowed Works which IBM creates IN ACCORDANCE WITH SECTION 4.2 OF THE AGREEMENT, subject to NetObjects' rights in the underlying work; 3. This Amendment contains the entire Agreement between the parties hereto with respect to the subject matter of this Amendment. The terms of this Amendment shall be binding on and shall inure to the benefit of each of the parties hereto and their respective successors and assigns. 4. This Amendment may be executed in any number of counterparts and by the exchange of facsimile signatures, each of which shall be deemed to be an original and all of which together shall be deemed to be a single instrument. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective duly authorized representatives as of the date first written above.
INTERNATIONAL BUSINESS NETOBJECTS, INC. MACHINES CORPORATION By: /s/ R.G. Anderegg By: /s/ Samir Arora -------------------------------- -------------------------------- Its: Vice President & Assistant Its: CEO General Counsel ------------------------------- -------------------------------
2 EX-10.4-11 31 EXHIBIT 10.4.11 EXHIBIT 10.4.11 [Lotus Development Corporation Letterhead] CONFIDENTIAL February 6, 1998 Mr. Samir Arora Chief Executive Officer NetObjects, Inc. 602 Galveston Drive Redwood City, California 94063 Re: Promotional Bundles Dear Samir: Reference is made to the NetObjects License Agreement, dated March 18, 1997, as amended, between NetObjects, Inc. ("NetObjects") and International Business Machines Corporation ("IBM"), (the "Agreement"). Capitalized terms used in this letter, and not otherwise defined, shall have the meaning give to them in the Agreement. Pursuant to Section 5.4 of the Agreement, IBM may request a lower royalty for the Licensed Work when a licensing transaction requires a substantial discount. The following are the terms of these promotional bundles. 1. Licensed Work: NetObjects Fusion (versions 2 and 3) 2. Bundles: (a) NetObjects Fusion with Lotus Notes Designer for Domino (b) NetObjects Fusion with Domino Intranet Starter Pack 3. Promotion Period: February 1, 1998 - September 30, 1998 4. Quantity: up to 200,000 units 5. Royalty: $[***] for the total 200,000 units (this equates to $[***]/unit with every second unit bearing $[***] royalty, in consideration of Lotus' investment in integrating Lotus Domino and NetObjects Fusion). The parties agree that the $[***] royalty payment is guaranteed to NetObjects whether or not all of the units are sold and shall be deemed fully paid on or before September 30, 1998. The guaranteed royalty payment shall be credited against the pre-paid royalties made by IBM to NetObjects. In the event of a material change in the estimated retail price of Fusion, during the Promotion Period, the parties shall renegotiate the royalty in good faith. *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. 6. Maintenance Offer: NetObjects offers Lotus the opportunity to deliver NetObjects Fusion, during the Promotion Period, to Lotus' [***] Lotus Notes Designer "maintenance" customers for a total royalty of $[***] (credited against the pre-paid royalties made by IBM to NetObjects) plus in-kind advertising assistance with a value of $[***]. This offer shall remain valid through [January 31, 1998]. 7. Marketing: The parties shall develop a joint marketing plan due on the later of February 1st or first customer ship of the Bundle. The Lotus marketing contact is John Lautenbach and the NetObjects marketing contact is Param Singh. On or before June 1, 1998, the parties shall review the sales of the Bundle and plan additional marketing efforts, if necessary. 8. Agreement: The terms of the Agreement remain in full force and effect and shall apply to this Bundle, except as expressly provided above. In the event of any conflict between the terms of this letter and the terms of the Agreement, the terms of this letter shall control with respect to this promotional Bundle. Please sign below to indicate that the terms of this letter accurately reflect our agreement for this promotional bundle. Sincerely, Eileen Rudden Senior Vice President Lotus Development Corporation ACCEPTED AND ACKNOWLEDGED Mike Shannahan CFO, NetObjects, Inc. Date February 6, 1998 *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. EX-10.4-12 32 EXHIBIT 10.4.12 EXHIBIT 10.4.12 [IBM Letterhead] CONFIDENTIAL Mr. Morris Taradalsky NetObjects, Inc. 602 Galveston Drive Redwood City, California 94063 Re: Promotional Bundles Dear Morris: Reference is made to the NetObjects License Agreement, dated March 18, 1997, as amended, between NetObjects, Inc. ("NetObjects") and International Business Machines Corporation ("IBM"), (the "Agreement"). Capitalized terms used in this letter, and not otherwise defined, shall have the meaning give to them in the Agreement. Pursuant to Section 3.5(A) of Exhibit B to the Agreement, IBM and NetObjects agreed to negotiate separate royalty arrangements for these promotional bundles of the Licensed Work. IBM and NetObjects wish to agree to the terms under which IBM will distribute ScriptBuilder version 2.0x ("ScriptBuilder") with IBM's WebSphere Application Server v1.0 ("WAS"). Except as modified by this letter, this promotional distribution will be subject to the terms and conditions of the Agreement, including the technical support obligations therein. 1. From June 30, 1998 though September 30, 1998 (the "Promotion Period"), IBM shall have the right to distribute ScriptBuilder under the terms and condition of the Agreement to each owner of WAS ("End Users") by making ScriptBuilder available to End Users on IBM's web site. To download ScriptBuilder, IBM shall require End Users to provide a password or other code from a coupon which IBM shall package with WAS. Prior to downloading ScriptBuilder, each End User must accept the license terms attached hereto as EXHIBIT A. This license, which shall be provided by NetObjects, is intended to permit End Users to use one copy of ScriptBuilder for each license of WAS owned by such End User. Notwithstanding the forgoing, IBM's right under this letter shall be limited to distributions of ScriptBuilder to End Users who acquire retail, stand-alone versions of WAS. 2. Except for the marketing arrangements specified below, the rights granted to IBM herein to distribute ScriptBuilder shall be without charge to IBM or End Users, notwithstanding anything contrary in the Agreement. 3. NetObjects shall prominently feature the availability of ScriptBuilder with WAS on its web sites for NetObjects and ScriptBuilder. 4. In consideration for the rights granted to IBM herein, during the Promotion Period, IBM agrees to: a. Demonstrate ScriptBuilder as part of WAS demonstrations (sales, trade shows, press etc.) selected by IBM in its discretion; b. Include promotional brochure for ScriptBuilder in WAS packaging (except WAS packaging included in bundles), which brochure shall describe the features and benefits of ScriptBuilder and be produced by IBM from content provided by NetObjects; c. Refer to the promotional distribution of ScriptBuilder to End Users in IBM's press releases devoted exclusively to WAS and in press and analyst briefings devoted to WAS during PC Expo; d. Permit one NetObjects employee to be present in IBM's booth at PC Expo devoted to WAS for the purpose of answering questions concerning ScriptBuilder; e. Refer to ScriptBuilder and its features and benefits in "breakfasts", training programs, trade shows and other sales channel events devoted exclusively to WAS; f. Refer to the promotional distribution of ScriptBuilder to End Users in IBM's electronic and print advertising devoted exclusively to WAS (for example, an animated electronic banner should include the phrase: "Coupon for FREE copy of NetObjects ScriptBuilder"); g. Refer to the promotional distribution of ScriptBuilder to End Users in IBM's web sites devoted exclusively to WAS and include a link to the NetObjects web site on such IBM web sites; h. Contribute WAS-oriented content to the ScriptBuilder web site; and i. Provide NetObjects with a list of the names, addresses and electronic mail addresses of End Users downloading ScriptBuilder under the promotion distribution outlined herein based on data collected from the page of IBM's web site devoted to the promotional distribution of ScriptBuilder. In the event of any conflict between the terms of this letter and the terms of the Agreement, the terms of this letter shall control with respect to the promotional distribution outlined herein. Please sign below to indicate that the terms of this letter accurately reflect our agreement for this promotional distribution. ACKNOWLEDGED AND ACCEPTED Sincerely, /s/ Morris Taradalsky -------------------------------------- /s/ Patricia Staco NetObjects, Inc. Patricia Staco Contract Administrator Title: EVP NetObjects -------------------------------- Date: 7/8/98 -------------------------------- EX-10.4-13 33 EXHIBIT 10-4-13 Lotus Development LOTUS Corporation DEVELOPMENT 85 Cambridge Parkway Phone: 017-577-3500 CORPORATION Cambridge, MA 02102 FAX: 017-639-1105 - ------------------------------------------------------------------------------ CONFIDENTIAL January 14, 1999 Mr. Ernest Cicogna NetObjects, Inc. 602 Galveston Drive Redwood City, California 94063 Re: Promotional Lotus Bundles distributed under the terms of the NetObjects License Agreement, dated March 18, 1997, between NetObjects, Inc. ("NetObjects") and International Business Machines Corporation ("IBM"), as amended ("Agreement") Dear Ernie: This letter is to confirm our agreement that in exchange for the mutual covenants contained herein, the letter agreement between IBM and NetObjects regarding the above subject matter, dated February 6, 1998, ("Letter") is hereby amended as described below: 1. The following statement is added to the end of the second paragraph contained in the Letter: "IBM and NetObjects agree that during the time period between February 1, 1998 and June 30, 1999, ("Promotion Period") IBM and its Subsidiaries may distribute up to two hundred thousand (200,000) copies of the Lotus Bundles (described in Section 2 below), and instead of IBM paying the per copy Royalty Rate listed in Section 5 of Exhibit B of the Agreement for its distribution of the Lotus Bundles, [***] dollars $[***] will be deducted from the outstanding prepaid royalties listed in section 5 of Exhibit B of the Agreement. IBM is under no obligation to distribute the full 200,000 copies of Lotus Bundles, but, if, during the Distribution Period, IBM distributes fewer than the full 200,000 copies of Lotus Bundles, the foregoing [***] dollar ($[***]) deduction is still to be made from the outstanding prepaid royalties listed in the Agreement." 2. The first enumerated statement (i.e., "1. Licensed Work: NetObjects Fusion") is deleted. 3. The second enumerated statement is amended to read as follows: "2. Lotus Bundles: (a) NetObjects Fusion and Lotus Notes Designer for Domino (b) NetObjects Fusion and Domino Intranet Starter Pack *** Portions of this exhibit have been omitted and filed separately pursuant to a request for confidential treatment under Rule 406. 4. The third enumerated statement is amended to read as follows: "3. Promotion Period: February 1, 1998 - June 30, 1999: 5. The forth enumerated statement is amended to read as follows: "4. Quantity: up to 225,000 units of the Lotus Bundles" 6. The fifth and six enumerated statements are each deleted in their entirety. 7. A new fifth enumerated statement is added that reads as follows: "5. IBM and NetObjects agree that during Promotion Period, IBM and its Subsidiaries may distribute up to twenty five thousand (25,000) copies of any version or release of NetObjects Fusion, and instead of IBM paying the per copy Royalty Rate listed in Section 5 of Exhibit B of the Agreement for its distribution of these 25,000 copies, [***] dollars ($[***]) will be deducted from the outstanding prepaid royalties listed in section 5 of Exhibit B of the Agreement ("Prepaid Royalties") no later than June 30, 1999 (the $[***] deduction is the "Lotus Upfront Royalty"), but if the balance of the Prepaid Royalties is less than [***] dollars ($[***]). IBM shall pay to NetObjects the difference between the outstanding balance of Prepaid Royalties and [***] dollars ($[***]) within thirty (30) days after IBM's receipt of an acceptable invoice, provided that such invoice is received by IBM no later than July 1, 1999. Notwithstanding the foregoing, the Lotus Upfront Royalty does not apply to a distribution by IBM or its Subsidiaries of NetObjects Fusion as part of the product branded as "Domino Application Studio" nor a distribution by IBM or its Subsidiaries of NetObjects Fusion as part of any IBM Websphere product line but applies to all other distributions of NetObjects Fusion by IBM and its Subsidiaries during the Promotion Period (i.e., if IBM distributes NetObjects Fusion as part of a product branded as "Domino Designer Release 5", IBM will pay the Royalty Rate listed in Section 5 of Exhibit B of the Agreement, but for all other distributions of NetObjects Fusion by IBM during the Promotion Period, the Lotus Upfront Royalty will apply, and no further royalty is owed by IBM for such distribution). IBM is under no obligation to distribute the full 25,000 copies of NetObjects Fusion, but, if IBM distributes fewer than the full 25,000 copies of NetObjects Fusion during the Promotion Period, the foregoing [***] dollar ($[***]) deduction is still to be made from the outstanding prepaid royalties listed in section 5 of Exhibit B of the Agreement." The terms of the Agreement remain in full force and effect except as expressly provided above. Please sign below to indicate that the terms of this letter accurately reflect our agreement for this promotional bundle. Any copy of this Letter by reliable means (e.g., photocopy or facsimile) shall be deemed an original. Sincerely, /s/ Eileen Rudden Eileen Rudden Senior Vice-President Lotus Development Corporation ACCEPTED AND ACKNOWLEDGED By: /s/ Ernest Cicogna ----------------------- Ernest Cicogna NetObjects, Inc. Date: 2-1-99 *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. EX-10.5 34 EXHIBIT 10.5 LICENSE AGREEMENT LICENSE AGREEMENT ("Agreement") effective as of April 10, 1997 ("Effective Date") between INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York corporation ("IBM"), and NETOBJECTS CORPORATION, a Delaware corporation ("NETOBJECTS"). NETOBJECTS has the right to license others under certain patents. IBM desires to acquire a nonexclusive license under those patents. In consideration of the premises and covenants herein contained, including the acquisition by IBM of a controlling interest in NETOBJECTS, and other good and valuable consideration, the receipt of which is hereby acknowledged, NETOBJECTS and IBM agree as follows: SECTION 1. DEFINITIONS 1.1 "Information Handling System" shall mean any instrumentality or aggregate of instrumentalities primarily designed to compute, classify, process, transmit, receive, retrieve, originate, switch, store, display, manifest, measure, detect, record, reproduce, handle or utilize any form of information, intelligence or data for business, scientific, control or other purposes. 1.2 "IHS Product" shall mean an Information Handling System or any instrumentality or aggregate of instrumentalities (including, without limitation, any component, subassembly, computer program or supply) designed for incorporation in an Information Handling System. 1.3 "Licensees" shall mean IBM and/or its Licensed Subsidiaries. 1.4 "IBM Patent Licensees" shall mean entities having a right to practice inventions covered by patents or patent applications owned or licensable by IBM or its Subsidiaries. 1.5 "Licensed Patents" shall mean all patents, including utility models and design patents and registrations of NETOBJECTS, and further including reissues, divisions, continuations, (but not including any new matter contained in continuations-in-part filed after the Divestiture Date) and foreign counterparts of the foregoing: (a) issued or issuing on patent applications entitled to an effective filing date prior to June 30, 1998, or the Divestiture Date, whichever comes later; (b) which, but for this Agreement, would be infringed by Licensee's making, using, importing, offering for sale, or leasing, selling or otherwise transferring a Licensed Product in the country in which such patent exists; and (c) under which patents or the applications therefor NETOBJECTS or any of its Subsidiaries has, as of the Effective Date or hereafter obtains prior to the Divestiture Date, the right to grant licenses to IBM of or within the scope granted herein, without such grant or the exercise of rights thereunder resulting in the payment of royalties or other consideration by NETOBJECTS or its Subsidiaries to third parties (except for payments between NETOBJECTS and its Subsidiaries, and payments to third parties for inventions made by said third parties while employed by NETOBJECTS or any of its Subsidiaries). 1.6 "Acquisition Date" shall mean such time that IBM acquires a controlling interest in NETOBJECTS. 1.7 "Divestiture Date" shall mean such time that IBM divests itself of a controlling interest in NETOBJECTS. 1.8 "Licensed Products" shall mean IHS Products. 1.9 "Licensed Subsidiaries" shall mean those entities which are Subsidiaries of IBM. 1.10 "Subsidiary" shall mean a corporation, company or other entity: (a) more than fifty percent (50%) of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, now or hereafter, owned or controlled, directly or indirectly, by a party hereto, or (b) which does not have outstanding shares or securities, as may be the case in a partnership, joint venture or unincorporated association, but more than fifty percent (50%) of whose ownership interest representing the right to make the decisions for such corporation, company or other entity is now or hereafter, owned or controlled, directly or indirectly, by a party hereto, but such corporation, company or other entity shall be deemed to be a Subsidiary only so long as such ownership or control exists. SECTION 2. GRANT OF RIGHTS 2.1 Subject to Section 3, NETOBJECTS grants to Licensees a royalty-free, paid-up, worldwide, nonexclusive license under the Licensed Patents to make, have made, use, import, offer for sale, sell, lease and otherwise transfer Licensed Products or practice any method thereunder. In the event that IBM acquires additional Subsidiaries after the Effective Date and prior to the 2 Divestiture Date, NETOBJECTS agrees that such Subsidiaries shall be Licensed Subsidiaries. 2.1.1 Subject to the rights granted in Section 2.1, NetObjects grants to IBM the right to sublicense IBM Patent Licensees only under Licensed Patents having an effective filing date on or after the Acquisition Date and before the Divestiture Date. 2.2 IBM shall be responsible for the compliance by Licensed Subsidiaries with the provisions of this Agreement. A license granted to a Subsidiary shall terminate automatically on the earlier of: (a) the date such Subsidiary ceases to be a Subsidiary of IBM; or (b) the date the license granted hereunder expires or is terminated. 2.3 No license, immunity or other right is granted under this Agreement, either directly or by implication, estoppel, or otherwise: (a) other than under the Licensed Patents; (b) with respect to any item other than a Licensed Product notwithstanding that such other item may incorporate one or more Licensed Products; or (c) to parties acquiring any item from IBM for the combination of such acquired item with any other item, including other items provided by Licensee, or for the use of any such combination even if such acquired item has no substantial use other than as part of such combination. SECTION 3. TERM AND TERMINATION 3.1 The term of this Agreement shall be from the Effective Date until the expiration of the last to expire of the Licensed Patents. 3.2 IBM shall have the right to terminate this Agreement upon written notice to NETOBJECTS. SECTION 4. MEANS OF COMMUNICATION 4.1 Notices and other communications shall be sent by facsimile or by registered or certified mail to the following address and shall be effective upon mailing: 3 For IBM: For NETOBJECTS: Director of Licensing ______________________ 500 Columbus Avenue ______________________ Thornwood, New York 10594 ______________________ United States of America ______________________ Facsimile: (914) 742-6737 ______________________ SECTION 5. MISCELLANEOUS 5.1 Neither party shall use or refer to this Agreement or any of its provisions in any promotional activity. 5.2 NETOBJECTS represents and warrants that it has the full right and power to grant the license set forth in Section 2, and that there are no outstanding agreements, assignments or encumbrances inconsistent with the provisions of said license or with any other provisions of this Agreement. NETOBJECTS MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, NOR SHALL NETOBJECTS HAVE ANY LIABILITY, IN RESPECT TO ANY INFRINGEMENT OF PATENTS OR OTHER RIGHTS OF THIRD PARTIES OWING TO LICENSEES' OPERATION UNDER THE LICENSE HEREIN GRANTED. 5.3 In the event that licenses under additional patents that are licensable by NETOBJECTS prior to the Divestiture Date that are not licensable hereunder are required in order for Licensee to make, have made, use, import, offer for sale, sell and otherwise transfer any Licensed Products, then NETOBJECTS agrees to grant a royalty-free, paid-up license to IBM under such patents in a separate agreement; PROVIDED, HOWEVER, if the granting of a license under such additional patents will result in the payment of royalties or other consideration by NETOBJECTS to any third party, IBM shall be responsible for such payment. 5.4 In the event that NetObjects has the right to grant licenses under patents to others prior to the Divestiture Date, and such grant shall result in the payment of royalties or other consideration by NetObjects or its Subsidiaries to third parties, NetObjects agrees that it shall grant a license under such patents to IBM Patent Licensees, upon written request therefrom, to the extent and subject to the terms and conditions under which it then has the right to do so and at the same royalty that NetObjects would be obligated to pay the third party. 5.5 IBM shall grant to NetObjects, prior to the Divestiture Date, a license to make, use, import, offer to sell, sell, lease and otherwise transfer any NetObjects product. Said license shall be on terms and conditions no less favorable than IBM's then current terms and conditions under which it grants patent licenses to third parties. Said right shall be with respect to any patent under which IBM or any of its Subsidiaries has the right to grant licenses to unaffiliated third parties at any time on or before the Divestiture Date. 4 5.6 Nothing contained in this Agreement shall be construed as: 5.6.1 superseding any terms and conditions of the NetObjects License Agreement, executed on March 18, 1997, by and between IBM and NetObjects; or 5.6.2 as conferring any rights by implication, estoppel or otherwise, under any non-patent intellectual property right. 5.7 If any section of this Agreement is found by competent authority to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of such section in every other respect and the remainder of this Agreement shall continue in effect so long as the Agreement still expresses the intent of the parties. If the intent of the parties cannot be preserved, this Agreement shall be either renegotiated or terminated. 5.8 This Agreement shall not be binding upon the parties until it has been signed hereinbelow by or on behalf of each party, in which event it shall be effective as of the later of the Effective Date. 5.9 This Agreement shall be construed, and the legal relations between the parties hereto shall be determined, in accordance with the law of the State of New York, United States of America, as such law applies to contracts signed and fully performed in the State of New York. 5.10 The headings of sections are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. This Agreement embodies the entire understanding of the parties with respect to the Licensed Patents, and replaces any prior oral or written communication between them. AGREED TO: AGREED INTERNATIONAL BUSINESS MACHINES NETOBJECTS, INC. CORPORATION By: By: /s/ Samir Arora ------------------------------------ ---------------------------------- Lee A. Dayton Samir Arora Vice President President Corporated Development & Real Estate 5 EX-10.6 35 EXHIBIT 10.6 LEASE BETWEEN METROPOLITAN LIFE INSURANCE COMPANY (LANDLORD) AND NETOBJECTS, INC. (TENANT) SEAPORT CENTRE Redwood City, California TABLE OF CONTENTS
PAGE ARTICLE ONE - BASIC LEASE PROVISIONS . . . . . . . . . . . . . . . . . . . . .1 1.01 BASIC LEASE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . .1 1.02 ENUMERATION OF EXHIBITS & RIDER(S) . . . . . . . . . . . . . . . . .2 1.03 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 ARTICLE TWO - PREMISES, TERM, FAILURE TO GIVE POSSESSION, COMMON AREAS AND PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 2.01 LEASE OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . .6 2.02 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 2.03 FAILURE TO GIVE POSSESSION . . . . . . . . . . . . . . . . . . . . .6 2.04 AREA OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . .6 2.05 CONDITION OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . .6 2.06 COMMON AREAS & PARKING . . . . . . . . . . . . . . . . . . . . . . .6 ARTICLE THREE - RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 ARTICLE FOUR - OPERATING EXPENSES RENT ADJUSTMENTS AND PAYMENTS. . . . . . . .7 4.01 TENANT'S SHARE OF OPERATING EXPENSES . . . . . . . . . . . . . . . .7 4.02 RENT ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . .8 4.03 STATEMENT OF LANDLORD. . . . . . . . . . . . . . . . . . . . . . . .8 4.04 BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . .9 4.05 TENANT OR LEASE SPECIFIC TAXES . . . . . . . . . . . . . . . . . . .9 ARTICLE FIVE - SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . .9 ARTICLE SIX -UTILITIES & SERVICES. . . . . . . . . . . . . . . . . . . . . . .9 6.01 LANDLORD'S GENERAL SERVICES. . . . . . . . . . . . . . . . . . . . .9 6.02 TENANT TO OBTAIN & PAY DIRECTLY. . . . . . . . . . . . . . . . . . .9 6.03 TELEPHONE SERVICES . . . . . . . . . . . . . . . . . . . . . . . . 10 6.04 FAILURE OR INTERRUPTION OF UTILITY OR SERVICE. . . . . . . . . . . 10 6.05 CHOICE OF SERVICE PROVIDER . . . . . . . . . . . . . . . . . . . . 10 6.06 SIGNAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE SEVEN - POSSESSION, USE AND CONDITION OF PREMISES. . . . . . . . . . 11 7.01 POSSESSION AND USE OF PREMISES . . . . . . . . . . . . . . . . . . 11 7.02 HAZARDOUS MATERIALS. . . . . . . . . . . . . . . . . . . . . . . . 11 7.03 LANDLORD ACCESS TO PREMISES; APPROVALS . . . . . . . . . . . . . . 12 7.04 QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE EIGHT - MAINTENANCE. . . . . . . . . . . . . . . . . . . . . . . . . 13 8.01 LANDLORD'S MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . 13 8.02 TENANT'S MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE NINE - ALTERATIONS AND IMPROVEMENTS. . . . . . . . . . . . . . . . . 14 9.01 TENANT ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 14 9.02 LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE TEN - ASSIGNMENT AND SUBLETTING. . . . . . . . . . . . . . . . . . . 15 10.01 ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . 15 10.02 RECAPTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 10.03 EXCESS RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 10.04 TENANT LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 16 10.05 ASSUMPTION AND ATTORNMENT . . . . . . . . . . . . . . . . . . . . 17 ARTICLE ELEVEN - DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . . . . . 17 11.01 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 17 11.02 LANDLORD'S REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 17 11.03 ATTORNEY'S FEES . . . . . . . . . . . . . . . . . . . . . . . . . 19 11.04 BANKRUPTCY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 11.05 LANDLORD'S DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE TWELVE - SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . . . 20 12.01 IN GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 12.02 LANDLORD'S RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE THIRTEEN - HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . 20 i ARTICLE FOURTEEN - DAMAGE BY FIRE OR OTHER CASUALTY. . . . . . . . . . . . . 20 14.01 SUBSTANTIAL UNTENANTABILITY . . . . . . . . . . . . . . . . . . . 20 14.02 INSUBSTANTIAL UNTENANTABILITY . . . . . . . . . . . . . . . . . . 21 14.03 RENT ABATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.04 WAIVER OF STATUTORY REMEDIES. . . . . . . . . . . . . . . . . . . 21 ARTICLE FIFTEEN - EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . 22 15.01 TAKING OF WHOLE OR SUBSTANTIAL PART . . . . . . . . . . . . . . . 22 15.02 TAKING OF PART. . . . . . . . . . . . . . . . . . . . . . . . . . 22 15.03 COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE SIXTEEN - INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . 22 16.01 TENANT'S INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . 22 16.02 FORM OF POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . 23 16.03 LANDLORD'S INSURANCE. . . . . . . . . . . . . . . . . . . . . . . 23 16.04 WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . . . 23 16.05 NOTICE OF CASUALTY. . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE SEVENTEEN - WAIVER OF CLAIMS AND INDEMNITY . . . . . . . . . . . . . 24 17.01 WAIVER OF CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . 24 17.02 INDEMNITY BY TENANT . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE EIGHTEEN - RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . 24 18.01 RULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 18.02 ENFORCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE NINETEEN - LANDLORD'S RESERVED RIGHTS. . . . . . . . . . . . . . . . 25 ARTICLE TWENTY - ESTOPPEL CERTIFICATE. . . . . . . . . . . . . . . . . . . . 25 20.01 IN GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 20.02 ENFORCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE TWENTY-ONE - RELOCATION OF TENANT. . . . . . . . . . . . . . . . . . 25 ARTICLE TWENTY-TWO - REAL ESTATE BROKERS . . . . . . . . . . . . . . . . . . 26 ARTICLE TWENTY-THREE - MORTGAGEE PROTECTION. . . . . . . . . . . . . . . . . 26 23.01 SUBORDINATION AND ATTORNMENT. . . . . . . . . . . . . . . . . . . 26 23.02 MORTGAGEE PROTECTION. . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE TWENTY-FOUR - NOTICES. . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE TWENTY-FIVE - EXERCISE FACILITY. . . . . . . . . . . . . . . . . . . 27 ARTICLE TWENTY-SIX - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 28 26.01 LATE CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . 28 26.02 NO JURY TRIAL; VENUE; JURISDICTION. . . . . . . . . . . . . . . . 28 26.03 DEFAULT UNDER OTHER LEASE . . . . . . . . . . . . . . . . . . . . 28 26.04 OPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 26.05 TENANT AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . 28 26.06 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 28 26.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE. . . . . . . . . . 29 26.08 EXCULPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 26.09 ACCORD AND SATISFACTION . . . . . . . . . . . . . . . . . . . . . 29 26.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING. . . . . . . . . . . . 29 26.11 BINDING EFFECT. . . . . . . . . . . . . . . . . . . . . . . . . . 29 26.12 CAPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 26.13 TIME; APPLICABLE LAW; CONSTRUCTION. . . . . . . . . . . . . . . . 29 26.14 ABANDONMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 26.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES . . . . . . . . . . . 30 26.16 SECURITY SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . 30 26.17 NO LIGHT, AIR OR VIEW EASEMENTS . . . . . . . . . . . . . . . . . 30 26.18 RECORDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 26.19 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 26.20 RIDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ii LEASE ARTICLE ONE BASIC LEASE PROVISIONS 1.01 BASIC LEASE PROVISIONS In the event of any conflict between these Basic Lease Provisions and any other Lease provision, such other Lease provision shall control. (1) BUILDING AND ADDRESS: 301 Galveston Drive Redwood City, California 94063 Building Number 9, located in Phase II ("Tenant's Phase") of Seaport Centre (2) LANDLORD AND ADDRESS: Metropolitan Life Insurance Company, a New York corporation Notices to Landlord shall be addressed: Metropolitan Life Insurance Company c/o Seaport Centre Manager 701 Chesapeake Drive Redwood City, CA 94063 with copies to the following: Metropolitan Life Insurance Company 101 Lincoln Centre Drive, Suite 600 Foster City, CA 94404 Attention: Assistant Vice President (3) TENANT AND CURRENT ADDRESS: (a) Name: NetObjects, Inc. (b) State of incorporation: Delaware Notices to Tenant shall be addressed: Before the Delivery Date: NetObjects, Inc. 602 Galveston Drive Redwood City, California 94063 On & After the Delivery Date: NetObjects, Inc. 301 Galveston Drive Redwood City, California 94063 (4) DATE OF LEASE: as of July 24, 1998 (5) LEASE TERM: the period that expires 4 years after the Expansion Space A Commencement Date ("SACD"), provided however, if pursuant to Section 3(d) of Rider 2 Tenant terminates its obligation to lease Expansion Space A, the Lease Term shall run for 4 years after the Commencement Date, all as provided in Rider 2. (6) COMMENCEMENT DATE: forty-five (45) days after the Delivery Date as provided in Rider 2. (7) PROJECTED EXPIRATION DATE: forty-eight (48) months after the SACD, provided however, if pursuant to Section 3(d) of Rider 2 Tenant terminates its obligation to lease Expansion Space A, the Expiration Date shall be forty-eight (48) months after the Commencement Date, as provided in Rider 2. 1 (8) MONTHLY BASE RENT (initial monthly installment due upon Tenant's execution):
Period from/through Monthly Monthly Rate/SF of Rentable Area Month 01 - Month 12 $28,932.20 $2.20 Month 13 - Month 24 $29,800.16 $2.27 Month 25 - Month 36 $30,694.16 $2.33 Month 37 - Expiration Date $31,561.08 $2.40
(9) RENT ADJUSTMENT DEPOSIT (initial monthly rate, until further notice): $5,786.44 (initial monthly installment due upon Tenant's execution) (10) RENTABLE AREA OF THE PREMISES: 13,151 square feet (11) RENTABLE AREA OF THE BUILDING 25,814 square feet (12) RENTABLE AREA OF THE PHASE: 235,620 square feet (13) RENTABLE AREA OF THE PROJECT: 537,444 square feet (14) SECURITY DEPOSIT: Sixty Thousand Dollars ($60,000.00) due upon Tenant's execution (15) SUITE NUMBER &/OR ADDRESS OF PREMISES: 301 Galveston (16) TENANT'S SHARE: Tenant's Building Share: 50.9452% Tenant's Phase Share: 05.5814% Tenant's Project Share: 02.4470% (17) TENANT'S USE OF PREMISES: office, research and development & warehousing use. (18) PARKING SPACES: 43 (19) BROKERS: Landlord's Broker: Cornish & Carey Tenant's Broker: Cornish & Carey 1.02 ENUMERATION OF EXHIBITS & RIDER(S) The Exhibits and Rider(s) set forth below and attached to this Lease are incorporated in this Lease by this reference: EXHIBIT A Plan of Premises EXHIBIT B Workletter Agreement (intentionally omitted) EXHIBIT C Site Plan of Project EXHIBIT D Plan of Expansion Space A EXHIBIT E Form of Subordination, Nondisturbance and Attornment Agreement RIDER 1 Commencement Date Agreement RIDER 2 Additional Provisions RIDER 3 Expansion Space A Commencement Date Agreement 1.03 DEFINITIONS For purposes hereof, the following terms shall have the following meanings: ADJUSTMENT YEAR: The applicable calendar year or any portion thereof after the Commencement Date of this Lease for which a Rent Adjustment computation is being made. AFFILIATE: Any Person (as defined below) which is currently owned or controlled by, owns or controls, or is under common ownership or control with Tenant. For purposes of this definition, the word "control," as used above means, with respect to a Person that is a corporation, the right to exercise, directly or indirectly, more than sixty percent (60%) of the voting rights attributable to the shares of the controlled corporation and, with respect to a Person that is not a corporation, the possession, directly or indirectly, of the power at all times to direct or cause the direction of the management and policies of the controlled Person. The word Person means an individual, partnership, trust, corporation, firm or other entity. BUILDING: The building in which the Premises is located, at the address and Building number specified in Section 1.01(1). 2 BUILDING OPERATING EXPENSES: Those Operating Expenses described in Section 4.01. COMMENCEMENT DATE: The date specified in Section 1.01(6), unless changed by operation of Rider 2. COMMON AREAS: All areas of the Project made available by Landlord from time to time for the general common use or benefit of the tenants of the Building or Project, and their employees and invitees, or the public, as such areas currently exist and as they may be changed from time to time. DECORATION: Tenant Alterations which do not require a building permit and which do not affect the facade or roof of the Building, or involve any of the structural elements of the Building, or involve any of the Building's systems, including its electrical, mechanical, plumbing, security, heating, ventilating, air-conditioning, communication, and fire and life safety systems. DEFAULT RATE: Two (2) percentage points above the rate then most recently announced by Bank of America N.T.& S.A. at its San Francisco main office as its corporate base lending rate, from time to time announced, but in no event higher than the maximum rate permitted by Law. DELIVERY DATE: The date on which Landlord tenders to Tenant possession of the Premises, as provided in Rider 2. ENVIRONMENTAL LAWS: All Laws governing the use, storage, disposal or generation of any Hazardous Material or pertaining to environmental conditions on, under or about the Premises or any part of the Project, including the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 ET SEQ.), and the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. Section 6901 ET SEQ.). EXPIRATION DATE: The date specified in Section 1.01(7) unless changed by operation of Article Two. FORCE MAJEURE: Any accident, casualty, act of God, war or civil commotion, strike or labor troubles, or any cause whatsoever beyond the reasonable control of Landlord, including water shortages, energy shortages or governmental preemption in connection with an act of God, a national emergency, or by reason of Law, or by reason of the conditions of supply and demand which have been or are affected by act of God, war or other emergency. HAZARDOUS MATERIAL: Such substances, material and wastes which are or become regulated under any Environmental Law; or which are classified as hazardous or toxic or medical waste or biohazardous waste under any Environmental Law; and explosives, firearms and ammunition, flammable material, radioactive material, asbestos, polychlorinated biphenyls and petroleum and its byproducts. INDEMNITEES: Collectively, Landlord, any Mortgagee or ground lessor of the Property, the property manager and the leasing manager for the Property and their respective directors, officers, agents and employees. LAND: The parcel(s) of real estate on which the Building and Project are located. LANDLORD WORK: The construction or installation of improvements to be furnished by Landlord, if any, specifically described in Rider 2 attached hereto. LAWS OR LAW: All laws, ordinances, rules, regulations, other requirements, orders, rulings or decisions adopted or made by any governmental body, agency, department or judicial authority having jurisdiction over the Property, the Premises or Tenant's activities at the Premises and any covenants, conditions or restrictions of record which affect the Property. LEASE: This instrument and all exhibits and riders attached hereto, as may be amended from time to time. LEASE YEAR: The twelve month period beginning on the first day of the first month following the Commencement Date (unless the Commencement Date is the first day of a calendar month in which case beginning on the Commencement Date), and each subsequent twelve month, or shorter, period until the Expiration Date. MONTHLY BASE RENT: The monthly rent specified in Section 1.01(8). MORTGAGEE: Any holder of a mortgage, deed of trust or other security instrument encumbering the Property. NATIONAL HOLIDAYS: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day and other holidays recognized by the Landlord and the janitorial and other unions servicing the Building in accordance with their contracts. OPERATING EXPENSES: All Taxes, costs, expenses and disbursements of every kind and nature which Landlord shall pay or become obligated to pay in connection with the ownership, management, operation, 3 maintenance, replacement and repair of the Property (including the amortized portion of any capital expenditure or improvement, together with interest thereon, expenses of changing utility service providers, and any dues, assessments and other expenses pursuant to any covenants, conditions and restrictions, or any reciprocal easements, or any owner's association now or hereafter affecting the Project). Operating Expenses shall be allocated among the categories of Project Operating Expenses, Building Operating Expenses or Phase Operating Expenses as provided in Article Four. If any Operating Expense, though paid in one year, relates to more than one calendar year, at the option of Landlord such expense may be proportionately allocated among such related calendar years. Operating Expenses shall include the following, by way of illustration only and not limitation: (1) all Taxes; (2) all insurance premiums and other costs (including deductibles), including the cost of rental insurance; (3) all license, permit and inspection fees; (4) all costs of utilities, fuels and related services, including water, sewer, light, telephone, power and steam connection, service and related charges; (5) all costs to repair, maintain and operate heating, ventilating and air conditioning systems, including preventive maintenance; (6) all janitorial, landscaping and security services; (7) all wages, salaries, payroll taxes, fringe benefits and other labor costs, including the cost of workers' compensation and disability insurance; (8) all costs of operation, maintenance and repair of all parking facilities and other common areas; (9) all supplies, materials, equipment and tools; (10) dues, assessments and other expenses pursuant to any covenants, conditions and restrictions, or any reciprocal easements, or any owner's association now or hereafter affecting the Project; (11) modifications to the Building or the Project occasioned by Laws now or hereafter in effect; (12) the total charges of any independent contractors employed in the care, operation, maintenance, repair, leasing and cleaning of the Project, including landscaping, roof maintenance, and repair, maintenance and monitoring of life-safety systems, plumbing systems, electrical wiring and Project signage; (13) the cost of accounting services necessary to compute the rents and charges payable by tenants at the Project; (14) exterior window and exterior wall cleaning and painting; (15) managerial and administrative expenses; (16) all costs in connection with the exercise facility at the Project; (17) all costs and expenses related to Landlord's retention of consultants in connection with the routine review, inspection, testing, monitoring, analysis and control of Hazardous Materials, and retention of consultants in connection with the clean-up of Hazardous Materials (to the extent not recoverable from a particular tenant of the Project), and all costs and expenses related to the implementation of recommendations made by such consultants concerning the use, generation, storage, manufacture, production, storage, release, discharge, disposal or clean-up of Hazardous Materials on, under or about the Premises or the Project (to the extent not recoverable from a particular tenant of the Project); but Operating Costs shall not include the costs and expenses, including those of retention of consultants and implementation of such consultant's recommendations, to the extent incurred specifically to clean-up or remove Hazardous Materials present on, under or about the Premises or the Project prior to delivery to Tenant of possession of the Premises; (18) all capital improvements made for the purpose of reducing or controlling other Operating Expenses, and all other capital expenditures, but only as amortized over the useful life of the applicable item(s), together with interest thereon; (19) all property management costs and fees, including all costs in connection with the Project property management office; and (20) all fees or other charges incurred in conjunction with voluntary or involuntary membership in any energy conservation, air quality, environmental, traffic management or similar organizations. Operating Expenses shall not include: (a) costs of alterations of space to be occupied by new or existing tenants of the Project; (b) depreciation charges; (c) interest and principal payments on loans (except for loans for capital improvements which Landlord is allowed to include in Operating Expenses as provided above); (d) ground rental payments; (e) real estate brokerage and leasing commissions; (f) advertising and marketing expenses; (g) costs of Landlord reimbursed by insurance or condemnation proceeds; (h) expenses incurred in negotiating leases of other tenants in the Project or enforcing lease obligations of other tenants in the Project; and (i) Landlord's or Landlord's property manager's corporate general overhead or corporate general administrative expenses. PHASE: Phase means any individual Phase of the Project, as more particularly described in the definition of Project. PHASE OPERATING EXPENSES: Those Operating Expenses described in Section 4.01. PREMISES: The space located in the Building at the Suite Number listed in Section 1.01(15) and depicted on EXHIBIT A attached hereto. PROJECT or PROPERTY: As of the date hereof, the Project is known as Seaport Centre and consists of those buildings (including the Building) whose general location is shown on the Site Plan of the Project attached as EXHIBIT C, located in Redwood City, California, associated vehicular and parking areas, landscaping and improvements, together with the Land, any associated interests in real property, and the personal property, fixtures, machinery, equipment, systems and apparatus located in or used in conjunction with any of the foregoing. The Project may also be referred to as the Property. As of the date hereof, the Project is divided into Phase I and Phase II, which are generally designated on EXHIBIT C, each of which may individually be referred to as a Phase. Landlord reserves the right from time to time to add or remove buildings, areas and improvements to or from a Phase or the Project, or to add or remove a Phase to or from the Project. In the event of any such addition or removal which affects Rentable Area of the Project or a Phase, Landlord shall make a corresponding recalculation and adjustment of any affected Rentable Area and Tenant's Share. PROJECT OPERATING EXPENSES: Those Operating Expenses described in Section 4.01. REAL PROPERTY: The Property excluding any personal property. 4 RENT: Collectively, Monthly Base Rent, Rent Adjustments and Rent Adjustment Deposits, and all other charges, payments, late fees or other amounts required to be paid by Tenant under this Lease. RENT ADJUSTMENT: Any amounts owed by Tenant for payment of Operating Expenses. The Rent Adjustments shall be determined and paid as provided in Article Four. RENT ADJUSTMENT DEPOSIT: An amount equal to Landlord's estimate of the Rent Adjustment attributable to each month of the applicable Adjustment Year. On or before the Commencement Date and the beginning of each subsequent Adjustment Year or with Landlord's Statement (defined in Article Four), Landlord may estimate and notify Tenant in writing of its estimate of Operating Expenses, including Project Operating Expenses, Building Operating Expenses and Phase Operating Expenses, and Tenant's Share of each, for the applicable Adjustment Year. The Rent Adjustment Deposit applicable for the calendar year in which the Commencement Date occurs shall be the amount, if any, specified in Section 1.01(9). Nothing contained herein shall be construed to limit the right of Landlord from time to time during any calendar year to revise its estimates of Operating Expenses and to notify Tenant in writing thereof and of revision by prospective adjustments in Tenant's Rent Adjustment Deposit payable over the remainder of such year. The last estimate by Landlord shall remain in effect as the applicable Rent Adjustment Deposit unless and until Landlord notifies Tenant in writing of a change. RENTABLE AREA OF THE BUILDING: The amount of square footage set forth in Section 1.01(11) RENTABLE AREA OF THE PHASE: The amount of square footage set forth in Section 1.01(12) RENTABLE AREA OF THE PREMISES: The amount of square footage set forth in Section 1.01(10). RENTABLE AREA OF THE PROJECT: The amount of square footage set forth in Section 1.01(13), which represents the sum of the rentable area of all space intended for occupancy in the Project. SECURITY DEPOSIT: The funds specified in Section 1.01(14), if any, deposited by Tenant with Landlord as security for Tenant's performance of its obligations under this Lease. SUBSTANTIALLY COMPLETE: The completion of the Landlord Work or Tenant Work, as the case may be, except for minor insubstantial details of construction, decoration or mechanical adjustments which remain to be done. TAXES: All federal, state and local governmental taxes, assessments (including assessment bonds) and charges of every kind or nature, whether general, special, ordinary or extraordinary, which Landlord shall pay or become obligated to pay because of or in connection with the ownership, leasing, management, control or operation of the Property or any of its components (including any personal property used in connection therewith), which may also include any rental or similar taxes levied in lieu of or in addition to general real and/or personal property taxes. For purposes hereof, Taxes for any year shall be Taxes which are assessed for any period of such year, whether or not such Taxes are billed and payable in a subsequent calendar year. There shall be included in Taxes for any year the amount of all fees, costs and expenses (including reasonable attorneys' fees) paid by Landlord during such year in seeking or obtaining any refund or reduction of Taxes. Taxes for any year shall be reduced by the net amount of any tax refund received by Landlord attributable to such year. If a special assessment payable in installments is levied against any part of the Property, Taxes for any year shall include only the installment of such assessment and any interest payable or paid during such year. Taxes shall not include any federal or state inheritance, general income, gift or estate taxes, except that if a change occurs in the method of taxation resulting in whole or in part in the substitution of any such taxes, or any other assessment, for any Taxes as above defined, such substituted taxes or assessments shall be included in the Taxes. TENANT ADDITIONS: Collectively, Landlord Work, Tenant Work and Tenant Alterations. TENANT ALTERATIONS: Any alterations, improvements, additions, installations or construction in or to the Premises or any Real Property systems serving the Premises done or caused to be done by Tenant after the date hereof, whether prior to or after the Commencement Date (including Tenant Work, but excluding Landlord Work). TENANT DELAY: Any event or occurrence which delays the completion of the Landlord Work which is caused by or is described as follows: (i) special work, changes, alterations or additions requested or made by Tenant in the design or finish in any part of the Premises after approval of the plans and specifications (as described in the Rider 2); (ii) Tenant's delay in submitting plans, supplying information, approving plans, specifications or estimates, giving authorizations or otherwise; (iii) failure to approve and pay for such work as Landlord undertakes to complete at Tenant's expense; 5 (iv) the performance or completion by Tenant or any person engaged by Tenant of any work in or about the Premises; or (v) failure to perform or comply with any obligation or condition binding upon Tenant pursuant to Rider 2, including the failure to approve and pay for such Landlord Work or other items if and to the extent Rider 2 provides they are to be approved or paid by Tenant. TENANT WORK: All work installed or furnished to the Premises by Tenant in connection with Tenant's initial occupancy pursuant to Rider 2. TENANT'S BUILDING SHARE: The share as specified in Section 1.01(16) and Section 4.01. TENANT'S PHASE: The Phase in which the Premises is located, as indicated in Section 1.01(1). TENANT'S PHASE SHARE: The share as specified in Section 1.01(16) and Section 4.01. TENANT'S PROJECT SHARE: The share as specified in Section 1.01(16) and Section 4.01. TENANT'S SHARE: Shall mean collectively, Tenant's respective shares of the respective categories of Operating Expenses, as provided in Section 1.01(16) and Section 4.01. TERM: The term of this Lease commencing on the Commencement Date and expiring on the Expiration Date. TERMINATION DATE: The Expiration Date or such earlier date as this Lease terminates or Tenant's right to possession of the Premises terminates. WORKLETTER: (intentionally omitted) ARTICLE TWO PREMISES, TERM, FAILURE TO GIVE POSSESSION, COMMON AREAS AND PARKING 2.01 LEASE OF PREMISES Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises for the Term and upon the terms, covenants and conditions provided in this Lease. 2.02 TERM The Commencement Date shall be the date determined pursuant to Rider 2, as specified in Section 1.01(6). 2.03 FAILURE TO GIVE POSSESSION (intentionally omitted; see Rider 2) 2.04 AREA OF PREMISES Landlord and Tenant agree that for all purposes of this Lease the Rentable Area of the Premises, the Rentable Area of the Building, the Rentable Area of the Phase and the Rentable Area of the Project as set forth in Article One are controlling, and are not subject to revision after the date of this Lease, except as otherwise provided herein. 2.05 CONDITION OF PREMISES (intentionally omitted; see Rider 2) 2.06 COMMON AREAS & PARKING (a) RIGHT TO USE COMMON AREAS. At no additional Rent, but without limiting Tenant's obligation to pay Monthly Base Rent and Rent Adjustments for Tenant's Share of Operating Expenses pursuant to this Lease, Tenant shall have the non-exclusive right, in common with others, to the use of any common entrances, ramps, drives and similar access and serviceways and other Common Areas in the Project. The rights of Tenant hereunder in and to the Common Areas shall at all times be subject to the rights of Landlord and other tenants and owners in the Project who use the same in common with Tenant, and it shall be the duty of Tenant to keep all the Common Areas free and clear of any obstructions created or permitted by Tenant or resulting from Tenant's operations. Tenant shall not use the Common Areas or common facilities of the Building or the Project, including the Building's electrical room, parking lot or trash enclosures, for storage purposes. Nothing herein shall affect the right of Landlord at any time to remove any persons not authorized to use the Common Areas or common facilities from such areas or facilities or to prevent their use by unauthorized persons. 6 (b) CHANGES IN COMMON AREAS. Landlord reserves the right, at any time and from time to time to (i) make alterations in or additions to the Common Areas or common facilities of the Project, including constructing new buildings or changing the location, size, shape or number of the driveways, entrances, parking spaces, parking areas, loading and unloading areas, landscape areas and walkways, (ii) designate property to be included in or eliminate property from the Common Areas or common facilities of the Project, (iii) close temporarily any of the Common Areas or common facilities of the Project for maintenance purposes, and (4) use the Common Areas and common facilities of the Project while engaged in making alterations in or additions and repairs to the Project; provided, however, that reasonable access to the Premises and parking at or near the Project remains available. (c) PARKING. At no additional Rent, but without limiting Tenant's obligation to pay Monthly Base Rent and Rent Adjustments for Tenant's Share of Operating Expenses pursuant to this Lease, during the Term, Tenant shall have the right to use the number of Parking Spaces specified in Section 1.01(18) for parking on an unassigned basis on that portion of the Project designated by Landlord from time to time for parking. Tenant acknowledges and agrees that the parking spaces in the Project's parking facility may include a mixture of spaces for compact vehicles as well as full-size passenger automobiles, and that Tenant shall not use parking spaces for vehicles larger than the striped size of the parking spaces. Tenant shall not park any vehicles at the Project overnight. Tenant shall comply with any and all parking rules and regulations if and as from time to time established by Landlord. Tenant shall not allow any vehicles using Tenant's parking privileges to be parked, loaded or unloaded except in accordance with this Section, including in the areas and in the manner designated by Landlord for such activities. If any vehicle is using the parking or loading areas contrary to any provision of this Section, Landlord shall have the right, in addition to all other rights and remedies of Landlord under this Lease, to remove or tow away the vehicle without prior notice to Tenant, and the cost thereof shall be paid to Landlord within ten (10) days after notice from Landlord to Tenant. ARTICLE THREE RENT Tenant agrees to pay to Landlord at the first office specified in Section 1.01(2), or to such other persons, or at such other places designated by Landlord, without any prior demand therefor in immediately available funds and without any deduction or offset whatsoever, Rent, including Monthly Base Rent and Rent Adjustments in accordance with Article Four, during the Term. Monthly Base Rent shall be paid monthly in advance on the first day of each month of the Term, except that the first installment of Monthly Base Rent shall be paid by Tenant to Landlord concurrently with execution of this Lease. Monthly Base Rent shall be prorated for partial months within the Term. Unpaid Rent shall bear interest at the Default Rate from the date due until paid. Tenant's covenant to pay Rent shall be independent of every other covenant in this Lease. ARTICLE FOUR OPERATING EXPENSES, RENT ADJUSTMENTS AND PAYMENTS 4.01 TENANT'S SHARE OF OPERATING EXPENSES Tenant shall pay Tenant's Share of Operating Expenses in the respective shares of the respective categories of Operating Expenses as set forth below. (a) Tenant's Project Share of Project Operating Expenses, which is the percentage obtained by dividing the rentable square footage of the Premises for the building(s) in which the Premises is located by the rentable square footage of the Project and as of the date hereof equals the percentage set forth in Section 1.01(16); (b) Tenant's Building Share of Building Operating Expenses, which is the percentage obtained by dividing the rentable square footage of the Premises respectively for each building in which the Premises is located by the total rentable square footage of such building and as of the date hereof equals the percentage set forth in Section 1.01(16); (c) Tenant's Phase Share of Phase Operating Expenses, which is the percentage obtained by dividing the aggregate rentable square footage of the Premises located in Tenant's Phase by the total rentable square footage of Tenant's Phase and as of the date hereof equals the percentage set forth in Section 1.01(16); (d) Project Operating Expenses shall mean all Operating Expenses that are not included as Phase Operating Expenses (defined below) and that are not either Building Operating Expenses or operating expenses directly and separately identifiable to the operation, maintenance or repair of any other building located in the Project, but Project Operating Expenses includes operating expenses allocable to any areas of the Building or any other building during such time as such areas are made available by Landlord for the general common use or benefit of all tenants of the Project, and their employees and invitees, or the public, as such areas currently exist and as they may be changed from time to time; (e) Building Operating Expenses shall mean Operating Expenses that are directly and separately identifiable to each building in which the Premises or part thereof is located; 7 (f) Phase Operating Expenses shall mean Operating Expenses that Landlord may allocate to a Phase as directly and separately identifiable to all buildings located in the Phase (including but not limited to the Building) and may include Project Operating Expenses that are separately identifiable to a Phase; (g) Landlord shall have the right to allocate a particular item or portion of Operating Expenses as any one of Project Operating Expenses, Building Operating Expenses or Phase Operating Expenses; however, in no event shall any portion of Building Operating Expenses, Project Operating Expenses or Phase Operating Expenses be assessed or counted against Tenant more than once; and. (h) Notwithstanding anything to the contrary contained in this Section 4.01, as to each specific category of Operating Expense which one or more tenants of the Building either pays directly to third parties or specifically reimburses to Landlord (for example, separately contracted janitorial services or property taxes directly reimbursed to Landlord), then, on a category by category basis, the amount of Operating Expenses for the affected period shall be adjusted as follows: (1) all such tenant payments with respect to such category of expense and all of Landlord's costs reimbursed thereby shall be excluded from Operating Expenses and Tenant's Building Share, Tenant's Phase Share or Tenant's Project Share, as the case may be, for such category of Operating Expense shall be adjusted by excluding the square footage of all such tenants, and (2) if Tenant pays or directly reimburses Landlord for such category of Operating Expense, such category of Operating Expense shall be excluded from the determination of Operating Expenses for the purposes of this Lease. 4.02 RENT ADJUSTMENTS Tenant shall pay to Landlord Rent Adjustments with respect to each Adjustment Year as follows: (a) The Rent Adjustment Deposit representing Tenant's Share of Landlord's estimate of Operating Expenses, as described in Section 4.01, for the applicable Adjustment Year (or portion thereof) monthly during the Term with the payment of Monthly Base Rent, except the first installment which shall be paid by Tenant to Landlord concurrently with execution of this Lease; and (b) Any Rent Adjustments due in excess of the Rent Adjustment Deposits in accordance with Section 4.02. 4.03 STATEMENT OF LANDLORD Within one hundred twenty (120) days after the end of each calendar year or as soon thereafter as reasonably possible, Landlord will furnish Tenant a statement ("Landlord's Statement") showing the following: (a) Operating Expenses for the last Adjustment Year showing in reasonable detail the actual Operating Expenses categorized among Project Operating Expenses, Building Operating Expenses and Phase Operating Expenses for such period and Tenant's Share of each as described in Section 4.01 above; (b) The amount of Rent Adjustments due Landlord for the last Adjustment Year, less credit for Rent Adjustment Deposits paid, if any; and (c) Any change in the Rent Adjustment Deposit due monthly in the current Adjustment Year, including the amount or revised amount due for months preceding any such change pursuant to Landlord's Statement. Tenant shall pay to Landlord within ten (10) days after receipt of such statement any amounts for Rent Adjustments then due in accordance with Landlord's Statement. Any amounts due from Landlord to Tenant pursuant to this Section shall be credited to the Rent Adjustment Deposit next coming due, or refunded to Tenant if the Term has already expired provided Tenant is not in default hereunder. No interest or penalties shall accrue on any amounts which Landlord is obligated to credit or refund to Tenant by reason of this Section 4.02. Landlord's failure to deliver Landlord's Statement or to compute the amount of the Rent Adjustments shall not constitute a waiver by Landlord of its right to deliver such items nor constitute a waiver or release of Tenant's obligations to pay such amounts. The Rent Adjustment Deposit shall be credited against Rent Adjustments due for the applicable Adjustment Year. During the last complete calendar year or during any partial calendar year in which the Lease terminates, Landlord may include in the Rent Adjustment Deposit its estimate of Rent Adjustments which may not be finally determined until after the termination of this Lease. Tenant's obligation to pay Rent Adjustments survives the expiration or termination of the Lease. Notwithstanding the foregoing, in no event shall the sum of Monthly Base Rent and the Rent Adjustments be less than the Monthly Base Rent payable. 8 4.04 BOOKS AND RECORDS Landlord shall maintain books and records showing Operating Expenses and Taxes in accordance with sound accounting and management practices, consistently applied. The Tenant or its representative (which representative shall be a certified public accountant licensed to do business in the state in which the Property is located and whose primary business is certified public accounting) shall have the right, for a period of sixty (60) days following the date upon which Landlord's Statement is delivered to Tenant, to examine the Landlord's books and records with respect to the items in the foregoing statement of Operating Expenses and Taxes during normal business hours, upon written notice, delivered at least three (3) business days in advance. If Tenant does not object in writing to Landlord's Statement within ninety (90) days of Tenant's receipt thereof, specifying the nature of the item in dispute and the reasons therefor, then Landlord's Statement shall be considered final and accepted by Tenant. Any amount due to the Landlord as shown on Landlord's Statement, whether or not disputed by Tenant as provided herein shall be paid by Tenant when due as provided above, without prejudice to any such written exception. 4.05 TENANT OR LEASE SPECIFIC TAXES In addition to Monthly Base Rent, Rent Adjustments, Rent Adjustment Deposits and other charges to be paid by Tenant, Tenant shall pay to Landlord, upon demand, any and all taxes payable by Landlord (other than federal or state inheritance, general income, gift or estate taxes) whether or not now customary or within the contemplation of the parties hereto: (a) upon, allocable to, or measured by the Rent payable hereunder, including any gross receipts tax or excise tax levied by any governmental or taxing body with respect to the receipt of such rent; or (b) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; or (c) upon the measured value of Tenant's personal property or trade fixtures located in the Premises or in any storeroom or any other place in the Premises or the Property, or the areas used in connection with the operation of the Property, it being the intention of Landlord and Tenant that, to the extent possible, Tenant shall cause such taxes on personal property or trade fixtures to be billed to and paid directly by Tenant; (d) resulting from Landlord Work, Tenant Work or Tenant Alterations to the Premises, whether title thereto is in Landlord or Tenant; or (e) upon this transaction. Taxes paid by Tenant pursuant to this Section 4.05 shall not be included in any computation of Taxes as part of Operating Expenses. ARTICLE FIVE SECURITY DEPOSIT Tenant concurrently with the execution of this Lease shall pay to Landlord in immediately available funds the Security Deposit. The Security Deposit may be applied by Landlord to cure, in whole or part, any default of Tenant under this Lease, and upon notice by Landlord of such application, Tenant shall replenish the Security Deposit in full by paying to Landlord within ten (10) days of demand the amount so applied. Landlord's application of the Security Deposit shall not constitute a waiver of Tenant's default to the extent that the Security Deposit does not fully compensate Landlord for all losses, damages, costs and expenses incurred by Landlord in connection with such default and shall not prejudice any other rights or remedies available to Landlord under this Lease or by Law. Landlord shall not pay any interest on the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from its general accounts. The Security Deposit shall not be deemed an advance payment of Rent, nor a measure of damages for any default by Tenant under this Lease, nor shall it be a bar or defense of any action which Landlord may at any time commence against Tenant. In the absence of evidence satisfactory to Landlord of an assignment of the right to receive the Security Deposit or the remaining balance thereof, Landlord may return the Security Deposit to the original Tenant, regardless of one or more assignments of this Lease. Upon the transfer of Landlord's interest under this Lease, Landlord's obligation to Tenant with respect to the Security Deposit shall terminate upon transfer to the transferee of the Security Deposit, or any balance thereof. If Tenant shall fully and faithfully comply with all the terms, provisions, covenants, and conditions of this Lease, the Security Deposit, or any balance thereof, shall be returned to Tenant within thirty (30) days after Landlord recovers possession of the Premises. Tenant hereby waives any and all rights of Tenant under the provisions of Section 1950.7 of the California Civil Code or other Law regarding security deposits. ARTICLE SIX UTILITIES & SERVICES 6.01 LANDLORD'S GENERAL SERVICES Landlord shall provide maintenance and services as provided in Article Eight. 6.02 TENANT TO OBTAIN & PAY DIRECTLY (a) Tenant shall be responsible for and shall pay promptly all charges for gas, electricity, sewer, heat, light, power, telephone, refuse pickup (to be performed on a regularly scheduled basis so that accumulated refuse does not exceed the capacity of Tenant's refuse bins), janitorial service and all other utilities, materials and services furnished directly to or used by Tenant in, on or about the Premises, together with all taxes thereon. Tenant shall contract directly with the providing companies for such utilities and services. 9 (b) Notwithstanding any provision of the Lease to the contrary, without, in each instance, the prior written consent of Landlord, as more particularly provided in Article Nine, Tenant shall not: (i) make any alterations or additions to the electric or gas equipment or systems or other Building systems. Tenant's use of electric current shall at no time exceed the capacity of the wiring, feeders and risers providing electric current to the Premises or the Building. The consent of Landlord to the installation of electric equipment shall not relieve Tenant from the obligation to limit usage of electricity to no more than such capacity. 6.03 TELEPHONE SERVICES All telegraph, telephone, and communication connections which Tenant may desire outside the Premises shall be subject to Landlord's prior written approval, in Landlord's sole discretion, and the location of all wires and the work in connection therewith shall be performed by contractors approved by Landlord and shall be subject to the direction of Landlord, except that such approval is not required as to Tenant's cabling from the Premises in a route designated by Landlord to any telephone cabinet or panel provided for Tenant's connection to the telephone cable serving the Building, so long as Tenant's equipment does not require connections different than or additional to those to the telephone cabinet or panel provided. As to any such connections or work outside the Premises requiring Landlord's approval, Landlord reserves the right to designate and control the entity or entities providing telephone or other communication cable installation, removal, repair and maintenance outside the Premises and to restrict and control access to telephone cabinets or panels. In the event Landlord designates a particular vendor or vendors to provide such cable installation, removal, repair and maintenance for the Building, Tenant agrees to abide by and participate in such program. Tenant shall be responsible for and shall pay all costs incurred in connection with the installation of telephone cables and communication wiring in the Premises, including any hook-up, access and maintenance fees related to the installation of such wires and cables in the Premises and the commencement of service therein, and the maintenance thereafter of such wire and cables; and there shall be included in Operating Expenses for the Building all installation, removal, hook-up or maintenance costs incurred by Landlord in connection with telephone cables and communication wiring serving the Building which are not allocable to any individual users of such service but are allocable to the Building generally. If Tenant fails to maintain all telephone cables and communication wiring in the Premises and such failure affects or interferes with the operation or maintenance of any other telephone cables or communication wiring serving the Building, Landlord or any vendor hired by Landlord may enter into and upon the Premises forthwith and perform such repairs, restorations or alterations as Landlord deems necessary in order to eliminate any such interference (and Landlord may recover from Tenant all of Landlord's costs in connection therewith). No later than the Termination Date, Tenant agrees to remove all telephone cables and communication wiring installed by Tenant for and during Tenant's occupancy, which Landlord shall request Tenant to remove. Tenant agrees that neither Landlord nor any of its agents or employees shall be liable to Tenant, or any of Tenant's employees, agents, customers or invitees or anyone claiming through, by or under Tenant, for any damages, injuries, losses, expenses, claims or causes of action because of any interruption, diminution, delay or discontinuance at any time for any reason in the furnishing of any telephone or other communication service to the Premises and the Building. 6.04 FAILURE OR INTERRUPTION OF UTILITY OR SERVICE To the extent that any equipment or machinery furnished or maintained by Landlord outside the Premises is used in the delivery of utilities directly obtained by Tenant pursuant to Section 6.02 and breaks down or ceases to function properly, Landlord shall use reasonable diligence to repair same promptly. In the event of any failure, stoppage or interruption of, or change in, any utilities or services supplied by Landlord which are not directly obtained by Tenant, Landlord shall use reasonable diligence to have service promptly resumed. In either event covered by the preceding two sentences, if the cause of any such failure, stoppage or interruption of, or change in, utilities or services is within the control of a public utility, other public or quasi-public entity, or utility provider outside Landlord's control, notification to such utility or entity of such failure, stoppage or interruption and request to remedy the same shall constitute "reasonable diligence" by Landlord to have service promptly resumed. Notwithstanding any other provision of this Section to the contrary, in the event of any failure, stoppage or interruption of, or change in, any utility or other service furnished to the Premises or the Project resulting from any cause, including changes in service provider or Landlord's compliance with any voluntary or similar governmental or business guidelines now or hereafter published or any requirements now or hereafter established by any governmental agency, board or bureau having jurisdiction over the operation of the Property: (a) Landlord shall not be liable for, and Tenant shall not be entitled to, any abatement or reduction of Rent; (b) no such failure, stoppage, or interruption of any such utility or service shall constitute an eviction of Tenant or relieve Tenant of the obligation to perform any covenant or agreement of this Lease to be performed by Tenant; (c) Landlord shall not be in breach of this Lease nor be liable to Tenant for damages or otherwise. 6.05 CHOICE OF SERVICE PROVIDER Tenant acknowledges that Landlord may, at Landlord's sole option, to the extent permitted by applicable law, elect to change, from time to time, the company or companies which provide services (including electrical service, gas service, water, telephone and technical services) to the Property, the Premises and/or its occupants. Notwithstanding anything to the contrary set forth in this Lease, Tenant acknowledges that Landlord has not and does not make any representations or warranties concerning the identity or identities of the company or companies which provide services to the Property and the Premises or its occupants and Tenant acknowledges that the choice of service providers and matters concerning the engagement and 10 termination thereof shall be solely that of Landlord. The foregoing provision is not intended to modify, amend, change or otherwise derogate any provision of this Lease concerning the nature or type of service to be provided or any specific information concerning the amount thereof to be provided. Tenant agrees to cooperate with Landlord and each of its service providers in connection with any change in service or provider. 6.06 SIGNAGE Tenant shall not install any signage within the Project, the Building or the Premises without obtaining the prior written approval of Landlord, and Tenant shall be responsible for the installation and maintenance of any such signage installed by Tenant. Any such signage shall comply with Landlord's current Project signage criteria and all Laws. ARTICLE SEVEN POSSESSION, USE AND CONDITION OF PREMISES 7.01 POSSESSION AND USE OF PREMISES (a) Tenant shall occupy and use the Premises only for the uses specified in Section 1.01(17) to conduct Tenant's business. Tenant shall not occupy or use the Premises (or permit the use or occupancy of the Premises) for any purpose or in any manner which: (1) is unlawful or in violation of any Law or Environmental Law; (2) may be dangerous to persons or property or which may increase the cost of, or invalidate, any policy of insurance carried on the Building or covering its operations; (3) is contrary to or prohibited by the terms and conditions of this Lease or the rules of the Building set forth in Article Eighteen; (4) contrary to or prohibited by the articles, bylaws or rules of any owner's association affecting the Project; (5) is improper, immoral, or objectionable; (6) would obstruct or interfere with the rights of other tenants or occupants of the Building or the Project, or injure or annoy them, or would tend to create or continue a nuisance; or (7) would constitute any waste in or upon the Premises or Project. (b) Landlord and Tenant acknowledge that the Americans With Disabilities Act of 1990 (42 U.S.C. Section 12101 et seq.) and regulations and guidelines promulgated thereunder, as all of the same may be amended and supplemented from time to time (collectively referred to herein as the "ADA") establish requirements for business operations, accessibility and barrier removal, and that such requirements may or may not apply to the Premises, the Building and the Project depending on, among other things: (1) whether Tenant's business is deemed a "public accommodation" or "commercial facility", (2) whether such requirements are "readily achievable", and (3) whether a given alteration affects a "primary function area" or triggers "path of travel" requirements. The parties hereby agree that: (a) Landlord shall be responsible for ADA Title III compliance in the Common Areas, except as provided below, (b) Tenant shall be responsible for ADA Title III compliance in the Premises, including any leasehold improvements or other work to be performed in the Premises under or in connection with this Lease, (c) Landlord may perform, or require that Tenant perform, and Tenant shall be responsible for the cost of, ADA Title III "path of travel" requirements triggered by Tenant Additions in the Premises, and (d) Landlord may perform, or require Tenant to perform, and Tenant shall be responsible for the cost of, ADA Title III compliance in the Common Areas necessitated by the Building being deemed to be a "public accommodation" instead of a "commercial facility" as a result of Tenant's use of the Premises. Tenant shall be solely responsible for requirements under Title I of the ADA relating to Tenant's employees. (c) Landlord and Tenant agree to cooperate and use commercially reasonable efforts to participate in traffic management programs generally applicable to businesses located in or about the area and Tenant shall encourage and support van and car pooling by, and staggered and flexible working hours for, its office workers and service employees to the extent reasonably permitted by the requirements of Tenant's business. Neither this Section or any other provision of this Lease is intended to or shall create any rights or benefits in any other person, firm, company, governmental entity or the public. (d) Tenant agrees to cooperate with Landlord and to comply with any and all guidelines or controls concerning energy management imposed upon Landlord by federal or state governmental organizations or by any energy conservation association to which Landlord is a party or which is applicable to the Building. 7.02 HAZARDOUS MATERIALS (a) Tenant shall not use, generate, manufacture, produce, store, release, discharge, or dispose of, on, under or about the Premises or any part of the Project, or transport to or from the Premises or any part of the Project, any Hazardous Material or allow its employees, agents, contractors, licensees, invitees or any other person or entity to do so. The foregoing covenant shall not extend to insignificant amounts of substances typically found or used in general office applications so long as (i) such substances are maintained only in such quantities as are reasonably necessary for Tenant's operations in the Premises, (ii) such substances are used strictly in accordance with the manufacturers' instructions therefor and all applicable laws, (iii) such substances are not disposed of in or about the Building or the Project in a manner which would constitute a release or discharge thereof, and (iv) all such substances are removed from the Building and the Project by Tenant upon the expiration or earlier termination of this Lease. Tenant shall, within thirty (30) days after demand therefor, provide to Landlord a written list identifying any Hazardous 11 Materials then maintained by Tenant in the Building, the use of each such Hazardous Material so maintained by Tenant together with written certification by Tenant stating, in substance, that neither Tenant nor any person for whom Tenant is responsible has released or discharged any Hazardous Materials in or about the Building or the Project. Landlord's right of entry pursuant to Section 7.03 of this Lease shall include the right to enter and inspect the Premises for violations of Tenant's covenant herein. (b) Hazardous Materials shall include by way of illustration, and without limiting the generality of the definition of Hazardous Materials in Section 1.03, the following: (i) those substances included within the definitions of "hazardous substances," "hazardous materials," "toxic substances" or "solid waste" under all present and future federal, state and local laws (whether under common law, statute, rule, regulation or otherwise) relating to the protection of human health or the environment, including California Senate Bill 245 (Statutes of 1987, Chapter 1302), the Safe Drinking Water and Toxic Enforcement Act of 1986 (commonly known as Proposition 65) and the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 ET SEQ., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 ET SEQ., and the Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801, ET SEQ., all as heretofore and hereafter amended, or in any regulations promulgated pursuant to said laws; (ii) those substances defined as "hazardous wastes" in Section 25117 of the California Health & Safety Code or as "hazardous substances" in Section 25316 of the California Health & Safety Code, or in any regulations promulgated pursuant to said laws; (iii) those substances listed in the United States Department of Transportation Table (49 CFR 172.101 and amendments thereto) or designated by the Environmental Protection Agency (or any successor agency) as hazardous substances (SEE, E.G., 40 CFR Part 302 and amendments thereto); (iv) such other substances, materials and wastes which are or become regulated under applicable local, state or federal law or by the United States government or which are or become classified as hazardous or toxic under federal, state or local laws or regulations, including California Health & Safety Code, Division 20, and Title 26 of the California Code of Regulations; and (v) any material, waste or substance which contains petroleum, asbestos or polychlorinated biphenyls, is designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act of 1977, 33 U.S.C. Sections 1251, ET SEQ. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean Water Act of 1977 (33 U.S.C. Section 1317) or contains any flammable, explosive or radioactive material. (c) To the extent permitted by Law, Tenant hereby indemnifies, and agrees to protect, defend and hold the Indemnitees harmless, against any and all actions, claims, demands, liability, costs and expenses, including attorneys' fees and expenses for the defense thereof, arising out of any and all of (i) the introduction into the Project by Tenant, its employees, agents, contractors, licensees, invitees or any other person or entity for whom Tenant is responsible (collectively, "Tenant's Agents") of any Hazardous Material, (ii) the usage by Tenant or Tenant's Agents of Hazardous Materials in or about the Project, (iii) the discharge or release in or about the Project by Tenant or Tenant's Agents of any Hazardous Material, (iv) any injury to or death of persons or damage to or destruction of property resulting from the use by Tenant or Tenant's Agents of Hazardous Materials in or about the Project, and (v) any failure of Tenant or Tenant's Agents to observe the foregoing covenants. In case of any action or proceeding brought against the Indemnitees by reason of any such claim, upon notice from Landlord, Tenant covenants to defend such action or proceeding by counsel chosen by Landlord, in Landlord's sole discretion. Landlord reserves the right to settle, compromise or dispose of any and all actions, claims and demands related to the foregoing indemnity. The foregoing indemnity shall not operate to relieve Landlord of any liability Landlord has under Environmental Laws to the extent Hazardous Materials are present on, under or about the Premises or the Project prior to delivery to Tenant of possession of the Premises. (d) Tenant acknowledges that the sewer piping at the Project is made of ABS plastic. Accordingly, without Landlord's prior written consent, which may be given or withheld in Landlord's sole discretion, only ordinary domestic sewage is permitted to be put into the drains at the Premises. UNDER NO CIRCUMSTANCES SHALL Tenant EVER DEPOSIT ANY ESTERS OR KETONES (USUALLY FOUND IN SOLVENTS TO CLEAN UP PETROLEUM PRODUCTS) IN THE DRAINS AT THE PREMISES. If Tenant desires to put any substances other than ordinary domestic sewage into the drains, it shall first submit to Landlord a complete description of each such substance, including its chemical composition, and a sample of such substance suitable for laboratory testing. Landlord shall promptly determine whether or not the substance can be deposited into the drains and its determination shall be absolutely binding on Tenant. Upon demand, Tenant shall reimburse Landlord for expenses incurred by Landlord in making such determination. If any substances not so approved hereunder are deposited in the drains in Tenant's Premises, Tenant shall be liable to Landlord for all damages resulting therefrom, including but not limited to all costs and expenses incurred by Landlord in repairing or replacing the piping so damaged. (e) Upon any violation of any of the foregoing covenants, in addition to all remedies available to a landlord against the defaulting tenant, including but not limited to those set forth in Article Eleven of this Lease, Tenant expressly agrees that upon any such violation Landlord may, at its option (i) immediately terminate this Lease by giving written notice to Tenant of such termination, or (ii) continue this Lease in effect until compliance by Tenant with its clean-up and removal covenant (notwithstanding the expiration of the Term). No action by Landlord hereunder shall impair the obligations of Tenant pursuant to this Section 7.02. 7.03 LANDLORD ACCESS TO PREMISES; APPROVALS (a) Tenant shall permit Landlord to erect, use and maintain pipes, ducts, wiring and conduits in and through the Premises, so long as Tenant's use, layout or design of the Premises is not materially 12 affected or altered. Landlord or Landlord's agents shall have the right to enter upon the Premises in the event of an emergency, or to inspect the Premises, to perform janitorial and other services (if any), to conduct safety and other testing in the Premises and to make such repairs, alterations, improvements or additions to the Premises or the Building or other parts of the Property as Landlord may deem necessary or desirable (including all alterations, improvements and additions in connection with a change in service provider or providers). Janitorial and cleaning services (if any) shall be performed after normal business hours. Any entry or work by Landlord may be during normal business hours and Landlord will use reasonable efforts to ensure that any entry or work shall not materially interfere with Tenant's occupancy of the Premises. (b) If Tenant shall not be personally present to permit an entry into the Premises when for any reason an entry therein shall be necessary or permissible, Landlord (or Landlord's agents), after attempting to notify Tenant (unless Landlord believes an emergency situation exists), may enter the Premises without rendering Landlord or its agents liable therefor, and without relieving Tenant of any obligations under this Lease. (c) Landlord may enter the Premises for the purpose of conducting such inspections, tests and studies as Landlord may deem desirable or necessary to confirm Tenant's compliance with all Laws and Environmental Laws or for other purposes necessary in Landlord's reasonable judgment to ensure the sound condition of the Property and the systems serving the Property. Landlord's rights under this Section 7.02(c) are for Landlord's own protection only, and Landlord has not, and shall not be deemed to have assumed, any responsibility to Tenant or any other party as a result of the exercise or non-exercise of such rights, for compliance with Laws or Environmental Laws or for the accuracy or sufficiency of any item or the quality or suitability of any item for its intended use. (d) Landlord may do any of the foregoing, or undertake any of the inspection or work described in the preceding paragraphs without such action constituting an actual or constructive eviction of Tenant, in whole or in part, or giving rise to an abatement of Rent by reason of loss or interruption of business of the Tenant, or otherwise. (e) The review, approval or consent of Landlord with respect to any item required or permitted under this Lease is for Landlord's own protection only, and Landlord has not, and shall not be deemed to have assumed, any responsibility to Tenant or any other party, as a result of the exercise or non-exercise of such rights, for compliance with Laws or Environmental Laws or for the accuracy or sufficiency of any item or the quality or suitability of any item for its intended use. 7.04 QUIET ENJOYMENT Landlord covenants, in lieu of any implied covenant of quiet possession or quiet enjoyment, that so long as Tenant is in compliance with the covenants and conditions set forth in this Lease, Tenant shall have the right to quiet enjoyment of the Premises without hindrance or interference from Landlord or those claiming through Landlord, and subject to the covenants and conditions set forth in the Lease and to the rights of any Mortgagee or ground lessor. ARTICLE EIGHT MAINTENANCE 8.01 LANDLORD'S MAINTENANCE Subject to Article Fourteen and Section 8.02, Landlord shall maintain the structural portions of the Building, the roof, exterior walls and exterior doors, foundation, and underslab standard sewer system of the Building in good, clean and safe condition, and shall use reasonable efforts, through Landlord's program of regularly scheduled preventive maintenance, to keep the Building's standard heating, ventilation and air conditioning ("HVAC") equipment in reasonably good order and condition. Notwithstanding the foregoing, Landlord shall have no responsibility to repair the Building's standard heating, ventilation and air conditioning equipment, and all such repairs shall be performed by Tenant pursuant to the terms of Section 8.02. Landlord shall also (a) maintain the landscaping, parking facilities and other Common Areas of the Project, and (b) wash the outside of exterior windows at intervals determined by Landlord. Except as provided in Article Fourteen and Article Fifteen, there shall be no abatement of rent, no allowance to Tenant for diminution of rental value and no liability of Landlord by reason of inconvenience, annoyance or any injury to or interference with Tenant's business arising from the making of or the failure to make any repairs, alterations or improvements in or to any portion of the Project or in or to any fixtures, appurtenances or equipment therein. Tenant waives the right to make repairs at Landlord's expense under any law, statute or ordinance now or hereafter in effect. 8.02 TENANT'S MAINTENANCE Subject to the provisions of Article Fourteen, Tenant shall, at Tenant's sole cost and expense, make all repairs to the Premises and fixtures therein which Landlord is not required to make pursuant to Section 8.01, including repairs to the interior walls, ceilings and windows of the Premises, the interior doors, Tenant's signage, and the electrical, life-safety, plumbing and heating, ventilation and air conditioning systems located within or serving the Premises and shall maintain the Premises, the fixtures and utilities systems therein, and the area immediately surrounding the Premises (including all garbage enclosures), in a good, clean and safe condition. Tenant shall deliver to Landlord a copy of any maintenance contract entered into by Tenant with 13 respect to the Premises. Tenant shall also, at Tenant's expense, keep any non-standard heating, ventilating and air conditioning equipment and other non-standard equipment in the Building in good condition and repair, using contractors approved in advance, in writing, by Landlord. Notwithstanding Section 8.01 above, but subject to the waivers set forth in Section 16.04, Tenant will pay for any repairs to the Building or the Project which are caused by any negligence or carelessness, or by any willful and wrongful act, of Tenant or its assignees, subtenants or employees, or of the respective agents of any of the foregoing persons, or of any other persons permitted in the Building or elsewhere in the Project by Tenant or any of them. Tenant will maintain the Premises, and will leave the Premises upon termination of this Lease, in a safe, clean, neat and sanitary condition. ARTICLE NINE ALTERATIONS AND IMPROVEMENTS 9.01 TENANT ALTERATIONS (a) The following provisions shall apply to the completion of any Tenant Alterations: (1) Tenant shall not, except as provided herein, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, make or cause to be made any Tenant Alterations in or to the Premises or any Property systems serving the Premises. Prior to making any Tenant Alterations, Tenant shall give Landlord ten (10) days prior written notice (or such earlier notice as would be necessary pursuant to applicable Law) to permit Landlord sufficient time to post appropriate notices of non-responsibility. Subject to all other requirements of this Article Nine, Tenant may undertake Decoration work without Landlord's prior written consent. Tenant shall furnish Landlord with the names and addresses of all contractors and subcontractors and copies of all contracts. All Tenant Alterations shall be completed at such time and in such manner as Landlord may from time to time designate, and only by contractors or mechanics approved by Landlord, which approval shall not be unreasonably withheld, provided, however, that Landlord may, in its sole discretion, specify the engineers and contractors to perform all work relating to the Building's systems (including the mechanical, heating, plumbing, security, ventilating, air-conditioning, electrical, communication and the fire and life safety systems in the Building). The contractors, mechanics and engineers who may be used are further limited to those whose work will not cause or threaten to cause disharmony or interference with Landlord or other tenants in the Building and their respective agents and contractors performing work in or about the Building. Landlord may further condition its consent upon Tenant furnishing to Landlord and Landlord approving prior to the commencement of any work or delivery of materials to the Premises related to the Tenant Alterations such of the following as specified by Landlord: architectural plans and specifications, opinions from Landlord's engineers stating that the Tenant Alterations will not in any way adversely affect the Building's systems, necessary permits and licenses, certificates of insurance, and such other documents in such form reasonably requested by Landlord. Landlord may, in the exercise of reasonable judgment, request that Tenant provide Landlord with appropriate evidence of Tenant's ability to complete and pay for the completion of the Tenant Alterations such as a performance bond or letter of credit. Upon completion of the Tenant Alterations, Tenant shall deliver to Landlord an as-built mylar and digitized (if available) set of plans and specifications for the Tenant Alterations. (2) Tenant shall pay the cost of all Tenant Alterations and the cost of decorating the Premises and any work to the Property occasioned thereby. In connection with completion of any Tenant Alterations, Tenant shall pay Landlord a construction fee and all elevator and hoisting charges at Landlord's then standard rate, which shall not exceed two percent of all "hard costs" of the Tenant Alterations. Upon completion of Tenant Alterations, Tenant shall furnish Landlord with contractors' affidavits and full and final waivers of lien and receipted bills covering all labor and materials expended and used in connection therewith and such other documentation reasonably requested by Landlord or Mortgagee. (3) Tenant agrees to complete all Tenant Alterations (i) in accordance with all Laws, Environmental Laws, all requirements of applicable insurance companies and in accordance with Landlord's standard construction rules and regulations, and (ii) in a good and workmanlike manner with the use of good grades of materials. Tenant shall notify Landlord immediately if Tenant receives any notice of violation of any Law in connection with completion of any Tenant Alterations and shall immediately take such steps as are necessary to remedy such violation. In no event shall such supervision or right to supervise by Landlord nor shall any approvals given by Landlord under this Lease constitute any warranty by Landlord to Tenant of the adequacy of the design, workmanship or quality of such work or materials for Tenant's intended use or of compliance with the requirements of Section 9.01(a)(3)(i) and (ii) above or impose any liability upon Landlord in connection with the performance of such work. (b) All Tenant Additions to the Premises whether installed by Landlord or Tenant, shall without compensation or credit to Tenant, become part of the Premises and the property of Landlord at the time of their installation and shall remain in the Premises, unless pursuant to Article Twelve, Tenant may remove them or is required to remove them at Landlord's request. 14 9.02 LIENS Tenant shall not permit any lien or claim for lien of any mechanic, laborer or supplier or any other lien to be filed against the Building, the Land, the Premises, or any other part of the Property arising out of work performed, or alleged to have been performed by, or at the direction of, or on behalf of Tenant. If any such lien or claim for lien is filed, Tenant shall within ten (10) days of receiving notice of such lien or claim (a) have such lien or claim for lien released of record or (b) deliver to Landlord a bond in form, content, amount, and issued by surety, satisfactory to Landlord, indemnifying, protecting, defending and holding harmless the Indemnitees against all costs and liabilities resulting from such lien or claim for lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to take any of the above actions, Landlord, in addition to its rights and remedies under Article Eleven, without investigating the validity of such lien or claim for lien, may pay or discharge the same and Tenant shall, as payment of additional Rent hereunder, reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord's expenses and attorneys' fees. ARTICLE TEN ASSIGNMENT AND SUBLETTING 10.01 ASSIGNMENT AND SUBLETTING (a) Without the prior written consent of Landlord, which may be withheld in Landlord's sole discretion, Tenant may not sublease, assign, mortgage, pledge, hypothecate or otherwise transfer or permit the transfer of this Lease or the encumbering of Tenant's interest therein in whole or in part, by operation of Law or otherwise or permit the use or occupancy of the Premises, or any part thereof, by anyone other than Tenant, provided, however, if Landlord chooses not to recapture the space proposed to be subleased or assigned as provided in Section 10.02, Landlord shall not unreasonably withhold its consent to a subletting or assignment under this Section 10.01. Tenant agrees that the provisions governing sublease and assignment set forth in this Article Ten shall be deemed to be reasonable. If Tenant desires to enter into any sublease of the Premises or assignment of this Lease, Tenant shall deliver written notice thereof to Landlord ("Tenant's Notice"), together with the identity of the proposed subtenant or assignee and the proposed principal terms thereof and financial and other information sufficient for Landlord to make an informed judgment with respect to such proposed subtenant or assignee at least sixty (60) days prior to the commencement date of the term of the proposed sublease or assignment. If Tenant proposes to sublease less than all of the Rentable Area of the Premises, the space proposed to be sublet and the space retained by Tenant must each be a marketable unit as reasonably determined by Landlord and otherwise in compliance with all Laws. Landlord shall notify Tenant in writing of its approval or disapproval of the proposed sublease or assignment or its decision to exercise its rights under Section 10.02 within thirty (30) days after receipt of Tenant's Notice (and all required information). In no event may Tenant sublease any portion of the Premises or assign the Lease to any other tenant of the Project. Tenant shall submit for Landlord's approval (which approval shall not be unreasonably withheld) any advertising which Tenant or its agents intend to use with respect to the space proposed to be sublet. (b) With respect to Landlord's consent to an assignment or sublease, Landlord may take into consideration any factors which Landlord may deem relevant, and the reasons for which Landlord's denial shall be deemed to be reasonable shall include, without limitation, the following: (i) the business reputation or creditworthiness of any proposed subtenant or assignee is not acceptable to Landlord; or (ii) in Landlord's reasonable judgment the proposed assignee or subtenant would diminish the value or reputation of the Building or Landlord; or (iii) any proposed assignee's or subtenant's use of the Premises would violate Section 7.01 of the Lease or would violate the provisions of any other leases of tenants in the Project; (iv) the proposed assignee or subtenant is either a governmental agency, a school or similar operation, or a medical related practice; or (v) the proposed subtenant or assignee is a bona fide prospective tenant of Landlord in the Project as demonstrated by a written proposal dated within ninety (90) days prior to the date of Tenant's request; or (vi) the proposed subtenant or assignee would materially increase the estimated pedestrian and vehicular traffic to and from the Premises and the Building. In no event shall Landlord be obligated to consider a consent to any proposed assignment of the Lease which would assign less than the entire Premises. In the event Landlord wrongfully withholds its consent to any proposed sublease of the Premises or assignment of the Lease, Tenant's sole and exclusive remedy therefor shall be to seek specific performance of Landlord's obligations to consent to such sublease or assignment. (c) Any sublease or assignment shall be expressly subject to the terms and conditions of this Lease. Any subtenant or assignee shall execute such documents as Landlord may reasonably require to 15 evidence such subtenant or assignee's assumption of the obligations and liabilities of Tenant under this Lease. Tenant shall deliver to Landlord a copy of all agreements executed by Tenant and the proposed subtenant and assignee with respect to the Premises. Landlord's approval of a sublease, assignment, hypothecation, transfer or third party use or occupancy shall not constitute a waiver of Tenant's obligation to obtain Landlord's consent to further assignments or subleases, hypothecations, transfers or third party use or occupancy. (d) For purposes of this Article Ten, an assignment shall be deemed to include a change in the majority control of Tenant, resulting from any transfer, sale or assignment of shares of stock of Tenant occurring by operation of Law or otherwise if Tenant is a corporation whose shares of stock are not traded publicly. If Tenant is a partnership, any change in the partners of Tenant shall be deemed to be an assignment. (e) Notwithstanding anything to the contrary contained in this Article Ten, Tenant shall have the right, without the prior written consent of Landlord, to sublease the Premises to an Affiliate or to assign this Lease to an Affiliate, but (i) no later than fifteen (15) days prior to the effective date of the assignment or sublease, the assignee or subtenant shall execute documents satisfactory to Landlord to evidence such subtenant or assignee's assumption of the obligations and liabilities of Tenant under this Lease, unless Landlord elects in its sole discretion not to require such assumption if an assignment and assumption occurs by operation of law (and without a written assignment) as a consequence of merger, consolidation or non-bankruptcy reorganization; (ii) within ten (10) days after the effective date of such assignment or sublease, give notice to Landlord which notice shall include the full name and address of the assignee or subtenant, and a copy of all agreements executed between Tenant and the assignee or subtenant with respect to the Premises; and (iii) within fifteen (15) days after Landlord's request, such documents or information which Landlord reasonably requests for the purpose of substantiating whether or not the assignment or sublease is to an Affiliate. 10.02 RECAPTURE Landlord shall have the option to exclude from the Premises covered by this Lease ("recapture"), the space proposed to be sublet or subject to the assignment, effective as of the proposed commencement date of such sublease or assignment. If Landlord elects to recapture, Tenant shall surrender possession of the space proposed to be subleased or subject to the assignment to Landlord on the effective date of recapture of such space from the Premises, such date being the Termination Date for such space. Effective as of the date of recapture of any portion of the Premises pursuant to this section, the Monthly Base Rent, Rentable Area of the Premises and Tenant's Share shall be adjusted accordingly. 10.03 EXCESS RENT Tenant shall pay Landlord on the first day of each month during the term of the sublease or assignment, fifty percent (50%) of the amount by which the sum of all rent and other consideration (direct or indirect) due from the subtenant or assignee for such month exceeds: (i) that portion of the Monthly Base Rent and Rent Adjustments due under this Lease for said month which is allocable to the space sublet or assigned; and (ii) the following costs and expenses for the subletting or assignment of such space: (1) brokerage commissions and attorneys' fees and expenses, (2) the actual costs paid in making any improvements or substitutions in the Premises required by any sublease or assignment; and (3) "free rent" periods, costs of any inducements or concessions given to subtenant or assignee, moving costs, and other amounts in respect of such subtenant's or assignee's other leases or occupancy arrangements. All such costs and expenses shall be amortized over the term of the sublease or assignment pursuant to sound accounting principles. 10.04 TENANT LIABILITY In the event of any sublease or assignment, whether or not with Landlord's consent, Tenant shall not be released or discharged from any liability, whether past, present or future, under this Lease, including any liability arising from the exercise of any renewal or expansion option, to the extent such exercise is expressly permitted by Landlord. Tenant's liability shall remain primary, and in the event of default by any subtenant, assignee or successor of Tenant in performance or observance of any of the covenants or conditions of this Lease, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against said subtenant, assignee or successor. After any assignment to an Affiliate, Landlord may consent to subsequent assignments or subletting of this Lease, or amendments or modifications of this Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto, and such action shall not relieve Tenant or any successor of Tenant of liability under this Lease. If Landlord grants consent to such sublease or assignment, Tenant shall pay all reasonable attorneys' fees and expenses incurred by Landlord with respect to such assignment or sublease which shall not exceed One Thousand Dollars ($1000.00) per sublease or assignment. In addition, if Tenant has any options to extend the term of this Lease or to add other space to the Premises, such options shall not be available to any subtenant or assignee, directly or indirectly without Landlord's express written consent, which may be withheld in Landlord's sole discretion. 16 10.05 ASSUMPTION AND ATTORNMENT If Tenant shall assign this Lease as permitted herein, the assignee shall expressly assume all of the obligations of Tenant hereunder in a written instrument satisfactory to Landlord and furnished to Landlord not later than fifteen (15) days prior to the effective date of the assignment. If Tenant shall sublease the Premises as permitted herein, Tenant shall, at Landlord's option, within fifteen (15) days following any request by Landlord, obtain and furnish to Landlord the written agreement of such subtenant to the effect that the subtenant will attorn to Landlord and will pay all subrent directly to Landlord. ARTICLE ELEVEN DEFAULT AND REMEDIES 11.01 EVENTS OF DEFAULT The occurrence or existence of any one or more of the following shall constitute a "Default" by Tenant under this Lease: (i) Tenant fails to pay any installment or other payment of Rent including Rent Adjustment Deposits or Rent Adjustments within three (3) days after the date when due; (ii) Tenant fails to observe or perform any of the other covenants, conditions or provisions of this Lease or the Workletter and fails to cure such default within fifteen (15) days after written notice thereof to Tenant, unless the default involves a hazardous condition, which shall be cured forthwith or unless the failure to perform is a Default for which this Lease specifies there is no cure or grace period; (iii) the interest of Tenant in this Lease is levied upon under execution or other legal process; (iv) a petition is filed by or against Tenant to declare Tenant bankrupt or seeking a plan of reorganization or arrangement under any Chapter of the Bankruptcy Act, or any amendment, replacement or substitution therefor, or to delay payment of, reduce or modify Tenant's debts, which in the case of an involuntary action is not discharged within thirty (30) days; (v) Tenant is declared insolvent by Law or any assignment of Tenant's property is made for the benefit of creditors; (vi) a receiver is appointed for Tenant or Tenant's property, which appointment is not discharged within thirty (30) days; (vii) any action taken by or against Tenant to reorganize or modify Tenant's capital structure in a materially adverse way which in the case of an involuntary action is not discharged within thirty (30) days; (viii) upon the dissolution of Tenant; or (ix) upon the third occurrence within any Lease Year that Tenant fails to pay Rent when due or within three (3) days of when due as provided in Section 11.01(i), or has breached a particular covenant of this Lease (whether or not such failure or breach is thereafter cured within any stated cure or grace period or statutory period). 11.02 LANDLORD'S REMEDIES (a) A Default shall constitute a breach of the Lease for which Landlord shall have the rights and remedies set forth in this Section 11.02 and all other rights and remedies set forth in this Lease or now or hereafter allowed by Law, whether legal or equitable, and all rights and remedies of Landlord shall be cumulative and none shall exclude any other right or remedy. (b) With respect to a Default, at any time Landlord may terminate Tenant's right to possession by written notice to Tenant stating such election. Any written notice required pursuant to Section 11.01 shall constitute notice of unlawful detainer pursuant to California Code of Civil Procedure Section 1161 if, at Landlord's sole discretion, it states Landlord's election that Tenant's right to possession is terminated after expiration of any period required by Law or any longer period required by Section 11.01. Upon the expiration of the period stated in Landlord's written notice of termination (and unless such notice provides an option to cure within such period and Tenant cures the Default within such period), Tenant's right to possession shall terminate and this Lease shall terminate, and Tenant shall remain liable as hereinafter provided. Upon such termination in writing of Tenant's right to possession, Landlord shall have the right, subject to applicable Law, to re-enter the Premises and dispossess Tenant and the legal representatives of Tenant and all other occupants of the Premises by unlawful detainer or other summary proceedings, or otherwise as permitted by Law, regain possession of the Premises and remove their property (including their trade fixtures, personal property and those Tenant Additions which Tenant is required or permitted to remove under Article Twelve), but Landlord shall not be obligated to effect such removal, and such property may, at Landlord's option, be 17 stored elsewhere, sold or otherwise dealt with as permitted by Law, at the risk of, expense of and for the account of Tenant, and the proceeds of any sale shall be applied pursuant to Law. Landlord shall in no event be responsible for the value, preservation or safekeeping of any such property. Tenant hereby waives all claims for damages that may be caused by Landlord's removing or storing Tenant's personal property pursuant to this Section or Section 12.01, and Tenant hereby indemnifies, and agrees to defend, protect and hold harmless, the Indemnitees from any and all loss, claims, demands, actions, expenses, liability and cost (including attorneys' fees and expenses) arising out of or in any way related to such removal or storage. Upon such written termination of Tenant's right to possession and this Lease, Landlord shall have the right to recover damages for Tenant's Default as provided herein or by Law, including the following damages provided by California Civil Code Section 1951.2: (1) the worth at the time of award of the unpaid Rent which had been earned at the time of termination; (2) the worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such Rent loss that Tenant proves could reasonably have been avoided; (3) the worth at the time of award of the amount by which the unpaid Rent for the balance of the term of this Lease after the time of award exceeds the amount of such Rent loss that Tenant proves could be reasonably avoided; and (4) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom. The word "rent" as used in this Section 11.02 shall have the same meaning as the defined term Rent in this Lease. The "worth at the time of award" of the amount referred to in clauses (1) and (2) above is computed by allowing interest at the Default Rate. The worth at the time of award of the amount referred to in clause (3) above is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). For the purpose of determining unpaid Rent under clause (3) above, the monthly Rent reserved in this Lease shall be deemed to be the sum of the Monthly Base Rent, and monthly Storage Space Rent, if any, and the amounts last payable by Tenant as Rent Adjustments for the calendar year in which Landlord terminated this Lease as provided hereinabove. (c) Even if Tenant is in Default and/or has abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession by written notice as provided in Section 11.02(b) above, and Landlord may enforce all its rights and remedies under this Lease, including the right to recover Rent as it becomes due under this Lease. In such event, Landlord shall have all of the rights and remedies of a landlord under California Civil Code Section 1951.4 (lessor may continue Lease in effect after Tenant's Default and abandonment and recover Rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations), or any successor statute. During such time as Tenant is in Default, if Landlord has not terminated this Lease by written notice and if Tenant requests Landlord's consent to an assignment of this Lease or a sublease of the Premises, subject to Landlord's option to recapture pursuant to Section 10.02, Landlord shall not unreasonably withhold its consent to such assignment or sublease. Tenant acknowledges and agrees that the provisions of Article Ten shall be deemed to constitute reasonable limitations of Tenant's right to assign or sublet. Tenant acknowledges and agrees that in the absence of written notice pursuant to Section 11.02(b) above terminating Tenant's right to possession, no other act of Landlord shall constitute a termination of Tenant's right to possession or an acceptance of Tenant's surrender of the Premises, including acts of maintenance or preservation or efforts to relet the Premises or the appointment of a receiver upon initiative of Landlord to protect Landlord's interest under this Lease or the withholding of consent to a subletting or assignment, or terminating a subletting or assignment, if in accordance with other provisions of this Lease. (d) In the event that Landlord seeks an injunction with respect to a breach or threatened breach by Tenant of any of the covenants, conditions or provisions of this Lease, Tenant agrees to pay the premium for any bond required in connection with such injunction. (e) Tenant hereby waives any and all rights to relief from forfeiture, redemption or reinstatement granted by Law (including California Civil Code of Procedure Sections 1174 and 1179) in the event of Tenant being evicted or dispossessed for any cause or in the event of Landlord obtaining possession of the Premises by reason of Tenant's Default or otherwise; (f) Notwithstanding any other provision of this Lease, a notice to Tenant given under this Article and Article Twenty-four of this Lease or given pursuant to California Code of Civil Procedure Section 1161, and any notice served by mail shall be deemed served, and the requisite waiting period deemed to begin under said Code of Civil Procedure Section upon mailing, without any additional waiting requirement under Code of Civil Procedure Section 1011 et seq. or by other Law. For purposes of Code of Civil Procedure Section 1162, Tenant's "place of residence", "usual place of business", "the property" and "the place where the property is situated" shall mean and be the Premises, whether or not Tenant has vacated same at the time of service. 18 (g) The voluntary or other surrender or termination of this Lease, or a mutual termination or cancellation thereof, shall not work a merger and shall terminate all or any existing assignments, subleases, subtenancies or occupancies permitted by Tenant, except if and as otherwise specified in writing by Landlord. (h) No delay or omission in the exercise of any right or remedy of Landlord upon any default by Tenant, and no exercise by Landlord of its rights pursuant to Section 26.15 to perform any duty which Tenant fails timely to perform, shall impair any right or remedy or be construed as a waiver. No provision of this Lease shall be deemed waived by Landlord unless such waiver is in a writing signed by Landlord. The waiver by Landlord of any breach of any provision of this Lease shall not be deemed a waiver of any subsequent breach of the same or any other provision of this Lease. 11.03 ATTORNEY'S FEES In the event any party brings any suit or other proceeding with respect to the subject matter or enforcement of this Lease, the prevailing party (as determined by the court, agency or other authority before which such suit or proceeding is commenced) shall, in addition to such other relief as may be awarded, be entitled to recover attorneys' fees, expenses and costs of investigation as actually incurred, including court costs, expert witness fees, costs and expenses of investigation, and all attorneys' fees, costs and expenses in any such suit or proceeding (including in any action or participation in or in connection with any case or proceeding under the Bankruptcy Code, 11 United States Code Sections 101 ET SEQ., or any successor statutes, in establishing or enforcing the right to indemnification, in appellate proceedings, or in connection with the enforcement or collection of any judgment obtained in any such suit or proceeding). 11.04 BANKRUPTCY The following provisions shall apply in the event of the bankruptcy or insolvency of Tenant: (a) In connection with any proceeding under Chapter 7 of the Bankruptcy Code where the trustee of Tenant elects to assume this Lease for the purposes of assigning it, such election or assignment, may only be made upon compliance with the provisions of (b) and (c) below, which conditions Landlord and Tenant acknowledge to be commercially reasonable. In the event the trustee elects to reject this Lease then Landlord shall immediately be entitled to possession of the Premises without further obligation to Tenant or the trustee. (b) Any election to assume this Lease under Chapter 11 or 13 of the Bankruptcy Code by Tenant as debtor-in-possession or by Tenant's trustee (the "Electing Party") must provide for: The Electing Party to cure or provide to Landlord adequate assurance that it will cure all monetary defaults under this Lease within fifteen (15) days from the date of assumption and it will cure all nonmonetary defaults under this Lease within thirty (30) days from the date of assumption. Landlord and Tenant acknowledge such condition to be commercially reasonable. (c) If the Electing Party has assumed this Lease or elects to assign Tenant's interest under this Lease to any other person, such interest may be assigned only if the intended assignee has provided adequate assurance of future performance (as herein defined), of all of the obligations imposed on Tenant under this Lease. For the purposes hereof, "adequate assurance of future performance" means that Landlord has ascertained that each of the following conditions has been satisfied: (i) The assignee has submitted a current financial statement, certified by its chief financial officer, which shows a net worth and working capital in amounts sufficient to assure the future performance by the assignee of Tenant's obligations under this Lease; and (ii) Landlord has obtained consents or waivers from any third parties which may be required under a lease, mortgage, financing arrangement, or other agreement by which Landlord is bound, to enable Landlord to permit such assignment. (d) Landlord's acceptance of rent or any other payment from any trustee, receiver, assignee, person, or other entity will not be deemed to have waived, or waive, the requirement of Landlord's consent, Landlord's right to terminate this Lease for any transfer of Tenant's interest under this Lease without such consent, or Landlord's claim for any amount of Rent due from Tenant. 11.05 LANDLORD'S DEFAULT Landlord shall be in default hereunder in the event Landlord has not begun and pursued with reasonable diligence the cure of any failure of Landlord to meet its obligations hereunder within thirty (30) days after the receipt by Landlord of written notice from Tenant of the alleged failure to perform. In no event shall Tenant have the right to terminate or rescind this Lease as a result of Landlord's default as to any covenant or agreement contained in this Lease. Tenant hereby waives such remedies of termination and rescission and hereby agrees that Tenant's remedies for default hereunder and for breach of any promise or inducement 19 shall be limited to a suit for damages and/or injunction. In addition, Tenant hereby covenants that, prior to the exercise of any such remedies, it will give Mortgagee notice and a reasonable time to cure any default by Landlord. ARTICLE TWELVE SURRENDER OF PREMISES 12.01 IN GENERAL Upon the Termination Date, Tenant shall surrender and vacate the Premises immediately and deliver possession thereof to Landlord in a clean, good and tenantable condition, ordinary wear and tear, and damage caused by Landlord excepted. Tenant shall deliver to Landlord all keys to the Premises. Tenant shall remove from the Premises all movable personal property of Tenant and Tenant's trade fixtures, including, subject to Section 6.04, cabling for any of the foregoing. Tenant shall be entitled to remove such Tenant Additions which at the time of their installation Landlord and Tenant agreed may be removed by Tenant. Tenant shall also remove such other Tenant Additions as required by Landlord, including any Tenant Additions containing Hazardous Materials. Tenant immediately shall repair all damage resulting from removal of any of Tenant's property, furnishings or Tenant Additions, shall close all floor, ceiling and roof openings and shall restore the Premises to a tenantable condition as reasonably determined by Landlord. If any of the Tenant Additions which were installed by Tenant involved the lowering of ceilings, raising of floors or the installation of specialized wall or floor coverings or lights, then Tenant shall also be obligated to return such surfaces to their condition prior to the commencement of this Lease. Tenant shall also be required to close any staircases or other openings between floors. In the event possession of the Premises is not delivered to Landlord when required hereunder, or if Tenant shall fail to remove those items described above, Landlord may (but shall not be obligated to), at Tenant's expense, remove any of such property and store, sell or otherwise deal with such property as provided in Section 11.02(b), including the waiver and indemnity obligations provided in that Section, and undertake, at Tenant's expense, such restoration work as Landlord deems necessary or advisable. 12.02 LANDLORD'S RIGHTS All property which may be removed from the Premises by Landlord shall be conclusively presumed to have been abandoned by Tenant and Landlord may deal with such property as provided in Section 11.02(b), including the waiver and indemnity obligations provided in that Section. Tenant shall also reimburse Landlord for all costs and expenses incurred by Landlord in removing any of Tenant Additions and in restoring the Premises to the condition required by this Lease at the Termination Date. ARTICLE THIRTEEN HOLDING OVER Tenant shall pay Landlord the greater of (i) double the monthly Rent payable for the month immediately preceding the holding over (including increases for Rent Adjustments which Landlord may reasonably estimate) or, (ii) double the fair market rental value of the Premises as reasonably determined by Landlord for each month or portion thereof that Tenant retains possession of the Premises, or any portion thereof, after the Termination Date (without reduction for any partial month that Tenant retains possession). Tenant shall also pay all damages sustained by Landlord by reason of such retention of possession. The provisions of this Article shall not constitute a waiver by Landlord of any re-entry rights of Landlord and Tenant's continued occupancy of the Premises shall be as a tenancy in sufferance. If Tenant retains possession of the Premises, or any part thereof for thirty (30) days after the Termination Date then at the sole option of Landlord expressed by written notice to Tenant, but not otherwise, such holding over shall constitute an extension of the Term of this Lease for a period of one (1) year on the same terms and conditions (including those with respect to the payment of Rent) as provided in this Lease, except that the Monthly Base Rent for such period shall be equal to the greater of (i) 150% of the Monthly Base Rent payable during the month preceding the Termination Date, or (ii) 150% of the monthly base rent then being quoted by Landlord for similar space in the Building. ARTICLE FOURTEEN DAMAGE BY FIRE OR OTHER CASUALTY 14.01 SUBSTANTIAL UNTENANTABILITY (a) If any fire or other casualty (whether insured or uninsured) renders all or a substantial portion of the Premises or the Building untenantable, Landlord shall, with reasonable promptness after the occurrence of such damage, estimate the length of time that will be required to substantially complete the repair and restoration (excluding any Tenant Additions) and shall by notice advise Tenant of such estimate ("Landlord's Notice"). If Landlord estimates that the amount of time required to substantially complete such repair and restoration (excluding any Tenant Additions) will exceed one hundred eighty (180) days from the date such damage occurred, then Landlord, or Tenant if all or a substantial portion of the Premises is rendered untenantable, shall have the right to terminate this Lease as of the date of such damage upon giving written notice to the other at any time within twenty (20) days after delivery of Landlord's Notice, provided that if Landlord so chooses, Landlord's Notice may also constitute such notice of termination. 20 (b) In the event that the Building is damaged or destroyed to the extent of more than twenty-five percent (25%) of its replacement cost or to any extent if no insurance proceeds or insufficient insurance proceeds are receivable by Landlord, or if the buildings at the Project shall be damaged to the extent of fifty percent (50%) or more of the replacement value or to any extent if no insurance proceeds or insufficient insurance proceeds are receivable by Landlord, and regardless of whether or not the Premises be damaged, Landlord may elect by written notice to Tenant given within thirty (30) days after the occurrence of the casualty to terminate this Lease in lieu of so restoring the Premises, in which event this Lease shall terminate as of the date specified in Landlord's notice, which date shall be no later than sixty (60) days following the date of Landlord's notice. (c) Unless this Lease is terminated as provided in the preceding Subsections 14.01 (a) and (b), Landlord shall proceed with reasonable promptness to repair and restore the Premises (excluding any Tenant Additions) to its condition as existed prior to such casualty, subject to reasonable delays for insurance adjustments and Force Majeure delays, and also subject to zoning Laws and building codes then in effect. Landlord shall have no liability to Tenant, and Tenant shall not be entitled to terminate this Lease if such repairs and restoration (excluding any Tenant Additions) are not in fact substantially completed within the time period estimated by Landlord so long as Landlord shall proceed with reasonable diligence to complete such repairs and restoration, provided however, if the actual date of substantial completion by Landlord is after the later of such estimated time or 180 days, plus additional time for reasonable delay due to Force Majeure and delay caused by Tenant, Tenant shall have the option to terminate this Lease at any time thereafter and before such substantial completion by giving an additional twenty (20) days' prior written notice to Landlord, which termination shall be void and of no force or effect if the repair and restoration is substantially completed no later than twenty (20) days after such notice. (d) Tenant acknowledges that Landlord shall be entitled to the full proceeds of any insurance coverage, whether carried by Landlord or Tenant, for damages to the Premises, except for those proceeds of Tenant's insurance of its own personal property and equipment which would be removable by Tenant at the Termination Date. All such insurance proceeds shall be payable to Landlord whether or not the Premises are to be repaired and restored, provided, however, if this Lease is not terminated and the parties proceed to repair and restore Tenant Additions at Tenant's cost, to the extent Landlord received proceeds of Tenant's insurance covering Tenant Additions, such proceeds shall be applied to reimburse Tenant for its cost of repairing and restoring Tenant Additions. (e) Notwithstanding anything in this Article Fourteen to the contrary: (i) Landlord shall have no duty pursuant to this Section to repair or restore any portion of any Tenant Additions or to expend for any repair or restoration of the Premises or Building amounts in excess of insurance proceeds paid to Landlord and available for repair or restoration; and (ii) Tenant shall not have the right to terminate this Lease pursuant to this Section if any damage or destruction was caused by the act or neglect of Tenant, its agent or employees. Whether or not the Lease is terminated pursuant to this Article Fourteen, in no event shall Tenant be entitled to any compensation or damages for loss of the use of the whole or any part of the Premises or for any inconvenience or annoyance occasioned by any such damage, destruction, rebuilding or restoration of the Premises or the Building or access thereto. (f) Any repair or restoration of the Premises performed by Tenant shall be in accordance with the provisions of Article Nine hereof. 14.02 INSUBSTANTIAL UNTENANTABILITY Unless this Lease is terminated as provided in the preceding Subsections 14.01 (a) and (b), then Landlord shall proceed to repair and restore the Building or the Premises other than Tenant Additions, with reasonable promptness, unless such damage is to the Premises and occurs during the last six (6) months of the Term, in which event either Tenant or Landlord shall have the right to terminate this Lease as of the date of such casualty by giving written notice thereof to the other within twenty (20) days after the date of such casualty, provided however, neither Tenant or Landlord shall have a termination right under this Section if the Term has been validly extended pursuant to the Option to Extend of Rider 2 and such extension is no longer subject to any option of Tenant to revoke, rescind or terminate its exercise of the Option to Extend. Notwithstanding the foregoing, Landlord's obligation to repair shall be limited in accordance with the provisions of Section 14.01 above. 14.03 RENT ABATEMENT Except for the negligence or willful act of Tenant or its agents, employees, contractors or invitees, if all or any part of the Premises are rendered untenantable by fire or other casualty and this Lease is not terminated, Monthly Base Rent and Rent Adjustments shall abate for that part of the Premises which is untenantable on a per diem basis from the date of the casualty until Landlord has Substantially Completed the repair and restoration work in the Premises which it is required to perform, provided, that as a result of such casualty, Tenant does not occupy the portion of the Premises which is untenantable during such period. 14.04 WAIVER OF STATUTORY REMEDIES The provisions of this Lease, including this Article Fourteen, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, the Premises or the Property or 21 any part of either, and any Law, including Sections 1932(2), 1933(4), 1941 and 1942 of the California Civil Code, with respect to any rights or obligations concerning damage or destruction shall have no application to this Lease or to any damage to or destruction of all or any part of the Premises or the Property or any part of either, and are hereby waived. ARTICLE FIFTEEN EMINENT DOMAIN 15.01 TAKING OF WHOLE OR SUBSTANTIAL PART In the event the whole or any substantial part of the Building or of the Premises is taken or condemned by any competent authority for any public use or purpose (including a deed given in lieu of condemnation) and is thereby rendered untenantable, this Lease shall terminate as of the date title vests in such authority or any earlier date on which possession is required to be surrendered to such authority, and Monthly Base Rent and Rent Adjustments shall be apportioned as of the Termination Date. Further, if at least twenty-five percent (25%) of the rentable area of the Project is taken or condemned by any competent authority for any public use or purpose (including a deed given in lieu of condemnation), and regardless of whether or not the Premises be so taken or condemned, Landlord may elect by written notice to Tenant to terminate this Lease as of the date title vests in such authority or any earlier date on which possession is required to be surrendered to such authority, and Monthly Base Rent and Rent Adjustments shall be apportioned as of the Termination Date. Landlord may, without any obligation to Tenant, agree to sell or convey to the taking authority the Premises, the Building, Tenant's Phase, the Project or any portion thereof sought by the taking authority, free from this Lease and the right of Tenant hereunder, without first requiring that any action or proceeding be instituted or, if instituted, pursued to a judgment. Notwithstanding anything to the contrary herein set forth, in the event the taking of the Building or Premises is temporary (for less than the remaining term of the Lease), Landlord may elect either (i) to terminate this Lease or (ii) permit Tenant to receive the entire award attributable to the Premises in which case Tenant shall continue to pay Rent and this Lease shall not terminate. 15.02 TAKING OF PART In the event a part of the Building or the Premises is taken or condemned by any competent authority (or a deed is delivered in lieu of condemnation) and this Lease is not terminated, the Lease shall be amended to reduce or increase, as the case may be, the Monthly Base Rent and Tenant's Share to reflect the Rentable Area of the Premises or Building, as the case may be, remaining after any such taking or condemnation. Landlord, upon receipt and to the extent of the award in condemnation (or proceeds of sale) shall make necessary repairs and restorations to the Premises (exclusive of Tenant Additions) and to the Building to the extent necessary to constitute the portion of the Building not so taken or condemned as a complete architectural and economically efficient unit. Notwithstanding the foregoing, if as a result of any taking, or a governmental order that the grade of any street or alley adjacent to the Building is to be changed and such taking or change of grade makes it necessary or desirable to substantially remodel or restore the Building or prevents the economical operation of the Building, Landlord shall have the right to terminate this Lease upon ninety (90) days prior written notice to Tenant. 15.03 COMPENSATION Landlord shall be entitled to receive the entire award (or sale proceeds) from any such taking, condemnation or sale without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant's interest, if any, in such award; provided, however, Tenant shall have the right separately to pursue against the condemning authority a separate award in respect of the loss, if any, to Tenant Additions paid for by Tenant without any credit or allowance from Landlord, for fixtures or personal property of Tenant, or for relocation or business interruption expenses, so long as there is no diminution of Landlord's award as a result. ARTICLE SIXTEEN INSURANCE 16.01 TENANT'S INSURANCE Tenant, at Tenant's expense, agrees to maintain in force, with a company or companies acceptable to Landlord, during the Term: (a) Commercial General Liability Insurance on a primary basis and without any right of contribution from any insurance carried by Landlord covering the Premises on an occurrence basis against all claims for personal injury, bodily injury, death and property damage, including contractual liability covering the indemnification provisions in this Lease. Such insurance shall be for such limits that are reasonably required by Landlord from time to time but not less than a combined single limit of Three Million and No/100 Dollars ($3,000,000.00); (b) Workers' Compensation and Employers' Liability Insurance to the extent required by and in accordance with the Laws of the State of California; (c) "All Risks" property insurance in an amount adequate to cover the full replacement cost of all Tenant Additions to the Premises, equipment, installations, fixtures and contents of the Premises in the event of loss; (d) In the event a motor vehicle is to be used by Tenant in connection with its business operation from the Premises, Comprehensive Automobile Liability Insurance coverage with limits of not less than Three Million and No/100 Dollars ($3,000,000.00) combined single limit coverage against bodily injury liability and property damage liability arising out of the use by or on behalf of Tenant, its agents and employees in connection with this Lease, of 22 any owned, non-owned or hired motor vehicles; and (e) such other insurance or coverages as Landlord reasonably requires. 16.02 FORM OF POLICIES Each policy referred to in 16.01 shall satisfy the following requirements. Each policy shall (i) name Landlord and the Indemnitees as additional insureds (except Workers' Compensation and Employers' Liability Insurance), (ii) be issued by one or more responsible insurance companies licensed to do business in the State of California reasonably satisfactory to Landlord, (iii) where applicable, provide for deductible amounts satisfactory to Landlord and not permit co-insurance, (iv) shall provide that such insurance may not be canceled or amended without thirty (30) days' prior written notice to the Landlord, and (v) each policy of "All-Risks" property insurance shall provide that the policy shall not be invalidated should the insured waive in writing prior to a loss, any or all rights of recovery against any other party for losses covered by such policies. Tenant shall deliver to Landlord, certificates of insurance and at Landlord's request, copies of all policies and renewals thereof to be maintained by Tenant hereunder, not less than ten (10) days prior to the Commencement Date and not less than ten (10) days prior to the expiration date of each policy. 16.03 LANDLORD'S INSURANCE Landlord agrees to purchase and keep in full force and effect during the Term hereof, including any extensions or renewals thereof, insurance under policies issued by insurers of recognized responsibility, qualified to do business in the State of California on the Building in amounts not less than the greater of eighty (80%) percent of the then full replacement cost (without depreciation) of the Building (above foundations and excluding Tenant Additions to the Premises) or an amount sufficient to prevent Landlord from becoming a co-insurer under the terms of the applicable policies, against fire and such other risks as may be included in standard forms of all risk coverage insurance reasonably available from time to time. Landlord agrees to maintain in force during the Term, Commercial General Liability Insurance covering the Building on an occurrence basis against all claims for personal injury, bodily injury, death and property damage. Such insurance shall be for a combined single limit of Three Million and No/100 Dollars ($3,000,000.00). Neither Landlord's obligation to carry such insurance nor the carrying of such insurance shall be deemed to be an indemnity by Landlord with respect to any claim, liability, loss, cost or expense due, in whole or in part, to Tenant's negligent acts or omissions or willful misconduct. Without obligation to do so, Landlord may, in its sole discretion from time to time, carry insurance in amounts greater and/or for coverage additional to the coverage and amounts set forth above. 16.04 WAIVER OF SUBROGATION (a) Landlord agrees that, if obtainable at no, or minimal, additional cost, and so long as the same is permitted under the laws of the State of California, it will include in its "All Risks" policies appropriate clauses pursuant to which the insurance companies (i) waive all right of subrogation against Tenant with respect to losses payable under such policies and/or (ii) agree that such policies shall not be invalidated should the insured waive in writing prior to a loss any or all right of recovery against any party for losses covered by such policies. (b) Tenant agrees to include, if obtainable at no, or minimal, additional cost, and so long as the same is permitted under the laws of the State of California, in its "All Risks" insurance policy or policies on Tenant Additions to the Premises, whether or not removable, and on Tenant's furniture, furnishings, fixtures and other property removable by Tenant under the provisions of this Lease appropriate clauses pursuant to which the insurance company or companies (i) waive the right of subrogation against Landlord and/or any tenant of space in the Building with respect to losses payable under such policy or policies and/or (ii) agree that such policy or policies shall not be invalidated should the insured waive in writing prior to a loss any or all right of recovery against any party for losses covered by such policy or policies. If Tenant is unable to obtain in such policy or policies either of the clauses described in the preceding sentence, Tenant shall, if legally possible and without necessitating a change in insurance carriers, have Landlord named in such policy or policies as an additional insured. If Landlord shall be named as an additional insured in accordance with the foregoing, Landlord agrees to endorse promptly to the order of Tenant, without recourse, any check, draft, or order for the payment of money representing the proceeds of any such policy or representing any other payment growing out of or connected with said policies, and Landlord does hereby irrevocably waive any and all rights in and to such proceeds and payments. (c) Provided that Landlord's right of full recovery under its policy or policies aforesaid is not adversely affected or prejudiced thereby, Landlord hereby waives any and all right of recovery which it might otherwise have against Tenant, its servants, agents and employees, for loss or damage occurring to the Real Property and the fixtures, appurtenances and equipment therein, to the extent the same is covered by Landlord's insurance, notwithstanding that such loss or damage may result from the negligence or fault of Tenant, its servants, agents or employees. Provided that Tenant's right of full recovery under its aforesaid policy or policies is not adversely affected or prejudiced thereby, Tenant hereby waives any and all right of recovery which it might otherwise have against Landlord, its servants, and employees and against every other tenant in the Real Property who shall have executed a similar waiver as set forth in this Section 16.04 (c) for loss or damage to Tenant Additions, whether or not removable, and to Tenant's furniture, furnishings, fixtures and other property removable by Tenant under the provisions hereof to the extent the same is covered or coverable by Tenant's insurance required under this Lease, notwithstanding that such loss or 23 damage may result from the negligence or fault of Landlord, its servants, agents or employees, or such other tenant and the servants, agents or employees thereof. (d) Landlord and Tenant hereby agree to advise the other promptly if the clauses to be included in their respective insurance policies pursuant to subparagraphs (a) and (b) above cannot be obtained on the terms hereinbefore provided and thereafter to furnish the other with a certificate of insurance or copy of such policies showing the naming of the other as an additional insured, as aforesaid. Landlord and Tenant hereby also agree to notify the other promptly of any cancellation or change of the terms of any such policy which would affect such clauses or naming. All such policies which name both Landlord and Tenant as additional insureds shall, to the extent obtainable, contain agreements by the insurers to the effect that no act or omission of any additional insured will invalidate the policy as to the other additional insureds. 16.05 NOTICE OF CASUALTY Tenant shall give Landlord notice in case of a fire or accident in the Premises promptly after Tenant is aware of such event. ARTICLE SEVENTEEN WAIVER OF CLAIMS AND INDEMNITY 17.01 WAIVER OF CLAIMS To the extent permitted by Law, Tenant releases the Indemnitees from, and waives all claims for, damage to person or property sustained by the Tenant or any occupant of the Premises or the Property resulting directly or indirectly from any existing or future condition, defect, matter or thing in and about the Premises or the Property or any part of either or any equipment or appurtenance therein, or resulting from any accident in or about the Premises or the Property, or resulting directly or indirectly from any act or neglect of any tenant or occupant of the Property or of any other person, including Landlord's agents and servants, except to the extent caused by the gross negligence or the willful and wrongful act of any of the Indemnitees, but the foregoing exception is subject to and shall not diminish any waivers by Tenant or Landlord or their respective insurers in effect in accordance with Section 16.04. To the extent permitted by Law, Tenant hereby waives any consequential damages, compensation or claims for inconvenience or loss of business, rents, or profits as a result of such injury or damage, whether or not caused by the gross negligence or the willful and wrongful act of any of the Indemnitees. If any such damage, whether to the Premises or the Property or any part of either, or whether to Landlord or to other tenants in the Property, results from any act or neglect of Tenant, its employees, servants, agents, contractors, invitees or customers, Tenant shall be liable therefor and Landlord may, at Landlord's option, repair such damage and Tenant shall, upon demand by Landlord, as payment of additional Rent hereunder, reimburse Landlord within ten (10) days of demand for the total cost of such repairs, in excess of amounts, if any, paid to Landlord under insurance covering such damages. Tenant shall not be liable for any such damage caused by its acts or neglect if Landlord or a tenant has recovered the full amount of the damage from proceeds of insurance policies and the insurance company has waived its right of subrogation against Tenant. 17.02 INDEMNITY BY TENANT To the extent permitted by Law, Tenant hereby indemnifies, and agrees to protect, defend and hold the Indemnitees harmless, against any and all actions, claims, demands, liability, costs and expenses, including attorneys' fees and expenses for the defense thereof, arising from Tenant's occupancy of the Premises, from the undertaking of any Tenant Additions or repairs to the Premises, from the conduct of Tenant's business on the Premises, or from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed pursuant to the terms of this Lease, or from any willful act or negligence of Tenant, its agents, contractors, servants, employees, customers or invitees, in or about the Premises or the Property or any part of either. In case of any action or proceeding brought against the Indemnitees by reason of any such claim, upon notice from Landlord, Tenant covenants to defend such action or proceeding by counsel chosen by Landlord, in Landlord's sole discretion. Landlord reserves the right to settle, compromise or dispose of any and all actions, claims and demands related to the foregoing indemnity. The foregoing indemnity shall not operate to relieve any of the Indemnitees of liability to the extent its share of liability is caused by its gross negligence or by its willful and wrongful act. Further, the foregoing indemnity and exception is subject to and shall not diminish any waivers in effect in accordance with Section 16.04 by Landlord or its insurers to the extent of amounts, if any, paid to Landlord under its "All-Risks" property insurance. ARTICLE EIGHTEEN RULES AND REGULATIONS 18.01 RULES Tenant agrees for itself and for its subtenants, employees, agents, and invitees to comply with all rules and regulations for use of the Premises, the Building, the Phase and the Project imposed by Landlord, as the same may be revised from time to time, including the following: (a) Tenant shall comply with all of the requirements of Landlord's emergency response plan, as the same may be amended from time to time; and (b) Tenant shall not place any furniture, furnishings, fixtures or equipment in the Premises in a manner so as 24 to obstruct the windows of the Premises to cause the Building, in Landlord's good faith determination, to appear unsightly from the exterior. Such rules and regulations are and shall be imposed for the cleanliness, good appearance, proper maintenance, good order and reasonable use of the Premises, the Building, the Phase and the Project and as may be necessary for the enjoyment of the Building and the Project by all tenants and their clients, customers, and employees. 18.02 ENFORCEMENT Nothing in this Lease shall be construed to impose upon the Landlord any duty or obligation to enforce the rules and regulations as set forth above or as hereafter adopted, or the terms, covenants or conditions of any other lease as against any other tenant, and the Landlord shall not be liable to the Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors or licensees. Landlord shall use reasonable efforts to enforce the rules and regulations of the Building in a uniform and non-discriminatory manner. ARTICLE NINETEEN LANDLORD'S RESERVED RIGHTS Landlord shall have the following rights exercisable without notice to Tenant and without liability to Tenant for damage or injury to persons, property or business and without being deemed an eviction or disturbance of Tenant's use or possession of the Premises or giving rise to any claim for offset or abatement of Rent: (1) to change the Building's name or street address upon thirty (30) days' prior written notice to Tenant; (2) to install, affix and maintain all signs on the exterior and/or interior of the Building; (3) to designate and/or approve prior to installation, all types of signs, window shades, blinds, drapes, awnings or other similar items, and all internal lighting that may be visible from the exterior of the Premises; (4) upon reasonable notice to Tenant, to display the Premises to prospective purchasers at reasonable hours at any time during the Term and to prospective tenants at reasonable hours during the last twelve (12) months of the Term; (5) to grant to any party the exclusive right to conduct any business or render any service in or to the Building, provided such exclusive right shall not operate to prohibit Tenant from using the Premises for the purpose permitted hereunder; (6) to change the arrangement and/or location of entrances or passageways, doors and doorways, corridors, elevators, stairs, washrooms or public portions of the Building, and to close entrances, doors, corridors, elevators or other facilities, provided that such action shall not materially and adversely interfere with Tenant's access to the Premises or the Building; (7) to have access for Landlord and other tenants of the Building to any mail chutes and boxes located in or on the Premises as required by any applicable rules of the United States Post Office; and (8) to close the Building after Standard Operating Hours, except that Tenant and its employees and invitees shall be entitled to admission at all times, under such regulations as Landlord prescribes for security purposes. ARTICLE TWENTY ESTOPPEL CERTIFICATE 20.01 IN GENERAL Within fifteen (15) days after request therefor by Landlord, Mortgagee or any prospective mortgagee or owner, Tenant agrees as directed in such request to execute an Estoppel Certificate in recordable form, binding upon Tenant, certifying (i) that this Lease is unmodified and in full force and effect (or if there have been modifications, a description of such modifications and that this Lease as modified is in full force and effect); (ii) the dates to which Rent has been paid; (iii) that Tenant is in the possession of the Premises if that is the case; (iv) that Landlord is not in default under this Lease, or, if Tenant believes Landlord is in default, the nature thereof in detail; (v) that Tenant has no offsets or defenses to the performance of its obligations under this Lease (or if Tenant believes there are any offsets or defenses, a full and complete explanation thereof); (vi) that the Premises have been completed in accordance with the terms and provisions hereof, that Tenant has accepted the Premises and the condition thereof and of all improvements thereto and has no claims against Landlord or any other party with respect thereto; (vii) that if an assignment of rents or leases has been served upon the Tenant by a Mortgagee, Tenant will acknowledge receipt thereof and agree to be bound by the provisions thereof; (viii) that Tenant will give to the Mortgagee copies of all notices required or permitted to be given by Tenant to Landlord; and (ix) to any other information reasonably requested. 20.02 ENFORCEMENT In the event that Tenant fails to deliver an Estoppel Certificate, then such failure shall be a Default for which there shall be no cure or grace period. In addition to any other remedy available to Landlord, Landlord may impose a charge equal to $500.00 for each day that Tenant fails to deliver an Estoppel Certificate and Tenant shall be deemed to have irrevocably appointed Landlord as Tenant's attorney-in-fact to execute and deliver such Estoppel Certificate. ARTICLE TWENTY-ONE RELOCATION OF TENANT (intentionally omitted) 25 ARTICLE TWENTY-TWO REAL ESTATE BROKERS Tenant represents that, except for the broker(s) listed in Section 1.01(19), Tenant has not dealt with any real estate broker, sales person, or finder in connection with this Lease, and no such person initiated or participated in the negotiation of this Lease, or showed the Premises to Tenant. Tenant hereby agrees to indemnify, protect, defend and hold Landlord and the Indemnitees, harmless from and against any and all liabilities and claims for commissions and fees arising out of a breach of the foregoing representation. Landlord agrees to pay any commission to which Landlord's Broker listed in Section 1.01(19) is entitled in connection with this Lease pursuant to Landlord's written agreement with such broker. Landlord and Tenant agree that any commission payable to Tenant's Broker shall be paid by Tenant except to the extent Tenant's Broker and Landlord's Broker have entered into a separate agreement between themselves to share the commission paid to Landlord's Broker by Landlord. ARTICLE TWENTY-THREE MORTGAGEE PROTECTION 23.01 SUBORDINATION AND ATTORNMENT (a) Subject to Section 23.01(b) hereof, this Lease is and shall be expressly subject and subordinate at all times to (i) any ground or underlying lease of the Real Property, now or hereafter existing, and all amendments, extensions, renewals and modifications to any such lease, and (ii) the lien of any mortgage or trust deed now or hereafter encumbering fee title to the Real Property and/or the leasehold estate under any such lease, and all amendments, extensions, renewals, replacements and modifications of such mortgage or trust deed and/or the obligation secured thereby, unless such ground lease or ground lessor, or mortgage, trust deed or Mortgagee, expressly provides or elects that the Lease shall be superior to such lease or mortgage or trust deed. If any such mortgage or trust deed is foreclosed (including any sale of the Real Property pursuant to a power of sale), or if any such lease is terminated, upon request of the Mortgagee or ground lessor, as the case may be, Tenant shall attorn to the purchaser at the foreclosure sale or to the ground lessor under such lease, as the case may be, provided, however, that such purchaser or ground lessor shall not be (i) bound by any payment of Rent for more than one month in advance except payments in the nature of security for the performance by Tenant of its obligations under this Lease; (ii) subject to any offset, defense or damages arising out of a default of any obligations of any preceding Landlord; or (iii) bound by any amendment or modification of this Lease made without the written consent of the Mortgagee or ground lessor; or (iv) liable for any security deposits not actually received in cash by such purchaser or ground lessor. This subordination shall be self-operative and no further certificate or instrument of subordination need be required by any such Mortgagee or ground lessor. In confirmation of such subordination, however, Tenant shall execute promptly any reasonable certificate or instrument that Landlord, Mortgagee or ground lessor may request. Tenant hereby constitutes Landlord as Tenant's attorney-in-fact to execute such certificate or instrument for and on behalf of Tenant upon Tenant's failure to do so within fifteen (15) days of a request to do so. Upon request by such successor in interest, Tenant shall execute and deliver reasonable instruments confirming the attornment provided for herein. (b) Notwithstanding any provision of the Lease to the contrary, provided that: (i) Tenant has executed and delivered a subordination, nondisturbance and attornment agreement substantially in the form of EXHIBIT E hereto, with such changes thereto as any lessor under a ground or underlying lease or mortgagee or beneficiary may reasonably require ("Nondisturbance Agreement") and complies with the provisions thereof, and (ii) Tenant is not in default under this Lease, no termination of any ground lease or underlying lease and no foreclosure, sale pursuant to power of sale or conveyance by deed in lieu of foreclosure shall affect Tenant's rights under this Lease, except to the extent provided by such NonDisturbance Agreement. If Tenant fails to execute and deliver any Nondisturbance Agreement within fifteen (15) days of a request therefor from Landlord, Tenant hereby constitutes Landlord as Tenant's attorney-in-fact to execute and deliver such instrument. Landlord's inability to obtain the signature of any such lessor or Mortgagee on any such Nondisturbance Agreement shall not constitute a default by Landlord under this Lease, but so long as default by Tenant under this Lease is not the reason for Landlord's inability to obtain such signature, any such lessor or Mortgagee shall be deemed to have elected that this Lease be superior to the lease, mortgage or deed of trust in question, and Tenant shall, at the request of such lessor, mortgagee or beneficiary (or purchaser at any sale pursuant to the mortgage or deed of trust), attorn to any such party or enter into a new lease with such party (as Landlord) for the balance of the Term then remaining hereunder upon the same terms and conditions as those herein, provided, however, that such party shall not be (i) bound by any payment of Rent for more than one month in advance except payments in the nature of security for the performance by Tenant of its obligations under this Lease; (ii) subject to any offset, defense or damages arising out of a default of any obligations of any preceding Landlord; or (iii) bound by any amendment or modification of this Lease made without the written consent of the Mortgagee or ground lessor; or (iv) liable for any security deposits not actually received in cash by such purchaser or ground lessor. Upon request by such successor in interest, Tenant shall execute and deliver reasonable instruments confirming the attornment provided for herein. 23.02 MORTGAGEE PROTECTION Tenant agrees to give any Mortgagee or ground lessor, by registered or certified mail, a copy of any notice of default served upon the Landlord by Tenant, provided that prior to such notice Tenant has received notice 26 (by way of service on Tenant of a copy of an assignment of rents and leases, or otherwise) of the address of such Mortgagee or ground lessor. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, then the Mortgagee or ground lessor shall have an additional thirty (30) days after receipt of notice thereof within which to cure such default or if such default cannot be cured within that time, then such additional notice time as may be necessary, if, within such thirty (30) days, any Mortgagee or ground lessor has commenced and is diligently pursuing the remedies necessary to cure such default (including commencement of foreclosure proceedings or other proceedings to acquire possession of the Real Property, if necessary to effect such cure). Such period of time shall be extended by any period within which such Mortgagee or ground lessor is prevented from commencing or pursuing such foreclosure proceedings or other proceedings to acquire possession of the Real Property by reason of Landlord's bankruptcy. Until the time allowed as aforesaid for Mortgagee or ground lessor to cure such defaults has expired without cure, Tenant shall have no right to, and shall not, terminate this Lease on account of default. This Lease may not be modified or amended so as to reduce the Rent or shorten the Term, or so as to adversely affect in any other respect to any material extent the rights of the Landlord, nor shall this Lease be canceled or surrendered, without the prior written consent, in each instance, of the ground lessor or the Mortgagee. ARTICLE TWENTY-FOUR NOTICES (a) All notices, demands or requests provided for or permitted to be given pursuant to this Lease must be in writing and shall be personally delivered, sent by Federal Express or other reputable overnight courier service, or mailed by first class, registered or certified United States mail, return receipt requested, postage prepaid. (b) All notices, demands or requests to be sent pursuant to this Lease shall be deemed to have been properly given or served by delivering or sending the same in accordance with this Section, addressed to the parties hereto at their respective addresses listed in Sections 1.01(2) and (3). (c) Notices, demands or requests sent by mail or overnight courier service as described above shall be effective upon deposit in the mail or with such courier service. However, the time period in which a response to any such notice, demand or request must be given shall commence to run from (i) in the case of delivery by mail, the date of receipt on the return receipt of the notice, demand or request by the addressee thereof, or (ii) in the case of delivery by Federal Express or other overnight courier service, the date of acceptance of delivery by an employee, officer, director or partner of Landlord or Tenant. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given, as indicated by advice from Federal Express or other overnight courier service or by mail return receipt, shall be deemed to be receipt of notice, demand or request sent. Notices may also be served by personal service upon any officer, director or partner of Landlord or Tenant, and shall be effective upon such service. (d) By giving to the other party at least thirty (30) days written notice thereof, either party shall have the right from time to time during the term of this Lease to change their respective addresses for notices, statements, demands and requests, provided such new address shall be within the United States of America. ARTICLE TWENTY-FIVE EXERCISE FACILITY Tenant agrees to inform all employees of Tenant of the following: (i) the exercise facility is available for the use of the employees of tenants of the Project only and for no other person; (ii) use of the facility is at the risk of Tenant or Tenant's employees, and all users must sign a release; (iii) the facility is unsupervised; and (iv) users of the facility must report any needed equipment maintenance or any unsafe conditions to the Landlord immediately. Landlord may discontinue providing such facility at Landlord's sole option at any time without incurring any liability. As a condition to the use of the exercise facility, Tenant and each of Tenant's employees that uses the exercise facility shall first sign a written release in form and substance acceptable to Landlord. Landlord may change the rules and/or hours of the exercise facility at any time, and Landlord reserves the right to deny access to the exercise facility to anyone due to misuse of the facility or noncompliance with rules and regulations of the facility. To the extent permitted by Law, Tenant hereby indemnifies, and agrees to protect, defend and hold the Indemnitees harmless, against any and all actions, claims, demands, liability, costs and expenses, including attorneys' fees and expenses for the defense thereof, arising from use of the exercise facility in the Project by Tenant, Tenant's employees or invitees. In case of any action or proceeding brought against the Indemnitees by reason of any such claim, upon notice from Landlord, Tenant covenants to defend such action or proceeding by counsel chosen by Landlord, in Landlord's sole discretion. Landlord reserves the right to settle, compromise or dispose of any and all actions, claims and demands related to the foregoing indemnity. 27 ARTICLE TWENTY-SIX MISCELLANEOUS 26.01 LATE CHARGES (a) All payments required hereunder (other than the Monthly Base Rent, Rent Adjustments, and Rent Adjustment Deposits, which shall be due as hereinbefore provided) to Landlord shall be paid within ten (10) days after Landlord's demand therefor. All such amounts (including Monthly Base Rent, Rent Adjustments, and Rent Adjustment Deposits) not paid when due shall bear interest from the date due until the date paid at the Default Rate in effect on the date such payment was due. (b) In the event Tenant is more than five (5) days late in paying any installment of Rent due under this Lease, Tenant shall pay Landlord a late charge equal to five percent (5%) of the delinquent installment of Rent. The parties agree that (i) such delinquency will cause Landlord to incur costs and expenses not contemplated herein, the exact amount of which will be difficult to calculate, including the cost and expense that will be incurred by Landlord in processing each delinquent payment of rent by Tenant, and (ii) the amount of such late charge represents a reasonable estimate of such costs and expenses and that such late charge shall be paid to Landlord for each delinquent payment in addition to all Rent otherwise due hereunder. The parties further agree that the payment of late charges and the payment of interest provided for in subparagraph (a) above are distinct and separate from one another in that the payment of interest is to compensate Landlord for its inability to use the money improperly withheld by Tenant, while the payment of late charges is to compensate Landlord for its additional administrative expenses in handling and processing delinquent payments. (c) Payment of interest at the Default Rate and/or of late charges shall not excuse or cure any default by Tenant under this Lease, nor shall the foregoing provisions of this Article or any such payments prevent Landlord from exercising any right or remedy available to Landlord upon Tenant's failure to pay Rent when due, including the right to terminate this Lease. 26.02 NO JURY TRIAL; VENUE; JURISDICTION Each party hereto (which includes any assignee, successor, heir or personal representative of a party) shall not seek a jury trial, hereby waives trial by jury, and hereby further waives any objection to venue in the County in which the Project is located, and agrees and consents to personal jurisdiction of the courts of the State of California, in any action or proceeding or counterclaim brought by any party hereto against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, or any claim of injury or damage, or the enforcement of any remedy under any statute, emergency or otherwise, whether any of the foregoing is based on this Lease or on tort law. No party will seek to consolidate any such action in which a jury has been waived with any other action in which a jury trial cannot or has not been waived. It is the intention of the parties that these provisions shall be subject to no exceptions. By execution of this Lease the parties agree that this provision may be filed by any party hereto with the clerk or judge before whom any action is instituted, which filing shall constitute the written consent to a waiver of jury trial pursuant to and in accordance with Section 631 of the California Code of Civil Procedure. No party has in any way agreed with or represented to any other party that the provisions of this Section will not be fully enforced in all instances. The provisions of this Section shall survive the expiration or earlier termination of this Lease. 26.03 DEFAULT UNDER OTHER LEASE It shall be a Default under this Lease if Tenant or any Affiliate holding any other lease with Landlord for premises in the Building defaults under such lease and as a result thereof such lease is terminated or terminable. 26.04 OPTION This Lease shall not become effective as a lease or otherwise until executed and delivered by both Landlord and Tenant. The submission of the Lease to Tenant does not constitute a reservation of or option for the Premises, but when executed by Tenant and delivered to Landlord, the Lease shall constitute an irrevocable offer by Tenant in effect for fifteen (15) days to lease the Premises on the terms and conditions herein contained. 26.05 TENANT AUTHORITY Tenant represents and warrants to Landlord that it has full authority and power to enter into and perform its obligations under this Lease, that the person executing this Lease is fully empowered to do so, and that no consent or authorization is necessary from any third party. Landlord may request that Tenant provide Landlord evidence of Tenant's authority. 26.06 ENTIRE AGREEMENT This Lease, the Exhibits and Rider 2 attached hereto contain the entire agreement between Landlord and Tenant concerning the Premises and there are no other agreements, either oral or written, and no other 28 representations or statements, either oral or written, on which Tenant has relied. This Lease shall not be modified except by a writing executed by Landlord and Tenant. 26.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE If Mortgagee of Landlord requires a modification of this Lease which shall not result in any increased cost or expense to Tenant or in any other substantial and adverse change in the rights and obligations of Tenant hereunder, then Tenant agrees that the Lease may be so modified. 26.08 EXCULPATION Tenant agrees, on its behalf and on behalf of its successors and assigns, that any liability or obligation under this Lease shall only be enforced against Landlord's equity interest in the Property up to a maximum of Three Million Dollars ($3,000,000.00) and in no event against any other assets of the Landlord, or Landlord's officers or directors or partners, and that any liability of Landlord with respect to this Lease shall be so limited and Tenant shall not be entitled to any judgment in excess of such amount. 26.09 ACCORD AND SATISFACTION No payment by Tenant or receipt by Landlord of a lesser amount than any installment or payment of Rent due shall be deemed to be other than on account of the amount due, and no endorsement or statement on any check or any letter accompanying any check or payment of Rent shall 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 installment or payment of Rent or pursue any other remedies available to Landlord. No receipt of money by Landlord from Tenant after the termination of this Lease or Tenant's right of possession of the Premises shall reinstate, continue or extend the Term. Receipt or acceptance of payment from anyone other than Tenant, including an assignee of Tenant, is not a waiver of any breach of Article Ten, and Landlord may accept such payment on account of the amount due without prejudice to Landlord's right to pursue any remedies available to Landlord. 26.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING In the event of any sale or other transfer of the Building, Landlord shall be entirely freed and relieved of all agreements and obligations of Landlord hereunder accruing or to be performed after the date of such sale or transfer, and any remaining liability of Landlord with respect to this Lease shall be limited to the dollar amount specified in Section 26.08 and Tenant shall not be entitled to any judgment in excess of such amount. 26.11 BINDING EFFECT Subject to the provisions of Article Ten, this Lease shall be binding upon and inure to the benefit of Landlord and Tenant and their respective heirs, legal representatives, successors and permitted assigns. 26.12 CAPTIONS The Article and Section captions in this Lease are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or intent of such Articles and Sections. 26.13 TIME; APPLICABLE LAW; CONSTRUCTION Time is of the essence of this Lease and each and all of its provisions. This Lease shall be construed in accordance with the Laws of the State of California. If more than one person signs this Lease as Tenant, the obligations hereunder imposed shall be joint and several. If any term, covenant or condition of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each item, covenant or condition of this Lease shall be valid and be enforced to the fullest extent permitted by Law. Wherever the term "including" or "includes" is used in this Lease, it shall have the same meaning as if followed by the phrase "but not limited to". The language in all parts of this Lease shall be construed according to its normal and usual meaning and not strictly for or against either Landlord or Tenant. 26.14 ABANDONMENT In the event Tenant vacates or abandons the Premises but is otherwise in compliance with all the terms, covenants and conditions of this Lease, Landlord shall (i) have the right to enter into the Premises in order to show the space to prospective tenants, (ii) have the right to reduce the services provided to Tenant pursuant to the terms of this Lease to such levels as Landlord reasonably determines to be adequate services for an unoccupied premises and (iii) during the last six (6) months of the Term, have the right to prepare the Premises for occupancy by another tenant upon the end of the Term. Tenant expressly acknowledges that in the absence of written notice pursuant to Section 11.02(b) or pursuant to California Civil Code Section 1951.3 terminating Tenant's right to possession, none of the foregoing acts of Landlord or any other act of Landlord shall constitute a termination of Tenant's right to possession or an acceptance of Tenant's surrender of the Premises, and the Lease shall continue in effect. 29 26.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES If Tenant fails timely to perform any of its duties under this Lease, Landlord shall have the right (but not the obligation), to perform such duty on behalf and at the expense of Tenant without prior notice to Tenant, and all sums expended or expenses incurred by Landlord in performing such duty shall be deemed to be additional Rent under this Lease and shall be due and payable upon demand by Landlord. 26.16 SECURITY SYSTEM Landlord shall not be obligated to provide or maintain any security patrol or security system. Landlord shall not be responsible for the quality of any such patrol or system which may be provided hereunder or for damage or injury to Tenant, its employees, invitees or others due to the failure, action or inaction of such patrol or system. 26.17 NO LIGHT, AIR OR VIEW EASEMENTS Any diminution or shutting off of light, air or view by any structure which may be erected on lands of or adjacent to the Project shall in no way affect this Lease or impose any liability on Landlord. 26.18 RECORDATION Neither this Lease, nor any notice nor memorandum regarding the terms hereof, shall be recorded by Tenant. Any such unauthorized recording shall be a Default for which there shall be no cure or grace period. Tenant agrees to execute and acknowledge, at the request of Landlord, a memorandum of this Lease, in recordable form. 26.19 SURVIVAL The waivers of the right of jury trial, the other waivers of claims or rights, the releases and the obligations of Tenant under this Lease to indemnify, protect, defend and hold harmless Landlord and/or Indemnitees shall survive the expiration or termination of this Lease, and so shall all other obligations or agreements which by their terms survive expiration or termination of the Lease. 26.20 RIDERS All Riders attached hereto and executed both by Landlord and Tenant shall be deemed to be a part hereof and hereby incorporated herein. IN WITNESS WHEREOF, this Lease has been executed as of the date set forth in Section 1.01(4) hereof. TENANT: LANDLORD: NetObjects, Inc. Metropolitan Life Insurance Company, a Delaware corporation a New York corporation By /s/ Samir Arora By /s/ Edward J. Hayes -------------------------------- --------------------------------- Samir Arora Edward J. Hayes -------------------------------- --------------------------------- Print name Print name Its CEO Its Assitant Vice President -------------------------------- --------------------------------- (Chairman of Board, President or Vice President) By /s/ Michael J. Shannahan --------------------------------- Michael J. Shannahan --------------------------------- Print name Its VP & CFO -------------------------------- (Secretary, Assistant Secretary, CFO or Assistant Treasurer) 30 EXHIBIT A PLAN OF PREMISES Exhibit A - Page 1 EXHIBIT B WORKLETTER AGREEMENT (intentionally omitted) Exhibit B - Page 1 EXHIBIT C SITE PLAN OF PROJECT Exhibit C - Page 1 EXHIBIT D PLAN OF EXPANSION SPACE A Exhibit D - Page 1 EXHIBIT E FORM OF SUBORDINATION, NONDISTURBANCE & ATTORNMENT AGREEMENT - ------------------------------ RECORDING REQUESTED BY AND WHEN RECORDED RETURN TO: ____________________, Esq. ____________________ ____________________ ____________________ - ------------------------------ SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT NOTICE: THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT RESULTS IN YOUR LEASEHOLD ESTATE IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT. DEFINED TERMS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXECUTION DATE: - -------------------------------------------------------------------------------- BENEFICIARY & ADDRESS: Attn.: with a copy to: - -------------------------------------------------------------------------------- TENANT & ADDRESS: - -------------------------------------------------------------------------------- LANDLORD & ADDRESS: - -------------------------------------------------------------------------------- LOAN: A first mortgage loan in the original principal amount of $ from Beneficiary to Landlord. - -------------------------------------------------------------------------------- NOTE: A Promissory Note executed by Landlord in favor of Beneficiary in the amount of the Loan dated as of _______________________________ - -------------------------------------------------------------------------------- DEED OF TRUST: A Deed of Trust, Security Agreement and Fixture Filing dated as of _____________ executed by Landlord, to ___________________ as Trustee, for the benefit of Beneficiary securing repayment of the Note to be recorded in the records of the County in which the Property is located. - -------------------------------------------------------------------------------- LEASE AND LEASE DATE: The lease entered into by Landlord and Tenant dated as of ___________________ covering the Premises. [Add amendments] - -------------------------------------------------------------------------------- PROPERTY: [Property Name] [Street Address 1] [City, State, Zip] The Property is more particularly described on EXHIBIT A. - -------------------------------------------------------------------------------- Exhibit E - Page 1 of 5 THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT (the "Agreement") is made by and among Tenant, Landlord, and Beneficiary and affects the Property described in EXHIBIT A. Certain terms used in this Agreement are defined in the Defined Terms. This Agreement is entered into as of the Execution Date with reference to the following facts: A. Landlord and Tenant have entered into the Lease covering certain space in the improvements located in and upon the Property (the "Premises"). B. Beneficiary has made or is making the Loan to Landlord evidenced by the Note. The Note is secured, among other documents, by the Deed of Trust. C. Landlord, Tenant and Beneficiary all wish to subordinate the Lease to the lien of the Deed of Trust. D. Tenant has requested that Beneficiary agree not to disturb Tenant's rights in the Premises pursuant to the Lease in the event Beneficiary forecloses the Deed of Trust, or acquires the Property pursuant to the trustee's power of sale contained in the Deed of Trust or receives a transfer of the Property by a conveyance in lieu of foreclosure of the Property (collectively, a "Foreclosure Sale") but only if Tenant is not then in default under the Lease and Tenant attorns to Beneficiary or a third party purchaser at the Foreclosure Sale (a "Foreclosure Purchaser"). NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties agree as follows: 1. SUBORDINATION. The Lease and the leasehold estate created by the Lease and all of Tenant's rights under the Lease are and shall remain subordinate to the Deed of Trust and the lien of the Deed of Trust, to all rights of Beneficiary under the Deed of Trust and to all renewals, amendments, modifications and extensions of the Deed of Trust. 2. ACKNOWLEDGMENTS BY TENANT. Tenant agrees that: (a) Tenant has notice that the Lease and the rent and all other sums due under the Lease have been or are to be assigned to Beneficiary as security for the Loan. In the event that Beneficiary notifies Tenant of a default under the Deed of Trust and requests Tenant to pay its rent and all other sums due under the Lease to Beneficiary, Tenant shall pay such sums directly to Beneficiary or as Beneficiary may otherwise request. (b) Tenant shall send a copy of any notice or statement under the Lease to Beneficiary at the same time Tenant sends such notice or statement to Landlord. (c) This Agreement satisfies any condition or requirement in the Lease relating to the granting of a nondisturbance agreement. 3. FORECLOSURE AND SALE. In the event of a Foreclosure Sale, (a) So long as Tenant complies with this Agreement and is not in default under any of the provisions of the Lease, the Lease shall continue in full force and effect as a direct lease between Beneficiary and Tenant, and Beneficiary will not disturb the possession of Tenant, subject to this Agreement. Tenant agrees to attorn to and accept Beneficiary as landlord under the Lease and to be bound by and perform all of the obligations imposed by the Lease. Upon Beneficiary's acquisition of title to the Property, Beneficiary will perform all of the obligations imposed on the Landlord by the Lease except as set forth in this Agreement; provided, however, that Beneficiary shall not be: (i) liable for any act or omission of a prior landlord (including Landlord); or (ii) subject to any offsets or defenses that Tenant might have against any prior landlord (including Landlord); or (iii) bound by any rent or additional rent which Tenant might have paid in advance to any prior landlord (including Landlord) for a period in excess of one month or by any security deposit, cleaning deposit or other sum that Tenant may have paid in advance to any prior landlord (including Landlord); or (iv) bound by any amendment, modification, assignment or termination of the Lease made without the written consent of Beneficiary; (v) obligated or liable with respect to any representations, warranties or indemnities contained in the Lease; or (vi) liable to Tenant or any other party for any conflict between the provisions of the Lease and the provisions of any other lease affecting the Property which is not entered into by Beneficiary. (b) Upon the written request of Beneficiary after a Foreclosure Sale, the parties shall execute a lease of the Premises upon the same provisions as contained in the Lease between Landlord and Tenant, except as set forth in this Agreement, for the unexpired term of the Lease. 4. SUBORDINATION AND RELEASE OF PURCHASE OPTIONS. Tenant represents that it has no right or option of any nature to purchase the Property or any portion of the Property or any interest in the Borrower. To the extent Tenant has or acquires any such right or option, these rights or options are acknowledged to be subject and subordinate to the Mortgage and are waived and released as to Beneficiary and any Foreclosure Purchaser. 5. ACKNOWLEDGMENT BY LANDLORD. In the event of a default under the Deed of Trust, at the election of Beneficiary, Tenant shall and is directed to pay all rent and all other sums due under the Lease to Beneficiary. Exhibit E - Page 2 of 5 6. CONSTRUCTION OF IMPROVEMENTS. Beneficiary shall not have any obligation or incur any liability with respect to the completion of the improvements in which the Premises are located at the commencement of the term of the Lease. 7. NOTICE. All notices under this Agreement shall be deemed to have been properly given if delivered by overnight courier service or mailed by United States certified mail, with return receipt requested, postage prepaid to the party receiving the notice at its address set forth in the Defined Terms (or at such other address as shall be given in writing by such party to the other parties) and shall be deemed complete upon receipt or refusal of delivery. 8. MISCELLANEOUS. Beneficiary shall not be subject to any provision of the Lease that is inconsistent with this Agreement. Nothing contained in this Agreement shall be construed to derogate from or in any way impair or affect the lien or the provisions of the Deed of Trust. This Agreement shall be governed by and construed in accordance with the laws of the State of in which the Property is located. 9. LIABILITY AND SUCCESSORS AND ASSIGNS. In the event that Beneficiary acquires title to the Premises or the Property, Beneficiary shall have no obligation nor incur any liability beyond Beneficiary's then equity interest in the building in which the Premises is located, but in no event in excess of Three Million Dollars ($3,000,000), and Tenant shall look solely to such equity interest for the payment and performance of any obligations imposed upon Beneficiary under this Agreement or under the Lease. This Agreement shall run with the land and shall inure to the benefit of the parties and, their respective successors and permitted assigns including a Foreclosure Purchaser. If a Foreclosure Purchaser acquires the Property or if Beneficiary assigns or transfers its interest in the Note and Deed of Trust or the Property, all obligations and liabilities of Beneficiary under this Agreement shall terminate and be the responsibility of the Foreclosure Purchaser or other party to whom Beneficiary's interest is assigned or transferred. The interest of Tenant under this Agreement may not be assigned or transferred except in connection with an assignment of its interest in the Lease which has been consented to by Beneficiary. IN WITNESS WHEREOF, the parties have executed this Subordination, Nondisturbance and Attornment Agreement as of the Execution Date. NOTICE: THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT CONTAINS PROVISIONS WHICH ALLOW THE PERSON OBLIGATED ON THE LEASE TO OBTAIN A LOAN, A PORTION OF WHICH MAY BE EXPENDED FOR OTHER PURPOSES THAN IMPROVEMENT OF THE PROPERTY. IT IS RECOMMENDED THAT THE PARTIES CONSULT WITH THEIR ATTORNEYS PRIOR TO THE EXECUTION OF THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT. BENEFICIARY: ----------------------------------, a --------------------------------- By ------------------------------- Its ------------------------------ TENANT: ----------------------------------, a --------------------------------- By -------------------------------- Its ------------------------------- LANDLORD: ----------------------------------, a --------------------------------- By -------------------------------- Its ------------------------------- Exhibit E - Page 3 of 5 EXHIBIT A OF SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT PROPERTY DESCRIPTION Exhibit E - Page 4 of 5 State of _____________ County of ____________ On ______________, 199_ before me, ____________________, personally appeared ___________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. Signature (Seal) -------------------------------- *************************************************** State of _____________ County of ____________ On ______________, 199_ before me, ____________________, personally appeared ___________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. Signature (Seal) -------------------------------- *************************************************** State of _____________ County of ____________ On ______________, 199_ before me, ____________________, personally appeared ___________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. Signature (Seal) -------------------------------- Exhibit E - Page 5 of 5 RIDER 1 COMMENCEMENT DATE AGREEMENT Metropolitan Life Insurance Company, a New York corporation ("Landlord"), and NetObjects, Inc., a Delaware corporation ("Tenant"), have entered into a certain Lease dated as of July 24, 1998 (the "Lease"). WHEREAS, Landlord and Tenant wish to confirm and memorialize the Commencement Date and Expiration Date of the Lease as provided for in Rider 2 of the Lease; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein and in the Lease, Landlord and Tenant agree as follows: 1. Unless otherwise defined herein, all capitalized terms shall have the same meaning ascribed to them in the Lease. 2. The Commencement Date (as defined in the Lease) of the Lease is ____________. 3. The Expiration Date (as defined in the Lease) of the Lease is ____________ . 4. Tenant hereby confirms the following: (a) That it has accepted possession of the premises pursuant to the terms of the Lease; (b) That the Landlord Work, if any, is Substantially Complete; and (c) That the Lease is in full force and effect. 5. Except as expressly modified hereby, all terms and provisions of the Lease are hereby ratified and confirmed and shall remain in full force and effect and binding on the parties hereto. 6. The Lease and this Commencement Date Agreement contain all of the terms, covenants, conditions and agreements between the Landlord and the Tenant relating to the subject matter herein. No prior other agreements or understandings pertaining to such matters are valid or of any force and effect. IN WITNESS WHEREOF, Landlord and Tenant have executed this Commencement Date Agreement and such execution and delivery have been duly authorized. TENANT: LANDLORD: NetObjects, Inc., Metropolitan Life Insurance Company, a Delaware corporation a New York corporation By By -------------------------------- -------------------------------- -------------------------------- -------------------------------- Print name Print name Its Its -------------------------------- -------------------------------- (Chairman of Board, President or Vice President) By -------------------------------- -------------------------------- Print name Its -------------------------------- (Secretary, Assistant Secretary, CFO or Assistant Treasurer) Rider 1 - Page 1 of 1 RIDER 2 ADDITIONAL PROVISIONS This Rider 2 ("Rider") is attached to and a part of a certain Lease dated as of July 24, 1998 executed concurrently herewith by Metropolitan Life Insurance Company, a New York corporation, as Landlord ("Landlord"), and NetObjects, Inc., a Delaware corporation, as Tenant ("Tenant" or "NetObjects"), for the Premises as described therein (the "Lease"). SECTION 1. DEFINED TERMS; FORCE AND EFFECT Capitalized terms used in this Rider shall have the same meanings set forth in the Lease except as otherwise specified herein and except for terms capitalized in the ordinary course of punctuation. This Rider forms a part of the Lease. Without limiting the generality of the foregoing, any default by any party hereunder shall have the same force and effect as a default under the Lease. Should any inconsistency arise between this Rider and any other provision of the Lease as to the specific matters which are the subject of this Rider, the terms and conditions of this Rider shall control. SECTION 2. PREMISES LEASED "AS-IS"; DELIVERY; COMMENCEMENT DATE; AND CONSTRUCTION 2.1. AS-IS; DELIVERY; COMMENCEMENT DATE. Notwithstanding any provision of the Lease to the contrary: (a) AS-IS. Tenant acknowledges and agrees that (i) Tenant has been afforded ample opportunity to inspect the Premises, the Building and the Project, and has investigated their condition to the extent Tenant desires to do so; (ii) Tenant hereby agrees that this Lease is of the Premises in its "AS IS" condition; (iii) no representation regarding the condition of the Premises or the Building or the Project has been made by or on behalf of Landlord; (iv) Landlord has no obligation to remodel or to make any repairs, alterations or improvements to the Premises, Building or the Project in connection with Tenant's initial occupancy or provide Tenant any allowance for any work by Tenant, except for the Landlord Maximum Contribution as provided below; and (v) there is no Workletter for this Lease. (b) DELIVERY & COMMENCEMENT DATE. Tenant acknowledges that (i) Landlord has disclosed to Tenant that the Premises and Expansion Space A (defined below) are under lease to Scitex, Inc. ("Scitex'); that the term of the lease of those spaces expires November 30, 1998; that Landlord will make good faith efforts, at no cost to Landlord, to seek agreement of Scitex for the earlier surrender to Landlord of the Premises and Expansion Space A, either separately or together, but Landlord shall not be obligated to tender possession of a particular space unless and until Landlord recovers possession of that respective space. Landlord shall tender to Tenant possession of the Premises on or within two (2) business days after the date Landlord recovers possession of such space, and possession will be adequately tendered to Tenant by Landlord either delivering the keys (or other means of access) to Tenant or Tenant's Broker, or by Landlord giving written notice that the keys (or other means of access) to the Premises are available for Tenant or its representative to pick up at the office of Landlord or of the Seaport Centre Property Manager. The date on which Landlord tenders to Tenant possession of the Premises is the Delivery Date. On the Delivery Date Tenant shall have the right of possession of the Premises and shall be subject to all of the terms, covenants and conditions of this Lease, including all arrangements and payments for utilities and services, except that the Term and Tenant's obligations to pay Monthly Base Rent, Rent Adjustments and Rent Adjustment Deposits shall commence on the Commencement Date, and the Commencement Date shall be the date forty-five (45) days after the Delivery Date. (c) DELAY IN DELIVERY. If Landlord does not obtain possession of the Premises earlier than November 30, 1998, or if Landlord shall be unable to give possession of the Premises upon expiration of the term of the Scitex lease by reason of the following: (i) the holding over or retention of possession of any tenant, tenants or occupants, or (ii) for any other reason, then Landlord shall not be subject to any liability for the failure to give possession on said date. Under such circumstances the Commencement Date shall be delayed by a number of days equal to the days of delay in Landlord's delivery of possession to Tenant. No such failure to give possession shall affect the validity of this Lease or the obligations of the Tenant hereunder. Within thirty (30) days following the occurrence of the Commencement Date, Landlord and Tenant shall enter into an agreement (which is attached to this Lease as RIDER 1) confirming the Commencement Date and the Expiration Date. If Tenant fails to enter into such agreement, then the Commencement Date and the Expiration Date shall be the dates designated by Landlord in such agreement. 2.2. TENANT WORK GENERALLY. Landlord and Tenant acknowledge and agree that notwithstanding any provisions of the Lease to the contrary: (a) Tenant may desire to do certain remodeling, repair, improvement or alteration in connection with its initial occupancy, which for purposes of this Lease is referred to as the Tenant Work; (b) all Tenant Work, if any, shall be done as Tenant Alterations within the meaning of Article Nine of the Lease, subject to and in compliance with all conditions and provisions of the Lease applicable to Tenant Alterations, except as otherwise expressly provided in this Rider; (c) without limiting the generality of any provisions of Article Nine, Tenant's selection of Tenant's space planner and/or architect and Tenant's selection of contractor(s) shall be subject to Landlord's prior written approval, which shall not unreasonably be withheld, and as of the date hereof Landlord has approved Tenant's selection of MAC Rider 2 - Page 1 of 6 Associates with an office at 222 Front Street, Suite 600, San Francisco, California 94111 as Tenant's architect and James Reilly Contracting with an address of 156 Aptos School Road, Aptos, California 95003 as Tenant's contractor for the Premises and Expansion Space A (defined below); (d) if the Tenant Work does not exceed the amount of Landlord's Maximum Contribution, Tenant shall not be required to obtain a completion and lien indemnity bond for it; (e) such work, including all design, plan review, obtaining all approvals and permits, and construction shall be at Tenant's sole cost and expense, including delivery to Landlord of plans and specifications of such Tenant Work (including 3 mylar copies of as-built plans and specifications upon completion) to the extent such work is more than recarpeting and/or repainting, and (f) Tenant shall pay Landlord a fee for monitoring such design, construction and work by Tenant which shall not exceed two percent of all "hard costs" of the Tenant Work. 2.3. DESIGN & CONSTRUCTION RESPONSIBILITY FOR ANY TENANT WORK. Tenant shall be responsible for the suitability for the Tenant's needs and business of the design and function of all Tenant Work and for its construction in compliance with all Law as applicable and as interpreted at the time of construction of the Tenant Work, including all building codes and the ADA (as defined in the Lease). Tenant, through its architects and/or space planners ("Tenant's Architect"), shall prepare all architectural plans and specifications, and engineering plans and specifications, for the real property improvements to be constructed by Tenant in the Premises in sufficient detail to be submitted for approval by Landlord to the extent required pursuant to Article Nine of the Lease and to be submitted by Tenant for governmental approvals and building permits and to serve as the detailed construction drawings and specifications for the contractor, and shall include, among other things, all partitions, doors, heating, ventilating and air conditioning installation and distribution, ceiling systems, light fixtures, plumbing installations, electrical installations and outlets, telephone installations and outlets, any other installations required by Tenant, fire and life-safety systems, wall finishes and floor coverings, whether to be newly installed or requiring changes from the as-is condition of the Premises as of the date of execution of the Lease. Tenant shall be responsible for the oversight, supervision and construction of all Tenant Work in compliance with this Lease, including compliance with all Law as applicable and as interpreted at the time of construction, including all building codes and the ADA. 2.4. LANDLORD'S MAXIMUM CONTRIBUTION: AMOUNT; REIMBURSABLE COSTS & PAYMENT. Landlord's Maximum Contribution means an amount up to a maximum of Fifty Thousand Nine Hundred and Forty-seven Dollars ($50,947.00) to reimburse Tenant for the actual costs of design, plan review, obtaining all approvals and permits, and construction of Tenant Work either (i) in the Premises and/or (ii) in Expansion Space A (defined below), which shall be payable as provided below. In no event shall the Landlord's Maximum Contribution be used to reimburse any costs of designing, procuring or installing in the Premises or in Expansion Space A any trade fixtures, movable equipment, furniture, furnishings, telephone equipment, cabling for any of the foregoing, or other personal property (collectively "Personal Property" for purposes of this Rider), and the cost of such Personal Property shall be paid by Tenant. Landlord's Maximum Contribution shall be paid to Tenant within 30 days after the later of final completion of the Tenant Work in the respective space in which such work is done, and Landlord's receipt of (i) a certificate of occupancy (if applicable), (ii) final as-built plans and specifications, (iii) full, final, unconditional lien releases, and (iv) reasonable substantiation of costs incurred by Tenant with respect to the Tenant Work in the respective space in which such work is done. Tenant must prior to expiration of six months after the SACD (defined below) or Tenant's termination pursuant to Section 3(d) below of its obligation to lease Expansion Space A submit written application with the items required above for disbursement or reimbursement for any reimbursable costs out of the Landlord's Maximum Contribution, and to the extent of any funds for which application has not been made prior to that date or if and to the extent that the reimbursable costs of the Tenant Work are less than the amount of Landlord's Maximum Contribution, then Landlord shall retain the unapplied or unused balance of the Landlord's Maximum Contribution and shall have no obligation or liability to Tenant with respect to such excess. SECTION 3. LEASE OF EXPANSION SPACE A (a) DEFINITION OF EXPANSION SPACE A. "Expansion Space A" means the existing space currently known as 351 Galveston in the Building as shown hatched on EXHIBIT D to this Lease. Tenant acknowledges that Landlord has advised Tenant that Expansion Space A is an area of approximately 12,663 square feet of Rentable Area which is currently leased to Scitex as described in Section 2.1(b) of this Rider. Landlord and Tenant hereby agree that the area of Expansion Space A in the aggregate is conclusively presumed to be 12,663 square feet of Rentable Area. (b) GENERAL TERMS OF LEASE. Landlord hereby leases to Tenant and Tenant hereby hires from Landlord Expansion Space A upon and subject to all of the terms, covenants and conditions of the Lease except as expressly provided in this Rider. (c) DELIVERY & COMMENCEMENT DATE. Tenant acknowledges that (i) Landlord has disclosed to Tenant that the Premises and Expansion Space A (defined below) are under lease to Scitex, Inc. ("Scitex'); that the term of the lease of those spaces expires November 30, 1998; that Landlord will make good faith efforts, at no cost to Landlord, to seek agreement of Scitex for the earlier surrender to Landlord of the Premises and Expansion Space A, either separately or together, but Landlord shall not be obligated to tender possession of a particular space unless and until Landlord recovers possession of that respective space. Landlord shall tender to Tenant possession of Expansion Space A on or within two (2) business days after the date Landlord recovers possession of such space, and possession will be adequately tendered to Tenant Rider 2 - Page 2 of 6 by Landlord either delivering the keys (or other means of access) to Tenant or Tenant's Broker, or by Landlord giving written notice that the keys (or other means of access) to Expansion Space A are available for Tenant or its representative to pick up at the office of Landlord or of the Seaport Centre Property Manager. Upon such tender of delivery, Expansion Space A becomes a part of the Premises, on and subject to all of the terms, covenants and conditions of the Lease, including the payment of Rent (including Monthly Base Rent and all other rent payable under the Lease), except as expressly provided in this Rider. The term of the lease of Expansion Space A (the "Space A Term") shall commence (the "Space A Commencement Date" or "SACD") upon such tender of delivery to Tenant, and continue for a term of 48 months after the SACD, which is the Expiration Date of the Term of the Lease of the Premises, including both the initial Premises and Expansion Space A. (d) DELAY IN DELIVERY. If Landlord does not obtain possession of Expansion Space A earlier than November 30, 1998, or if Landlord shall be unable to give possession of Expansion Space A upon expiration of the term of the Scitex lease by reason of the following: (i) the holding over or retention of possession of any tenant, tenants or occupants, or (ii) for any other reason, then Landlord shall not be subject to any liability for the failure to give possession on said date. Under such circumstances the SACD shall be delayed by a number of days equal to the days of delay in Landlord's delivery of possession to Tenant. No such failure to give possession shall affect the validity of this Lease or the obligations of the Tenant hereunder. Within thirty (30) days following the occurrence of the SACD, Landlord and Tenant shall enter into an agreement (which is attached to this Lease as RIDER 3) confirming the SACD and the Expiration Date. If Tenant fails to enter into such agreement, then the SACD and the Expiration Date shall be the dates designated by Landlord in such agreement. Notwithstanding any provision of this Section to the contrary, if Landlord does not tender possession of Expansion Space A on or before the Sunset Date (defined below), Tenant shall have the right exercisable by giving written notice to Landlord within three (3) business days after the Sunset Date to terminate its obligation to lease Expansion Space A pursuant to this Section 3 without payment of termination fee or other amount, and thereafter the Lease shall continue in full force and effect without addition of Expansion Space A. If Tenant does not timely give notice of its election to terminate as aforesaid and if Landlord does not tender possession of Expansion Space A on or before the date which is sixty (60) days following the Sunset Date (as the same may be modified as described below), then Tenant shall again have the right to terminate this Lease in the manner described above and such date shall constitute the new Sunset Date; it being the intention of the parties that Tenant shall have a recurring termination right after each such period following the initial Sunset Date if Landlord does not tender possession of Expansion Space A by the end of each such period. As used in this Lease, "Sunset Date" means April 1, 1999, and the initial Sunset Date and any succeeding new Sunset Dates shall be extended by the number of days of delay due to Force Majeure plus the number of days of delay caused by Tenant, if any. On or before the Sunset Date, if such date includes any period of Force Majeure or Tenant Delay, Landlord shall give Tenant written notice of the resulting calendar date of the Sunset Date. (e) AS IS CONDITION; ALTERATIONS BY TENANT. (i) AS IS CONDITION. Notwithstanding any provision of the Lease to the contrary, Tenant acknowledges and agrees that: (aa) Tenant has been afforded ample opportunity to inspect the Premises, the Building and the Project, and has investigated their condition to the extent Tenant desires to do so; (bb) Tenant is leasing the Premises in its "AS IS" condition; (cc) no representation regarding the condition of the Premises or the Building or the Project has been made by or on behalf of Landlord; (dd) Landlord has no obligation to remodel or to make any repairs, alterations, improvements to the Premises, Building or Project in connection with Tenant's initial occupancy or provide Tenant any allowance for any work by Tenant, except for the Landlord Maximum Contribution as provided above in Section 2.4 of this Rider and the Landlord Maximum Space A Contribution as provided in Section 3(e)(iii) below ; and (ee) there is no Workletter for Expansion Space A. (ii) TENANT ALTERATIONS. Notwithstanding any provision of the Lease to the contrary, Landlord and Tenant acknowledge and agree that: (aa) Tenant may desire to do certain remodeling, improvement or alteration of the Premises and/or Expansion Space A in connection with Tenant's initial occupancy of Expansion Space A; (bb) that any such work may be done by Tenant as Tenant Work and Tenant Alterations subject to and on the same terms, covenants and conditions as set forth above in Sections 2.2 through 2.4 of this Rider for Tenant Work in the Premises and in Section 3(e)(iii) below. (iii) LANDLORD'S MAXIMUM SPACE A CONTRIBUTION: AMOUNT; REIMBURSABLE COSTS & PAYMENT. Landlord's Maximum Space A Contribution means an amount up to a maximum of Forty-nine Thousand and Fifty-three Dollars ($49,053.00) to reimburse Tenant for the actual costs of design, plan review, obtaining all approvals and permits, and construction of Tenant Work either (i) in the Premises and/or (ii) in Expansion Space A (defined below), which shall be payable as provided below. In no event shall the Landlord's Maximum Contribution be used to reimburse any costs of designing, procuring or installing in the Premises or in Expansion Space A any trade fixtures, movable equipment, furniture, furnishings, telephone equipment, cabling for any of the foregoing, or other personal property (collectively "Personal Property" for purposes of this Rider), and the cost of such Personal Property shall be paid by Tenant. Landlord's Maximum Space A Contribution shall be available only if Expansion Space A becomes part of the Premises as provided above and no earlier than thirty (30) days after the SACD. Subject to the preceding sentence, Landlord's Maximum Contribution shall be paid to Tenant within 30 days after the later of final completion of the Tenant Work in the respective space in which such work is done, and Landlord's receipt of (i) a certificate of occupancy (if applicable), (ii) final as-built plans and specifications, (iii) full, final, unconditional lien Rider 2 - Page 3 of 6 releases, and (iv) reasonable substantiation of costs incurred by Tenant with respect to the Tenant Work in the respective space in which such work is done. Tenant must prior to expiration of six months after the SACD (defined below) submit written application with the items required above for disbursement or reimbursement for any reimbursable costs out of the Landlord's Maximum Space A Contribution, and to the extent of any funds for which application has not been made prior to that date or if and to the extent that the reimbursable costs of the Tenant Work are less than the amount of Landlord's Maximum Space A Contribution, then Landlord shall retain the unapplied or unused balance of the Landlord's Maximum Space A Contribution and shall have no obligation or liability to Tenant with respect to such excess. (f) MONTHLY BASE RENT FOR EXPANSION SPACE A. Notwithstanding any other provision of the Lease to the contrary, Landlord and Tenant acknowledge and agree that Monthly Base Rent for Expansion Space A is payable at the time and in the manner required under the Lease for Monthly Base Rent for the initial Premises, but the amounts are distinct from and in addition to rent payable for the initial Premises, and that the amount of Monthly Base Rent due and payable by Tenant for Expansion Space A, accruing on and after the SACD and monthly thereafter for the Term of the Lease shall be as follows:
Period from/through Monthly Monthly Rate/SF of Rentable Area ------------------- ------- -------------------------------- Month 01 $14,857.92 $2.20 with 1/2 month free Month 02 - Month 12 $27,858.60 $2.20 Month 13 - Month 24 $28,745.01 $2.27 Month 25 - Month 36 $29,504.79 $2.33 Month 37 - Expiration Date $30,391.20 $2.40
(g) AMENDMENT OF TENANT'S SHARE OF OPERATING EXPENSES & RENT ADJUSTMENT DEPOSIT. Notwithstanding any other provision of the Lease to the contrary, Landlord and Tenant acknowledge and agree that upon addition of Expansion Space A to the Premises on the SACD: (i) Tenant's Share of Operating Expenses payable shall increase, and Tenant's Share in the aggregate based upon the initial Premises and Expansion Space A together, shall then be, and effective at such time, Section 1.01(16) of the Lease is amended to read, as follows: TENANT'S SHARE: Tenant's Building Share: 100% Tenant's Phase Share: 10.9558% Tenant's Project Share: 04.8031% (ii) Tenant's Rent Adjustment Deposit payable shall increase, and based upon the initial Premises and Expansion Space A together, shall then be, and effective at such time, the amount set forth in Section 1.01(9) of the Lease is amended to be $11,358.16 (based upon Landlord's estimate for 1998) monthly, until further notice from Landlord. (h) PARKING. Notwithstanding any other provision of the Lease to the contrary, with respect to Expansion Space A on and after the SACD, Tenant shall have the right to use an additional 42 Parking Spaces, and effective on the SACD, Section 1.01(18) of the Lease is amended to specify a total of 85 Parking Spaces for the Premises, including the initial Premises and Expansion Space A together. SECTION 4. OPTION TO EXTEND. (a) Landlord hereby grants Tenant a single option to extend the initial Term of the Lease for an additional period of four (4) years (such period may be referred to as the "Option Term"), as to the entire Premises as it may then exist, upon and subject to the terms and conditions of this Section (the "Option To Extend"), and provided that at the time of exercise of such right: (i) Tenant must be in occupancy of the entire Premises; and (ii) there has been no material adverse change in Tenant's financial position from such position as of the date of execution of the Lease, as certified by Tenant's independent certified public accountants, and as supported by Tenant's certified financial statements, copies of which shall be delivered to Landlord with Tenant's written notice exercising its right hereunder. (b) Tenant's election (the "Election Notice") to exercise the Option To Extend must be given to Landlord in writing no earlier than the date which is fifteen months (15) months before the Expiration Date and no later than the date which is twelve (12) months before the Expiration Date. If Tenant either fails or elects not to exercise its Option to Extend by not timely giving its Election Notice, then the Option to Extend shall be null and void. (c) The Option Term shall commence immediately after the expiration of the initial Term of the Lease. Tenant's leasing of the Premises during the Option Term shall be upon and subject to the same terms and conditions contained in the Lease except that (i) the Monthly Base Rent, plus payment of Tenant's Share of Operating Expenses pursuant to the Lease (in addition to all expenses paid directly by Tenant to the utility or service provider, which direct payments shall continue to be Tenant's obligation) shall be amended to equal the "Option Term Rent", defined and determined in the manner set forth in the immediately following Subsection; (ii) the Security Deposit, if any, shall be increased within Rider 2 - Page 4 of 6 fifteen (15) days after the Prevailing Market Rent has been determined to equal one hundred percent (100%) of the highest monthly installment of Monthly Base Rent thereunder, but in no event shall the Security Deposit be decreased; (iii) Tenant shall accept the Premises in its "AS-IS" condition without any obligation of Landlord to repaint, remodel, repair, improve or alter the Premises or to provide Tenant any allowance therefor; and (iv) there shall be no further option or right to extend the term of the Lease. If Tenant timely and properly exercises the Option To Extend, references in the Lease to the Term shall be deemed to mean the initial Term as extended by the Option Term unless the context clearly requires otherwise. (d) The Option Term Rent shall mean the greater of (i) the Monthly Base Rent payable by Tenant under this Lease calculated at the rate applicable for the last full month of the initial Term, plus payment of Tenant's Share of Operating Expenses pursuant to the Lease (in addition to all expenses paid directly by Tenant to the utility or service provider, which direct payments shall continue to be Tenant's obligation) (collectively, "Preceding Rent") or (ii) the "Prevailing Market Rent". As used in this Rider Prevailing Market Rent shall mean the rent and all other monetary payments, escalations and triple net payables by Tenant, including consumer price increases, that Landlord could obtain from a third party desiring to lease the Premises for a term equal to the Option Term and commencing when the Option Term is to commence under market leasing conditions, and taking into account the following: the size, location and floor levels of the Premises; the type and quality of tenant improvements; age and location of the Project; quality of construction of the Project; services to be provided by Landlord or by tenant; the rent, all other monetary payments and escalations obtainable for new leases of space comparable to the Premises in the Project and in comparable buildings in the mid-Peninsula area, and other factors that would be relevant to such a third party in determining what such party would be willing to pay therefor, provided, however, that Prevailing Market Rent shall be determined without reduction or adjustment for "Tenant Concessions" (as defined below), if any, being offered to prospective new tenants of comparable space. For purposes of the preceding sentence, the term "Tenant Concessions" shall include, without limitation, so-called free rent, tenant improvement allowances and work, moving allowances, and lease takeovers. The determination of Prevailing Market Rent based upon the foregoing criteria shall be made by Landlord, in the good faith exercise of Landlord's business judgment. Within thirty (30) days after Tenant's exercise of the Option To Extend, Landlord shall notify Tenant of Landlord's determination of Option Term Rent for the Premises. If Landlord's determination of Prevailing Market Rent is greater than the Preceding Rent, and if Tenant, in Tenant's sole discretion, disagrees with the amount of Prevailing Market Rent determined by Landlord, Tenant may elect to revoke and rescind the exercise of the option by giving written notice thereof to Landlord within thirty (30) days after notice of Landlord's determination of Prevailing Market Rent. (e) This Option to Extend is personal to NetObjects and may not be used by, and shall not be transferable or assignable (voluntarily or involuntarily) to any person or entity. (f) Upon the occurrence of any of the following events, Landlord shall have the option, exercisable at any time prior to commencement of the Option Term, to terminate all of the provisions of this Section with respect to the Option to Extend, with the effect of canceling and voiding any prior or subsequent exercise so this Option to Extend is of no force or effect: (i) Tenant's failure to timely exercise the Option to Extend in accordance with the provisions of this Section. (ii) The existence at the time Tenant exercises the Option to Extend or at the commencement of the Option Term of any default on the part of Tenant under the Lease or of any state of facts which with the passage of time or the giving of notice, or both, would constitute such a default. (iii) Tenant's third default under the Lease prior to the commencement of the Option Term, notwithstanding that all such defaults may subsequently be cured. In the event of Landlord's termination of the Option to Extend pursuant to this Section, Tenant shall reimburse Landlord for all costs and expenses Landlord incurs in connection with Tenant's exercise of the Option to Extend including, without limitation, costs and expenses with respect to any brokerage commissions and attorneys' fees, and with respect to the design, construction or making of any tenant improvements, repairs or renovation or with respect to any payment of all or part of any allowance for any of the foregoing. Rider 2 - Page 5 of 6 (g) Without limiting the generality of any provision of the Lease, time shall be of the essence with respect to all of the provisions of this Section. IN WITNESS WHEREOF, the parties hereto have executed this Rider 2 as of the date first set forth in the Lease. TENANT: LANDLORD: NetObjects, Inc., Metropolitan Life Insurance Company, a Delaware corporation a New York corporation By By -------------------------------- -------------------------------- -------------------------------- -------------------------------- Print name Print name Its Its -------------------------------- -------------------------------- (Chairman of Board, President or Vice President) By -------------------------------- -------------------------------- Print name Its -------------------------------- (Secretary, Assistant Secretary, CFO or Assistant Treasurer) Rider 2 - Page 6 of 6 RIDER 3 EXPANSION SPACE A COMMENCEMENT DATE AGREEMENT Metropolitan Life Insurance Company, a New York corporation ("Landlord"), and NetObjects, Inc., a Delaware corporation ("Tenant"), have entered into a certain Lease dated as of July 24, 1998 (the "Lease"). WHEREAS, Landlord and Tenant wish to confirm and memorialize the Space A Commencement Date ("SACD") and Expiration Date of the Lease as provided for in Rider 2 of the Lease; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained in this Rider and in the Lease, Landlord and Tenant agree as follows: 1. Unless otherwise defined herein, all capitalized terms shall have the same meaning ascribed to them in the Lease. 2. The Space A Commencement Date (as defined in Rider 2 of the Lease) is ____________. 3. The Expiration Date (as defined in the Lease) of the Lease is ____________. 4. Tenant hereby confirms the following: (a) That it has accepted possession of Expansion Space A pursuant to the terms of Rider 2; and (b) That the Lease is in full force and effect. 5. Except as expressly modified hereby, all terms and provisions of the Lease are hereby ratified and confirmed and shall remain in full force and effect and binding on the parties hereto. 6. The Lease and this Commencement Date Agreement contain all of the terms, covenants, conditions and agreements between the Landlord and the Tenant relating to the subject matter herein. No prior other agreements or understandings pertaining to such matters are valid or of any force and effect. IN WITNESS WHEREOF, Landlord and Tenant have executed this Commencement Date Agreement and such execution and delivery have been duly authorized. TENANT: LANDLORD: NetObjects, Inc., Metropolitan Life Insurance Company, a Delaware corporation a New York corporation By By -------------------------------- -------------------------------- -------------------------------- -------------------------------- Print name Print name Its Its -------------------------------- -------------------------------- (Chairman of Board, President or Vice President) By -------------------------------- -------------------------------- Print name Its -------------------------------- (Secretary, Assistant Secretary, CFO or Assistant Treasurer) Rider 3 - Page 1 of 1 EX-10.7 36 EXHIBIT 10.7 EXHIBIT 10.7 DATED SEPTEMBER 1, 1998 - --------------------------- (1) HQ EXECUTIVE OFFICES (UK) LTD (2) NETOBJECTS LIMITED AGREEMENT relating to Office Suite No. 25, 26, 27 Royal Albert House Sheet Street, Windsor 1 THIS AGREEMENT dated September 1, 1998 is made between (1) THE OWNER: HQ EXECUTIVE OFFICES (UK) LTD of 28 Grosvenor Street, London W1X 9FE (2) OCCUPIER: NETOBJECTS LIMITED of Rotherwick House, 3 Thomas More Street, London EI 9YX 1. DEFINITIONS In this Agreement the following expressions shall mean 1.1 "The Inclusive Services" - the services specified in The First Schedule 1.2 "The Chargeable Services" - such of the services specified in the Second Schedule as are from time to time available, and any other services as are from time to time available 2. LICENCE The Owner grants licence to the Occupier to use Serviced Office Suite No. 25, 26 & 27 ("the Premises") on the first floor of Royal Albert House, Sheet Street, Windsor ("the Building") together with the right (in common with the Owner and all others from time to time entitled) to use the common parts of the Building for the purpose only of access to the Premises and to use such toilet washroom and kitchen facilities as the Owner shall from time to time designate for the Occupier's use but subject to the right of the Owner (and all others authorised from time to time by the Owner) to use any service conducting media within the Premises 3. LICENCE PERIOD The period of this licence shall commence on 1 September 1998 and shall expire on 28 February 1999 4. RENT a) From 1st September 1998 to 30th September 1998 the rent payable shall be L4050.00 plus V.A.T. per calendar month inclusive of business rates and water charges and the Inclusive Services payable monthly in advance on the first day of each month b) From 1st October 1998 to 28th February 1999 the rent payable shall be L5950.00 plus V.A.T. per calendar month inclusive of business rates and water charges and the Inclusive Services payable monthly in advance on the first day of each month 5. OCCUPIER'S OBLIGATIONS The Occupier agrees with the Owner:- 2 5.1. to pay the rent specified in Clause 4 at all times and in the manner set out in Clause 4 without any deduction 5.2 to pay the Owner all costs and expenses (including legal costs and surveyors' fees) which may be incurred by the Owner in connection with the recovery of arrears of rent or other monies payable pursuant to this Agreement 5.3 to keep the Premises and all Owner's fixtures, fittings and equipment in the same state of repair and condition as they are now in as evidenced by the attached Schedule of Condition (fair wear and tear excepted) 5.4 not to damage any of the decorations of the Premises or any of the fixtures, fittings and equipment provided by the Owner for use by the Occupier 5.5 to permit the Owner and those authorised by the Owner to enter the premises for any reasonable purpose, including in connection with the maintenance, repair and alteration of the Building or anything serving or running through the Building, subject to the Owner making good all damage thereby occasioned to the Premises 5.6 not to make any alteration or addition to the Premises 5.7 to comply with all statutory requirements relating to the Premises, including all town and country planning legislation 5.8 not to display any notice or advertisements as to be visible from outside the Premises 5.9.1 not to use the Premises other than as high-class offices in connection with the Occupier's business 5.9.2 not do on the Premises anything which may be a nuisance or annoyance or cause danger, injury or damage to the Owner or its tenants 5.9.3 not to invite the public generally to come to the Premises, and not to use the Premises for a purpose which attracts casual callers 5.10 not to do or omit anything whereby any policy of insurance on the Premises or the Building may become void or voidable or otherwise prejudiced, or whereby the premium may be increased 5.11 to pay VAT (or similar tax which shall replace VAT) on all taxable supplies received by the Occupier pursuant to this Agreement and, if required by the Owner, on the rent payable pursuant to this Agreement 5.12 to comply with such regulations as the Owner may from time to time impose in relation to the use of the Premises, the use of any toilets washrooms and kitchen facilities in the Building, the management of the Building, or the provision of the Chargeable Services 5.13 to pay the Owner's Charges from time to time for the provision of the Chargeable Services monthly in arrears on the first day of each month 5.14 not to use the address of the Premises as the Occupier's registered office 3 5.15 to pay the Owner a service retainer of L11,900.00 (L5,800.00 already held) on exchange of this Agreement 5.16 if and whenever the Occupier fails to pay the rent or any other monies due under this Agreement on the due date (whether formally demanded or not), the Occupier shall pay to the Owner interest at 4% above National Westminster Bank base rate from time to time on such rent or other monies in arrears calculated from the due date to the date of payment 5.17 to keep the Owner indemnified from and against all expenses, loss and claims arising from any breach of the Occupier's obligations contained in this Agreement, or from the use of the Premises by the Occupier, or arising from any act, neglect or default of the Occupier 5.18 not, without the previous written consent of the Owner, to install any fixtures, fittings or equipment in the Premises 5.19 not during the subsistence of this Agreement or for a period of 6 months after the expiry or sooner determination of the period of this Agreement to employ (directly or indirectly) any person who has been in the employment of the Owner at the Building during the subsistence of this Agreement and if the Occupier breaches the provisions of this clause the Occupier shall pay to the Owner on demand by way of liquidated damages an amount equal to 40% of the gross annual remuneration of such employee 6. OWNER'S OBLIGATION The Occupier paying the rent payable pursuant to this Agreement and performing and observing the obligations on the part of the Occupier contained in this Agreement, the Owner agrees with the Occupier:- 6.1 to use reasonable endeavours to provide the Inclusive Services 6.2 to indemnify the Occupier against all business rates and water charges payable in respect of the Premises 6.3 to refund the deposit on the determination of this Agreement less any sums due to the Owner pursuant to the provisions of this Agreement 7. PROVISOS 7.1 The Owner shall not be liable or responsible for any loss, injuries or damage sustained by the Occupier or any invitee or licensee of the Occupier (either personally or to their property), and the Owner shall not be liable to the occupier for any damage which may be caused by stoppage or defect of any plant or machinery in or service to the Premises or the failure of the Owner, for reasons beyond the Owner's reasonable control, to provide the Services, or for any loss or damage occasioned by any errors or omissions arising from the provision of the Inclusive Services and/or the Chargeable Services 7.2 If the Premises or any part shall at any time be destroyed so as to be unfit for occupation or use, then, save to the extent that the insurance of the Premises shall have been vitiated or payment of the policy monies refused by or in consequence of any act, neglect, omission or default of the Occupier, the rent payable pursuant to this Agreement, or a fair proportion thereof according to the nature and extent of the damage sustained shall, from the date of 4 such damage or destruction, be suspended and cease to be payable until the Premises shall have been rebuilt or reinstated and made fit for occupation, and any dispute concerning this provision shall be determined by an arbitrator in accordance with the Arbitration Acts 1950 to 1979 7.3 On the determination of this Agreement, the Occupier shall vacate the Premises and return to the Owner all keys, security devices and any other property belonging to the Owner 7.4 The Owner shall be entitled to discontinue the provision of the Inclusive Services (including without limitation the Telephone Answering Services) in respect of any period or periods during which the Occupier shall be in breach of any of the provisions of this Agreement 8. PERSONAL This Agreement and the licence to occupy the Premises granted to the Occupier are personal to the Occupier, and are not transferable, and the Occupier shall not permit anyone (other than persons employed by the Occupier or having business with the Occupier) to use or have access to the Premises 9. OCCUPIER'S EFFECTS 9.1 The Occupier irrevocably appoints the Owner to be the Occupier's agent to store or dispose of any effects left by the Occupier on the Premises for more than seven days after the expiry of this Agreement subject to any conditions which the Owner thinks fit and without the Owner being liable to the Occupier save to account for the net proceeds of sale less the cost of storage (if any) and any other expenses reasonably incurred by the Owner 9.2 Any goods or other effects left at the Premises on or after the expiry of this Agreement shall be subject to a lien in favour of the Owner in respect of any liability of the Occupier to the Owner pursuant to or arising out of this Agreement and the Owner shall have power to sell or otherwise dispose of all such goods and effects on whatever terms the Owner shall think fit and to apply the net proceeds of such sale or disposal towards satisfaction of such liability Signed for and on behalf of HQ EXECUTIVE OFFICES (UK) LTD Signed for and on behalf of NETOBJECTS LIMITED 5 THE FIRST SCHEDULE Details of the Inclusive Services - Receptionist Services - Telephone Answering Services - Heating - Lighting - Electricity - Cleaning - Repair and Maintenance of the Building - Insurance of the Building & Owner's contents - Air Conditioning - Subject to availability, courtesy Network access of eight hours monthly at over 150 HQ Centres worldwide. Within the UK two hours courtesy Network access will apply. (Hours may not be carried forward to the following month.) THE SECOND SCHEDULE - Secretarial Services - Photocopying - Use of Boardrooms - Post Handling - Telephone charges at BT standard rate - Facsimile - Boardroom Catering - Catering Services - Car Parking 6 EX-10.8 37 EXHIBIT 10.8 REVOLVING LOAN AND SECURITY AGREEMENT 1 1. DEFINITIONS 1 1.1 SPECIAL DEFINITIONS 1 1.2 OTHER DEFINED TERMS 3 2. LINE OF CREDIT/INTEREST RATES/CHARGES 3 2.1. LINE OF CREDIT 3 2.1.1 INTEREST 3 2.1.2 CHARGES 4 2.1.3 VOLUNTARY PREPAYMENT 4 2.2 PAYMENTS 4 2.2.1 PRINCIPAL 4 2.2.2 IN EXCESS OF LINE OF CREDIT 4 2.2.3 INTEREST AND OTHER CHARGES 4 2.2.4 ACCURACY OF STATEMENTS 4 3. LINE OF CREDIT - ADDITIONAL PROVISIONS 4 3.1 PROCEDURES FOR ADVANCES 4 3.2 EACH ADVANCE 4 3.3 INELIGIBLE ACCOUNTS 5 3.4 REIMBURSEMENT FOR CHARGES 6 3.5 COLLECTIONS 6 3.6. APPLICATION OF REMITTANCES AND CREDITS 7 3.7 COLLECTION DAYS 7 3.8 POWER OF ATTORNEY 7 3.9 CONTINUING REQUIREMENTS 8 3.10 RIGHTS OF IBM CREDIT 9 3.11 RELEASE 9 3.12 ADDITIONAL REQUIREMENTS 9 3.13 AUDIT 9 4. SECURITY - COLLATERAL 9 4.1 GRANT 9 4.2 INSTRUMENTS 11 5. CONDITIONS PRECEDENT 11 5.1 CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT 11 6. WARRANTIES, REPRESENTATIONS, AND COVENANTS 12 6.1 AFFIRMATIVE WARRANTIES, REPRESENTATIONS AND COVENANTS 12 6.2 NEGATIVE COVENANTS 15 7. DEFAULT 16 7.1 DEFINITION 16 7.2 RIGHTS OF IBM CREDIT 18 7.3 CUSTOMER 18 7.4 WAIVER 19 8. MISCELLANEOUS 19 8.1 TERMINATION 19 8.2 COLLECTION 19 8.3 DEMAND, ETC 19 8.4 ADDITIONAL OBLIGATIONS 20 8.5 INDEMNIFICATION BY CUSTOMER 20 8.6 INDEMNIFICATION BY IBM. 20 8.7 ALTERATIONS/WAIVER 20 8.8 NOTICES 20 8.9 SEVERABILITY 20 8.10 ONE LOAN 21 8.11 ADDITIONAL COLLATERAL 21 8.12 INITIAL PUBLIC OFFERINGS 21 8.13 OFFSETS 21 8.14 LIMITATION OF LIABILITY 21 8.15 TIME 21 8.16 ENTIRE AGREEMENT 21 8.17 PARAGRAPH TITLES 21 8.18 BINDING EFFECT 21 8.19 CONDITIONS TO EFFECTIVENESS 21 8.20 SUBMISSION BY CUSTOMER 21 8.21 JURY TRIAL 22
REVOLVING LOAN AND SECURITY AGREEMENT REVOLVING LOAN AND SECURITY AGREEMENT ("Agreement") by and between IBM CREDIT CORPORATION, with a place of business at 5000 Executive Parkway Suite 450, San Ramon, CA 94583, a Delaware corporation ("IBM Credit") and NETOBJECTS, INC., with a place of business at 602 Galveston Drive, Redwood, CA 94063, a Delaware corporation ("Customer"). 1. DEFINITIONS 1.1 SPECIAL DEFINITIONS. The following terms shall have the following respective meanings in this Agreement: "Advance": any loan or advance made by IBM Credit to or for the account of Customer pursuant to this Agreement. "Accounts": as defined in the UCC. "Advance Date": for a specific Advance, the Business Day on which IBM Credit makes an Advance under this Agreement. "Available Credit": at any time, (1) the Line of Credit less (2) the Outstanding Advances at such time. "Bloomberg": the on-line service provided by Bloomberg Financial Services. "Business Day": any day other than a Saturday, Sunday, other day on which commercial banks in New York, NY are authorized or required by law to close or other day on which IBM Credit is closed. "Common Stock": the Customer's common stock. "Closing Date": the date upon which all conditions precedent to the effectiveness of this Agreement are performed to the satisfaction of IBM Credit or waived in writing by IBM Credit. "Collateral": as defined in Section 4.1. "Copyrights": as defined in Section 4.1(C)(iii). "Default": either (1) an Event of Default, or (2) any event or condition which, but for the requirement that notice be given or time lapse or both, would be an Event of Default. "Delinquency Fee Rate": as defined in Attachment A. "Effective Date of Termination": as defined in Section 8.1. "Eligible Accounts": as defined in Section 3.3. "Event of Default": as defined in Section 7.1. "Guarantor": the guarantors as set forth in Attachment B. "IBM": International Business Machines Corporation. "IBM Indemnification": the agreement between IBM and IBM Credit whereby IBM has indemnified IBM Credit for all losses incurred by IBM Credit under this Agreement. 3 "Initial Public Offering"; the sale of the Customer's common stock in a bona fide, firm commitment underwriting pursuant to a registration statement under the Securities Act of 1933. "Intercreditor Agreement"; an agreement, in form and substance satisfactory to IBM Credit, whereby another Person having a Lien on any of the Collateral subordinates its rights in such Collateral to IBM Credit. "LIBOR": as of the date of determination, the thirty-day average of the one-month (01M) London Interbank Offered Rate as published in Bloomberg for the previous calendar month. "Lien": any lien, claim, charge, pledge, security interest, deed of trust, mortgage, other encumbrance or other arrangement having the practical effect of the foregoing, including the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Line of Credit": as defined in Section 2.1. "Material Adverse Effect": a material adverse effect (1) on the business, operations, results of operations, assets, or financial condition of Customer, (2) on the aggregate value of the Collateral or the aggregate amount which IBM Credit would be likely to receive (after giving consideration to reasonably likely delays in payment and reasonable cost of enforcement) in the liquidation of such Collateral to recover the Obligations in full, or (3) on the rights and remedies of IBM Credit under this Agreement. "Note": the Convertible Revolving Credit Note executed by Customer substantially in the form annexed hereto as Attachment D. "Obligations": all covenants, agreements, warranties, duties, representations, loans, advances, liabilities and indebtedness of any kind and nature whatsoever now or hereafter arising, owing, due or payable from Customer to IBM Credit or whether primary or secondary, joint or several, direct, contingent, fixed or otherwise, secured, unsecured or arising under this Agreement, the Other Agreements or any agreements previously, now or hereafter executed by Customer and delivered to IBM Credit, or by oral agreement or operation of law and whether or not evidenced by instruments of indebtedness. Obligations shall include, without limitation, any third party claims against Customer satisfied or acquired by IBM Credit. "Other Agreements": all security agreements, mortgages, leases, instruments, documents, guarantees, schedules of assignment, contracts and other agreements previously, now or hereafter executed by Customer and delivered to IBM Credit or delivered by or on behalf of Customer to a third party and assigned to IBM Credit by operation of law or otherwise. "Outstanding Advances": at the time of determination, the unpaid principal amount of all Advances made by IBM Credit. "Patents": as defined in Section 4.1(C)(i). "Periodic Rate": the Revolver Financing Charge or Delinquency Fee Rate, as the case may be, multiplied by the quotient of the number of days elapsed in the applicable billing period divided by 360. "Permitted Liens": as defined in Attachment B. "Permitted Prior Liens": as defined in Attachment B. "Person": any individual, association, firm, corporation, governmental body, agency or instrumentality whatsoever. "Policies": as defined in Section 6.1 (T). 4 "Revolver Financing Charge": as defined in Attachment A. "Trademarks": as defined in Section 4.1(C)(ii). "UCC": the Uniform Commercial Code in effect from time to time in the State of New York. "Venture": Venture Banking Group, a division of Cupertino National Bank. "Warrant of Distress for Rent or Taxes": a remedy, whether at common law or by statute, for the collection of rent or taxes in arrears which permits the landlord or applicable taxing authority, as the case may be, to go upon Customer's premises and seize anything there as security for the rent or taxes in arrears, and hold it without sale until the rental or taxes are paid. 1.2 OTHER DEFINED TERMS. Terms not otherwise defined in this Agreement which are defined in the UCC shall have the meanings assigned to them therein. 2. LINE OF CREDIT/INTEREST RATES/CHARGES 2.1. LINE OF CREDIT. Subject to the terms and conditions set forth in this Agreement, on and after the Closing Date to but not including the date that is the earlier of (i) the date on which this Agreement is terminated pursuant to Section 8.1 and (ii) the date on which IBM Credit terminates the Credit Line pursuant to Section 7.2, IBM Credit agrees to extend to the Customer a line of credit (the "Line of Credit") in the amount set forth in Attachment A pursuant to which IBM Credit will make to the Customer, from time to time, Advances in an aggregate amount at any one time outstanding not to exceed the Line of Credit. Notwithstanding any other term or provision of this Agreement, IBM Credit may, at any time and from time to time, in its sole discretion (x) temporarily increase the amount of the Line of Credit above the amount set forth in Attachment A and decrease the amount of the Line of Credit back to the amount of the Line of Credit set forth in Attachment A, in each case upon written notice to the Customer and (y) make Advances pursuant to this Agreement upon the request of Customer in an aggregate amount at any one time outstanding in excess of the Line of Credit. 2.1.1 INTEREST. (A) Subject to paragraph (B) below, each Advance shall accrue interest at a rate per annum equal to the lesser of (i) the Revolver Financing Charge and (ii) the highest rate from time to time permitted by applicable law. Amounts received from Customer in excess of such highest rate from time to time permitted by applicable law shall be considered reductions to principal to the extent of such excess. (B) If any amount owed under this Agreement is not paid when due (whether at maturity, by acceleration or otherwise), the unpaid amount will bear interest from and including its due date to and including the date IBM Credit receives payment. Such interest will accrue at a rate per annum equal to the lesser of (i) the Delinquency Fee Rate and (ii) the highest rate from time to time permitted by applicable law. Amounts received from Customer in excess of such highest rate from time to time permitted by applicable law shall be considered reductions to principal to the extent of such excess. (C) The Revolver Financing Charge and the Delinquency Fee Rate are computed on the basis of a 360-day year for the actual number of days elapsed. The Revolver Financing Charge for each billing period shall be calculated by multiplying the Periodic Rate for the billing period by the Average Daily Balance (as hereinafter defined) of the Advances outstanding during said period which were not past-due. The Delinquency Fee Rate for each billing period shall be calculated by multiplying the applicable Periodic Rate for the billing period by the applicable Average Daily Balance of the Advances outstanding during said period which were past-due. The "Average Daily Balance" of the outstanding Advances shall be equal to the sum of the principal balances of the Advances as of each day during the billing period, divided by the number of days in the billing period. 5 2.1.2 CHARGES. Customer hereby agrees to pay to IBM Credit the charges set forth in the "Other Charges" section of Attachment A to this Agreement. Customer hereby acknowledges that any such charges are not interest but that such charges, if unpaid, will constitute part of the principal from time to time outstanding. 2.1.3 VOLUNTARY PREPAYMENT. Customer may at any time prepay in whole or in part all amounts owed under this Agreement. IBM Credit may, in its sole discretion, apply payments first to pay interest and other amounts owing under this Agreement and then to pay the principal amount owed by the Customer. IBM Credit may, but shall not be obligated to, apply principal payments to the oldest (earliest) Advances first. 2.2 PAYMENTS. 2.2.1 PRINCIPAL. Customer shall pay in full all unpaid principal of each Advance upon the earilier of the Effective Date of Termination and the expiration of the Agreement. 2.2.2 IN EXCESS OF LINE OF CREDIT. Customer shall, on any Business Day on which the aggregate outstanding principal amount of all Advances (including amounts committed to, but not yet funded, by IBM Credit) exceeds the then applicable Line of Credit, make a mandatory prepayment of the outstanding principal amount of Advances in an amount at least equal to such excess. 2.2.3 INTEREST AND OTHER CHARGES. Interest and Other Charges owed under this Agreement, and any charges hereafter agreed to by the parties are payable monthly on receipt of IBM Credit's bill or statement or IBM Credit may, in its sole discretion, add interest and Other Charges to Customer's outstanding loan balance. 2.2.4 ACCURACY OF STATEMENTS. Each statement of account rendered by IBM Credit to Customer and relating to the Obligations shall be presumed to be correct and accurate and shall constitute an account stated that is fully binding upon Customer unless, within ten (10) Business Days after the statement is received by Customer, Customer shall give to IBM Credit written objection specifying the error or errors, if any, contained in that statement. Customer shall be deemed to have received such statement three (3) Business Days from the date IBM Credit mails such statement by United States first- class mail, postage prepaid, and properly addressed to Customer. 3. LINE OF CREDIT - ADDITIONAL PROVISIONS 3.1 PROCEDURES FOR ADVANCES. Customer shall deliver to IBM Credit a written request ("Request for Advance") for each Advance. Customer may deliver a Request for Advance via facsimile transmission. The Request for Advance shall specify (i) the requested Advance Date and (ii) the amount of the requested Advance and shall be substantially in the form annexed hereto as Attachment J or in some other form agreed to by IBM Credit. Customer, after giving effect to the repayment of any Outstanding Advances to be made on an Advance Date, shall not request an Advance in excess of the Available Credit on such date. 3.2 EACH ADVANCE. The submission by Customer of a Request for Advance and the receipt by the Customer of the proceeds of any Advance on an Advance Date shall be deemed to be a representation and warranty by the Customer that, as of and on such Advance Date, the following statements set forth in (A) through (C) are true: (A) The representations and warranties contained in this Agreement and in each Other Agreement are true and correct as though made on and as of such Advance Date; (B) No event has occurred and is continuing, or would result from such Advance or the application of the proceeds thereof, which could reasonably be expected to have a Material Adverse Effect; 6 (C) Both before and after giving effect to the making of such Advance, the Outstanding Advances do not exceed the Line of Credit; and (D) No Default or Event of Default exists at the time the Request for Advance is made. 3.3 INELIGIBLE ACCOUNTS. IBM Credit and Customer agree that IBM Credit shall have the sole right to determine eligibility of Accounts from an Account debtor (the "Eligible Accounts") for purposes of determining the value of the Collateral; however, without limiting such right, the following Accounts will be deemed to be not Eligible Accounts for purposes of determining such value: (A) Accounts created from the sale of goods and services on non-standard terms and/or that allow for payment to be made later than thirty (30) days from the date of sale; (B) Accounts unpaid more than ninety (90) days from date of invoice; (C) Accounts payable by an Account debtor if fifty percent (50%) or more of the outstanding balance of all Accounts payable by such Account debtor remains unpaid for more than ninety (90) days from the date of invoice; (D) Accounts payable by an Account debtor that is an officer, employee, agent, parent, guarantor, subsidiary, stockholder or affiliate of Customer or is related to or has common shareholders, officers or directors with Customer, other than IBM; (E) Accounts arising from consignment sales; (F) Accounts with respect to which the payment by the Account debtor is or may be conditional; (G) Accounts payable by any Account debtor that (i) is not a commercial or institutional entity, or (ii) is not a resident of the United States; (H) Accounts payable by any Account debtor to which Customer is or may become liable for goods sold or services rendered by such Account debtor to Customer; (I) Accounts arising from the sale or lease of goods purchased for a personal, family or household purpose; (J) Accounts arising from the sale or lease of goods that have been used for demonstration purposes or loaned by the Customer to another party; (K) Accounts which are progress payment accounts; (L) Accounts payable by any Account debtor that is, or Customer knows will become, subject to proceedings under United States Bankruptcy Law or other law for the relief of debtors; (M) Accounts which are not payable in US dollars; (N) Accounts payable by any Account debtor that is a remarketer of computer hardware and software products and whose purchases of such products from Customer have been financed by another person, other than IBM Credit, who pays the proceeds of such financing directly to Customer on behalf of such debtor ("Third Party Financer") unless (i) such Third Party Financer does not have a separate financing relationship with Customer or (ii) such Third Party Financer has a separate financing relationship with Customer and has waived its right to set off its obligations to Customer; (O) Accounts arising from the sale or lease of goods which are billed in advance of shipment by Customer; 7 (P) Accounts as to which IBM Credit does not have a valid, perfected, first priority security interest; (Q) Accounts with respect to which Customer has permitted or agreed to any extension, compromise or settlement, or made any change or modification of any kind or nature, including, but not limited to, any change or modification to the terms relating thereto; (R) Accounts which do not arise from undisputed bona fide transactions completed in accordance with the terms and conditions contained in the invoices and purchase orders relating thereto; (S) Accounts which are discounted for the full payment term specified in Customer's terms and conditions with its Account debtors, or for any longer period of time; (T) Accounts on cash on delivery (COD) terms; (U) Accounts arising from maintenance or service contracts which are billed in advance of full performance of service; (V) Accounts arising from bartered transactions; (W) Accounts arising from incentive payments, rebates, discounts, credits, and refunds from a supplier; and (X) Any and all other Accounts which IBM Credit deems, in its reasonable discretion, to be ineligible. 3.4 REIMBURSEMENT FOR CHARGES. Customer agrees to reimburse IBM Credit for all charges paid by IBM Credit with respect to collection of checks and other items of payment, all fees relating to the use and maintenance of a lockbox account and with respect to remittances of proceeds of the loans hereunder. 3.5 COLLECTIONS. By no later than January 31, 1998, Customer shall establish and maintain a lockbox (the "Lockbox"), at the address set forth in Attachment A with the financial institution listed in Attachment A (the "Bank") pursuant to an agreement between Customer and Bank in form and substance satisfactory to IBM Credit. Customer shall also establish and maintain a deposit account which shall contain only proceeds of Customer's Accounts (the "Special Account") with the Bank. By no later than January 31, 1998, Customer shall enter into and maintain a contingent blocked account agreement with the Bank for the benefit of IBM Credit in form and substance satisfactory to IBM Credit pursuant to which, among other things, such Bank shall agree that, upon notice from IBM Credit, disbursements from the Special Account shall be made only as IBM Credit shall direct. Customer shall not change the financial institution with which the Special Account is established until a similar contingent blocked account for a new Special Account has been executed by IBM Credit, Customer and such new financial institution. (B) Customer shall instruct all Account debtors to remit payments directly to the Lockbox. In addition, Customer shall have such instruction printed in conspicuous type on all invoices. Customer further agrees that it shall not deposit or permit any deposits of funds other than remittances paid in respect of the Account into the Special Account or permit any commingling of funds with such remittances in the Lockbox or Special Account. (C) IBM Credit may at its option notify any Account debtor or debtors of the assignment of Accounts, and directly collect the same. All payments received by Customer from its Account debtors, whether in the form of money, checks, notes, drafts, or other things of value or items of payment shall be received by Customer solely as agent for IBM Credit. Customer shall properly endorse and deposit into the Special Account, on the day of receipt thereof, all original checks, drafts, acceptances, notes and other evidences of, or properties constituting payment of, or on account of, Accounts, including all cash. Customer shall make entries on its books and records in a form satisfactory to IBM Credit and shall keep a separate account on its record book of all collections received thereon. Until deposited in the Special Account, Customer shall keep all remittances received in respect of Accounts separate and apart from Customer's 8 funds so that they are capable of identification as the proceeds of Accounts in which IBM Credit has a security interest. . 3.6. APPLICATION OF REMITTANCES AND CREDITS. Customer shall apply all remittances against the aggregate of Customer's outstanding Accounts no later than the end of the Business Day on which such remittances are deposited into the Special Account. Customer also agrees to apply each remittance against its respective Account no later than three (3) Business Days from the date such remittance is deposited into the Special Account. In Addition, Customer shall promptly apply any credits owing in respect to any Account when due. 3.7 COLLECTION DAYS. All amounts received by IBM Credit in respect of any Account may be credited by IBM Credit to the repayment of the Obligations under this Agreement or, in IBM Credit's sole and absolute direction, may be disbursed to Customer. The crediting of amounts received by IBM Credit in respect of such Obligations shall in all cases be subject to the final collection thereof. 3.8 POWER OF ATTORNEY. Customer hereby irrevocably appoints IBM Credit (and any person designated by it) as Customer's true and lawful attorney-in-fact with full power to at any time, in good faith and in compliance with commercially reasonable standards, in the sole and absolute discretion of IBM Credit: (A) sign the name of Customer on any document or instrument that IBM Credit shall deem necessary or appropriate to perfect and maintain perfected the security interest in the Collateral contemplated under this Agreement and the Other Agreements; (B) endorse the name of Customer upon any of the items of payments or proceeds and deposit the same in the account of IBM Credit for application to the Obligation; and upon the occurrence and during the continuance of an Event of Default as defined in Section 7.1 hereof: (C) demand payment, enforce payment and otherwise exercise all Customer's rights and remedies with respect to the collection of any Accounts; (D) settle, adjust, compromise, extend or renew any Accounts; (E) settle, adjust or compromise any legal proceedings brought to collect any Accounts; (F) sell or assign any Accounts upon such terms, for such amounts and at such time or times as IBM Credit may deem advisable; (G) discharge and release any Accounts; (H) prepare, file and sign Customer's name on any proof of claim or similar document against any Account debtor; (I) prepare, file and sign Customer's name on any notice of lien, claim of mechanic's lien, assignment or satisfaction of lien or mechanic's lien, or similar document in connection with any Accounts; (J) endorse the name of Customer upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to any Account or goods pertaining thereto; (K) endorse the name of Customer upon any of the items of payment or proceeds and deposit the same in the account of IBM Credit for application to the Obligations; (L) sign the name of Customer to requests for verification of Accounts and notices thereof to Account debtors; 9 (M) sign the name of Customer on any document or instrument that IBM Credit shall deem necessary or appropriate to perfect and maintain perfected the security interest in the Collateral contemplated under this Agreement and the Other Agreements; (N) make, settle and adjust claims under the Policies and endorse Customer's name on any check, draft, instrument or other item of payment of the proceeds of the Policies; and (O) take control in any manner of any item of payment or proceeds and for such purpose to notify the postal authorities to change the address for delivery of mail addressed to Customer to such address as IBM Credit may designate. The power of attorney granted by this Section 3.8 is for value and coupled with an interest and is irrevocable until the later of the payment in full of the Obligations and the termination of this Agreement. 3.9 CONTINUING REQUIREMENTS. Customer shall: (A) from time to time, if required by IBM Credit, immediately upon their creation, deliver to IBM Credit copies of all invoices, delivery evidences and other documents relating to each Account; (B) within three (3) Business Days after Customer's learning thereof, inform IBM Credit in writing of any rejection of goods or services by any Account debtor, delays in delivery of goods or performance of services, non-performance of contracts and of any assertion of any claim, offset or counterclaim by any Account debtor; (C) other than in the ordinary course of business as generally conducted by Cutsomer over a period of time, not permit or agree to any extension, compromise or settlement or make any change or modification of any kind or nature with respect to any account, including any of the terms relating thereto; (D) within three (3) Business Days after Customer's learning thereof, furnish to and inform IBM Credit in writing of all adverse information relating to the financial condition of any Account debtor if such information could reasonably be expected to have a Material Adverse Effect; (E) keep all goods rejected or returned by any Account debtor and all goods repossessed or stopped in transit by Customer from any Account debtor segregated from other property of Customer, holding the same in trust and as trustee for IBM Credit until Customer applies a credit against such Account debtor's outstanding obligations to Customer or sells such goods in the ordinary course of business, whichever occurs first; (F) stamp or otherwise mark chattel paper and instruments now owned or hereafter acquired by it to show that the same are subject to IBM Credit's security interest and immediately thereafter deliver or cause such chattel paper and instruments to be delivered to IBM Credit or any agent designated by IBM Credit with appropriate endorsements and assignments to vest title and possession in IBM Credit; (G) provide to IBM Credit a detailed aging report of its Accounts, which shall include its accounts receivable ledger and its on-line aging of Accounts and any other report listing other Collateral that IBM Credit may reasonably request, in a format acceptable to IBM Credit, no later than the fifteenth (15th) day of each month and containing information as of the close of business on the last day of the preceding month. 3.10 RIGHTS OF IBM CREDIT. IBM Credit may, without notice to Customer and at any time or times hereafter: (A) verify with Account debtors or others the validity, amount or any other matter relating to any Account by mail, telephone or other means in the name of Customer or IBM Credit; and 10 (B) take control in any manner of any cash or non-cash items of payment or proceeds of Accounts and of any rejected, returned, repossessed or stopped in transit goods relating to Accounts. 3.11 RELEASE. Customer releases IBM Credit from any and all claims and causes of action which Customer may now or hereafter have for any loss or damage to it claimed to be caused by or arising from: (A) any failure of IBM Credit to protect, enforce or collect, in whole or in part, any Account; (B) IBM Credit's notification to any Account debtors thereon of IBM Credit's security interest in any of the Accounts; (C) IBM Credit's directing any Account debtor to pay any sum owing to Customer directly to IBM Credit; and (D) any other act or omission to act on the part of IBM Credit, its officers, agents or employees, except for its gross negligence or willful misconduct. IBM Credit shall have no obligation to preserve rights to Accounts against prior parties. 3.12 ADDITIONAL REQUIREMENTS. Customer agrees to comply with the requirements set forth in Attachment A to this Agreement. 3.13 AUDIT. Customer shall at all times permit IBM Credit (or any person designated by it) upon reasonable notice demand, during Customer's usual business hours, to have access to audit, examine and check the Collateral, Customer's other assets and any and all of Customer's books, records, files and business procedures and practices, and permit the copying of the same and the making of abstracts therefrom. 4. SECURITY - COLLATERAL 4.1 GRANT. To secure Customer's payment and performance of the Obligations and to secure Customer's prompt, full and faithful performance and observance of all of the provisions under this Agreement and the Other Agreements, Customer hereby grants IBM Credit a security interest in all of Customer's right, title and interest in and to the following, whether now owned or hereafter acquired or existing and wherever located: (A) all inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor; (B) all accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and other obligations of any kind, and all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the same; (C) all intellectual property and trade secrets, including, without limitation, (i) all patents, patent applications and patentable inventions and (1) the inventions and improvements described and claimed therein (2) any continuation, division, renewal, extension, substitute or reissue thereof or any legal equivalent in a foreign country for the full term thereof or the terms for which the same may be granted; (3) all rights to income, royalties, profits, awards, damages and other rights relating to said patents, applications and inventions, including the right to sue for past, present and future infringement; and (4) any other rights and benefits relating to said patents, applications and inventions including any rights as a licensor or licensee of said patents, applications and inventions (the "Patents"); 11 (ii) all trademarks, trademark registrations, trademark applications, service marks, service mark registrations and service mark applications, trade names, tradestyles, and the goodwill underlying those trademarks and service marks and (1) any similar marks or amendments, modifications and renewals thereof and the goodwill represented by those and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (2) all rights to income, royalties, profits, damages and other rights relating to said trademarks and service marks including the right to sue for past, present or future infringement; and (3) any other rights and benefits relating to said trademarks and service marks including any rights as a licensor or licensee of said trademark and service mark (the "Trademarks"); (iii) all copyrights, copyright registrations and copyright applications, including without limitation those copyrights for computer programs, computer databases, flow diagrams, source codes and object codes, computer software, technical knowledge and processes, formal or informal licensing arrangements, and all property embodying or incorporating such copyrights and (1) any similar rights or amendments, modifications and renewals thereof and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (2) all rights to income, royalties, profits, damages and other rights relating to said copyrights including the right to sue for past, present and future infringement; and (3) any other rights and benefits relating to said copyrights (the "Copyrights"); (D) all substitutions and replacements for all of the foregoing; (E) all books and records pertaining to any of the foregoing: and (F) all proceeds of all of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets are hereinafter collectively referred to as "Collateral." Customer covenants and agrees with IBM Credit that: (a) the security interest granted under this Agreement is in addition to any other security interest from time to time held by IBM Credit; (b) IBM Credit may realize upon all or part of any Collateral in any order it desires and any realization by any means upon any Collateral will not bar realization upon any other Collateral; and (c) the security interest hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of Customer to IBM Credit pursuant to this Agreement and the Other Agreements. 4.2 INSTRUMENTS. Customer shall execute and deliver, or cause to be executed and delivered, to IBM Credit at such time or times as IBM Credit may request, all financing statements, continuation statements, security agreements, assignments, certificates, certificates of title, applications for vehicle titles, affidavits, reports, notices, schedules of accounts, and other documents, instruments, agreements and other papers, and take any other action, that IBM Credit may deem desirable to create, confirm, perfect or maintain perfected IBM Credit's security interest in the Collateral. Customer shall make appropriate entries on its books and records disclosing IBM Credit's security interest in the Collateral. 5. CONDITIONS PRECEDENT 5.1 CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT. The effectiveness of this Agreement is subject to the satisfaction of, or waiver by IBM Credit of, IBM Credit's receipt of the following and each of the following being in full force and effect: (A) this Agreement executed and delivered by Customer and IBM Credit; 12 (B) the Note executed and delivered by Customer; (C) (i) copies of the resolutions of the Board of Directors of Customer certified by the secretary or assistant secretary of Customer authorizing the execution, delivery and performance of this Agreement and each Other Agreement executed and delivered in connection herewith, (ii) a certificate of the secretary or an assistant secretary of Customer in form and substance satisfactory to IBM Credit, certifying the names and true signatures of the officers of Customer authorized to sign this Agreement and the Other Agreements and (iii) copies of the articles of incorporation and by-laws of Customer certified by the secretary or assistant secretary of Customer; (D) certificates dated as of a recent date from the Secretary of State or other appropriate authority evidencing the good standing of Customer in the jurisdiction of its organization and in each other jurisdiction where the ownership or lease of its property or the conduct of its business requires it to qualify to do business; (E) copies of all approvals and consents from any Person in each case in form and substance satisfactory to IBM Credit, which are required to enable Customer to authorize, or required in connection with, (i) the execution, delivery or performance of this Agreement and each of the Other Agreements and (ii) the legality, validity, binding effect or enforceability of this Agreement and each of the Other Agreements; (F) a lockbox agreement executed by Customer and its Bank, in form and substance satisfactory to IBM Credit; (G) a favorable opinion of counsel for Customer, in form and substance satisfactory to IBM Credit; (H) the Trademark Security Agreement executed and delivered by Customer substantially in the form annexed hereto as Attachment E; (I) the Copyright Security Agreement executed and delivered by Customer substantially in the form annexed hereto as Attachment F; (J) the Patent Security Agreement executed and delivered by Customer; substantially in the form annexed hereto as Attachment G; (K) UCC-1 Financing Statements for each jurisdiction requested by IBM Credit executed by Customer; (L) an Acknowledgment of Payment and Termination Agreement executed by Venture Banking Group, a division of Cupertino National Bank ("Venture"), in form and substance satisfactory to IBM Credit; (M) UCC-3 Termination Statements from Venture terminating any and all security interest which it may have in any of the Collateral and any other documentation required to terminate Venture's security interest in any and all of the Patents, Trademarks and Copyrights; (N) the Warrant Agreement executed and delivered by Customer substantially in the form annexed hereto as Attachment H; (O) the First Amendment to the Registration Rights Agreement executed and delivered by Customer, substantially in the form annexed hereto as Attachment I; (P) a list of : (i) all creditors possessing a security interest or Lien on accounts receivable which creditors shall be required to terminate their UCC filings: and 13 (ii) all creditors possessing a security interest or Lien on any of the Collateral which is superior to IBM Credit's security interest in such Collateral; such creditors will be required to execute an Intercreditor Agreement ; (Q) all such other statements, certificates, documents, instruments, financing statements, agreements and other information with respect to the matters contemplated by this Agreement as IBM Credit shall have reasonably requested, including, but not limited to those specified in Attachment A. 6. WARRANTIES, REPRESENTATIONS, AND COVENANTS 6.1 AFFIRMATIVE WARRANTIES, REPRESENTATIONS AND COVENANTS. Except as otherwise specifically provided in any of the Other Agreements or in Schedule A to this Agreement and attached hereto, Customer warrants and represents to and covenants with IBM Credit that: (A) Each Account is based on an actual and bona fide sale and delivery of goods or rendition of services, made or performed by Customer, in the ordinary course of its business; the Account debtors have accepted such goods or services, owe and are obligated to pay the full amounts stated in the invoices according to their terms, without any dispute, offset, defense or counterclaim known to Customer and have the ostensible authority to contract; and there are no proceedings or actions known to Customer which are pending or threatened against any Account debtor that might result in any material adverse change in such Account debtor's financial condition; (B) Customer has and shall at all times have good and valid title to all Collateral free and clear of all liens, security interests, encumbrances and claims of any Person, except for Permitted Liens; (C) Upon the filing of the UCC financing statements, the Copyright Security Agreement, the Trademark Security Agreement and the Patent Security Agreement with appropriate agencies, IBM Credit's security interest in the Collateral is and shall, upon payoff of the borrowings from Venture, at all times constitute a perfected security interest in the Collateral which security interest is not and shall at no time become subordinate or junior to the security interest, lien, encumbrance or claim of any other Person except for Permitted Prior Liens; (D) Customer is and shall at all times during the term of this Agreement be a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation set forth in the preamble to this Agreement and in Attachment B and qualified and licensed to do business in each state, county, or parish in which the nature of its business or property requires it to be qualified or licensed; (E) Customer has the right and is duly authorized to enter into this Agreement and the Other Agreements and the execution, delivery and performance of this Agreement and the Other Agreements by the Customer do not and will not violate Customer's certificate of incorporation or by-laws, any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to Customer or any provisions of any indenture, agreement, document, instrument or undertaking to which Customer is now or hereafter becomes a party or by which it is, may be or hereafter becomes bound; (F) all financial statements and information relating to Customer which have been or may hereafter be delivered by Customer to IBM Credit are true and correct and have been, and upon delivery will be, prepared in accordance with generally accepted accounting principles and there has been no material adverse change in the financial or business condition of Customer since the submission of any such financial information to IBM Credit; (H) Customer has registered the Copyright for "NetObjects Fusion" with the U.S, Copyright office and Customer will use its best efforts to register all future works of authorship that may be the subject matter of a copyright; 14 (I) there are, and shall be, no actions or proceedings pending or threatened against Customer and no change or development involving a prospective change, which in any such case, has had or could reasonably be expected to have a material adverse effect on (i) Customer's business (financial or otherwise), (ii) the value of the Collateral or the amount which IBM Credit would be likely to receive in the liquidation of such Collateral, (iii) the Customer's ability to perform its Obligations, or (iv) the rights and remedies of IBM Credit under this Agreement or the Other Agreements; (J) Customer shall maintain all of its properties (business and otherwise) in good condition and repair and pay and discharge all costs of repair and maintenance thereof and all rental and mortgage payments and related charges pertaining thereto; (K) Customer will use commercially reasonable efforts to collect all Accounts owed; (L) Customer has duly filed and shall hereafter duly file all federal, state, local and other governmental tax returns which it is required by law to file; (M) all taxes, levies, assessments and governmental charges of any nature which are or may become due by Customer have been and will be fully paid when due and Customer shall promptly pay when due all such tax liabilities which may hereafter accrue; (N) Customer shall maintain a system of accounting in accordance with generally accepted accounting principles and ledger and account records which contain such information as may be reasonably requested by IBM Credit; (O) Customer shall deliver to IBM Credit: (i) within ninety (90) days after the end of each of Customer's fiscal years (except that for fiscal year 1998 Customer shall deliver to IBM Credit within one hundred twenty (120) days after the end of such fiscal year), a reasonably detailed balance sheet and a reasonably detailed profit and loss statement covering Customer's operations for such fiscal year, prepared in accordance with generally accepted accounting principles, audited by an independent certified public accountant satisfactory to IBM Credit and containing an opinion of such public accountant in form and substance satisfactory to IBM Credit, (ii) within forty-five (45) days after the end of each of Customer's first three fiscal quarters, Customer shall deliver to IBM Credit a reasonably detailed balance sheet as of the last day of such quarter and profit and loss statement covering Customer's operations for such quarter (subject to normal year-end audit adjustments) prepared in accordance with generally accepted accounting principles, (iii) within fifteen (15) days after the end of each calendar month, a collateral management report substantially in the form of Attachment C and as of the last day of such calendar month, (iv) within sixty (60) days after the end of Customer's fiscal year, and as reasonably requested by IBM Credit from time to time, pro forma income statement, balance sheet and cash flow statement for the next twelve (12) months or through the then current fiscal year and the following fiscal year, (v) within sixty (60) days after the end of Customer's fiscal year, and as reasonably requested by IBM Credit from time to time, a business narrative that at a minimum should include an explanation of how Customer plans to accomplish significant changes in revenue, gross profit margin, expenses, operating profit margin and net profit. The Customer's business strategy, anticipated business climate, and the headcount that will produce the projected financial results shall also be included, and 15 (vi) promptly upon the request therefor by IBM Credit, any other report requested by IBM Credit relating to the Collateral or the financial condition of Customer. Each report, statement, or document delivered or caused to be delivered to IBM Credit under this Subsection 6.1 (O) shall be accompanied by the certificate of an authorized officer of Customer to the effect that to the best of such officer's knowledge, after due diligence, the same is complete and correct and thoroughly and accurately presents the financial condition of Customer and that there exists on the date of delivery of said certificate no condition or event which constitutes a Default or Event of Default under this Agreement or any of the Other Agreements; (P) Customer shall deliver to IBM Credit by January 31, 1997 a guaranty executed by Perseus U.S. Investors, L.L.C. ("Perseus") whereby Perseus guarantees 7.5% of the Obligations. (Q) Customer shall promptly supply IBM Credit with such other information concerning its affairs as IBM Credit from time to time hereafter may reasonably request. (R) The address of the principal place of business and chief executive office of Customer is as set forth in Attachment B to this Agreement. The books and records of Customer, and all of its chattel paper and records of Accounts, are maintained at such location. There is no location in which Customer has any assets, equipment or inventory (except for vehicles and inventory in transit for processing) other than those locations identified in Attachment B. There is no location in which Customer has a place of business other than those locations identified in Attachment B pursuant to the preceding sentence and those other locations identified in Attachment B. Attachment B also contains a complete list of the legal names and addresses of each warehouse at which Customer's inventory is stored. All receipts received by Customer from any warehouseman shall state that the goods covered shall be delivered only to Customer. Customer agrees to notify IBM Credit in writing prior to the effective date of any change in the information listed in Attachment B and will use its best efforts to give at least 30 days prior notice of such change but in no case shall such notice be less than five (5) days prior notice of such change. (S) Customer agrees that it shall give IBM Credit thirty (30) days advance notice prior to any change in Customer's identity, name or form of ownership and will use its best efforts to give IBM Credit prompt notice of a change in management but in no event less than five (5) days prior notice. (T) Customer, at its sole expense, shall keep and maintain insurance (with companies mutually acceptable to IBM Credit and Customer) with respect to its properties and business against such casualties, contingencies and liabilities (including, without limitation, business interruption insurance) and of such types and in such amounts as are customary in the industries in which Customer is engaged, and will furnish to IBM Credit an annual certification from the respective insurers (or their respective agents) of the extent of all insurance maintained by the Customer in accordance with this Section 6.1(S). Each of the insurance policies ("Policies") shall contain an endorsement, in a form satisfactory to IBM Credit, showing loss payable to IBM Credit; upon receipt of proceeds by IBM Credit the same shall be applied on account of Obligations. Customer agrees to instruct each insurer to give IBM Credit, by endorsement upon the Policy issued by it or by independent instruments furnished to IBM Credit, at least ten (10) days' written notice before any Policy shall be altered or canceled and that no act or default of Customer or any other person shall affect the right of IBM Credit to recover under the Policies. Customer hereby directs all insurers under the Policies to pay all proceeds directly to IBM Credit. Without limiting the generality of the foregoing, Customer shall keep and maintain, at its sole expense, the Collateral insured for an amount not less than the amount set forth in writing by IBM Credit from time to time against all loss or damage under an "all risk" Policy with companies mutually acceptable to IBM Credit and Customer, with a lender's loss payable endorsement or mortgagee clause in form and substance reasonably satisfactory to IBM Credit designating that any loss payable thereunder with respect to such Collateral shall be payable to IBM Credit. If Customer fails to pay any cost, charges or premiums, or if Customer fails to insure the Collateral, IBM Credit may pay such costs, charges or premiums. Any amounts paid by IBM Credit hereunder shall be considered an additional debt owed by Customer to IBM Credit and are due and payable immediately upon receipt of an invoice by IBM Credit. 16 (U) Customer shall advise IBM Credit of the commencement or institution of legal proceedings filed against the Customer subsequent to the execution of this Agreement before any court, administrative board or tribunal which, in the event of an adverse decision to Customer, could have a material adverse effect on the Customer's condition (financial or otherwise), operations, properties or prospects or the Customer's ability to perform its Obligations or the rights and remedies of IBM Credit under this Agreement and the Other Agreements. (V) Customer acknowledges and agrees that Customer shall comply with the financial covenants and other covenants set forth in the attachments, exhibits and other addenda incorporated herein and made a part of this Agreement. (W) Customer agrees that IBM Credit reserves the right to, on a quarterly basis, adjust the financial covenant pertaining to Net Profit after Tax or add a financial covenant. (X) At any time and from time to time, upon the request of IBM Credit, and at the sole expense of Customer, Customer will promptly and duly execute and deliver such further instruments and documents and take such further action as IBM Credit may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the security interests granted herein and the payment of any and all recording taxes and filing fees in connection therewith and the execution or filing of any instrument statement, document or agreement required under any statute with respect to the security interest granted to IBM Credit in any of Customer's intellectual property. 6.2 NEGATIVE COVENANTS. Customer agrees with IBM Credit that Customer will not at any time (without IBM Credit's express prior written consent): (A) other than in the ordinary course of its business, sell, lease or otherwise dispose of or transfer any of its assets; (B) merge or consolidate with another corporation; (C) acquire any other corporation; (D) enter into any transaction not in the usual course of its business which might in any material way adversely affect the ability of Customer to repay the Obligations; (E) guarantee or indemnify or otherwise become in any way liable with respect to the obligations of any person, except by endorsement of instruments or items of payment for deposit to the general account of Customer or which are transmitted or turned over to IBM Credit on account of the Obligations; (F) redeem, retire, purchase or otherwise acquire, directly or indirectly, any material portion of Customer's capital stock, except for repurchases of stock from employees and conversion of convertible securities pursuant to agreements or Customer's certificate of incorporation provided such exception for repurchases or stock and/or conversion of convertible securities does not cause Customer to violate any financial covenants contained in this Agreement or could reasonably be expected to have a Material Adverse Effect; (G) make any change in Customer's capital structure or in any of its business objectives, purposes or operations which might in any way materially adversely affect the ability of Customer to repay the Obligations; (H) other than in the ordinary course of its business, make any distribution of Customer's property or assets provided that Customer shall not make any such distribution in the ordinary course of its business if such distribution shall cause Customer to violate any financial covenants contained in this Agreement or could reasonably be expected to have a Material Adverse Effect; 17 (I) incur any debts outside of the ordinary course of Customer's business except renewals or extensions of existing debts and interest thereon; (J) make any loans, advances, contributions or payments of money or goods to any subsidiary, affiliated or parent corporation or to any officer, director or stockholder of Customer or of any such corporation including, without limitation, paying any dividend on or making any payment on account of any capital stock of Customer or indebtedness of Customer to any of the foregoing (except for compensation for personal services actually rendered in an amount not to exceed that available on an arms length basis) and advances for expenses incurred in the ordinary course of Customer's business in accordance with Customer's standard policies; and (K) directly or indirectly mortgage, assign, pledge, transfer, create, incur, assume, permit to exist or otherwise permit any lien or judgment to exist on any of its property, assets, revenues or goods, whether real, personal or mixed, whether now owned or hereafter acquired, except for Permitted Liens. 7. DEFAULT 7.1 DEFINITION. Any one or more of the following events shall constitute an event of default ("Event of Default") by Customer under this Agreement and the Other Agreements: (A) Customer or any Guarantor breaches any term, provision, condition or covenant contained in this Agreement, in any of the Other Agreements or any guaranty; (B) Any warranty, representation, statement, report, or certificate made or delivered by Customer or any of its officers, employees, or agents or by any Guarantor to IBM Credit is not true and correct; (C) Customer fails to immediately pay any of the Obligations when due and payable or declared to be due and payable; (D) IBM Credit shall determine that it is insecure with respect to any of the Collateral or the repayment of any part of the Obligations; (E) Customer attempts to or shall sell, transfer, convey, exchange, assign, mortgage, pledge, charge, grant a security interest in or otherwise dispose of or in any way part with the possession of the Collateral, other than in the ordinary course of business or as otherwise permitted under this Agreement; (F) Customer removes, other than by sale to the extent allowed under this Agreement, any part of the Collateral from any of Customer's locations specified in Attachment B to this Agreement; (G) Customer abandons the Collateral or any part thereof; (H) Any judgment is entered against Customer and such judgment is not satisfied, dismissed, stayed or superseded by bond within thirty (30) days after the date of entry thereof (and in the event of a stay or supersedeas bond such judgment is not discharged within 30 days after termination of such stay or bond); (I) There issues a Warrant of Distress for Rent or Taxes with respect to any premises occupied by Customer in or upon which the Collateral, or any part thereof, may at any time be situated; (J) Customer suffers or permits the Collateral to be seized or taken in execution without the consent of IBM Credit; (K) Customer fails to insure or keep insured the Collateral within the provisions of this Agreement; (L) Customer suspends business; 18 (M) (i) Customer shall become insolvent or generally fail to pay, or shall admit its inability or refusal to pay its debts as they become due; (ii) Customer shall apply for, consent to, or acquiesce in the appointment of a trustee, receiver or other custodian for Customer or for its properties, assets, business or undertakings; (iii) any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, shall be commenced in respect to Customer; or (iv) Customer shall take any action to authorize, or in the furtherance of, any of the foregoing; (N) Any guaranty of any or all of the Customer's Obligations executed by any Guarantor in favor of IBM Credit shall at any time for any reason cease to be in full force and effect or shall be declared to be null and void by a court of competent jurisdiction, or the validity or enforceability thereof shall be contested or denied by any Guarantor, or any Guarantor shall deny that it, he or she has any further liability or obligation thereunder or any Guarantor shall fail to comply with or observe any of the terms, provisions or conditions contained in said Guaranty; (O) Any event shall occur or condition shall exist under any agreement or instrument relating to any debt of the Customer and shall continue after the applicable grace period, if any, specified in such agreement or instrument if the effect of such nonpayment, other condition or conditions is to accelerate, or permit the acceleration of the maturity of such debt, for any reason whatsoever; (P) Customer is in default under the terms of any of the Other Agreements; or (Q) IBM revokes, cancels or terminates the IBM Indemnification or notifies IBM Credit of such revocation, cancellation or termination. 7.2 RIGHTS OF IBM CREDIT. Upon the occurrence and during the continuance of any Event of Default, IBM Credit may: (A) declare all or any of the Obligations immediately due and payable together with all court costs and all costs and expenses of repossession and collection activity, including, but not limited to, reasonable attorney's fees without presentment, demand, protest, or any other action or obligation of IBM Credit provided that upon the occurrence of any Event of Default set forth in Section 7.1(M) all of the Obligations shall automatically become immediately due and payable together with all such costs and expenses without the necessity of any notice or other demand; (B) terminate the Line of Credit; (C) exercise any or all of the rights accruing to a secured party upon default by a debtor under the Uniform Commercial Code and any other applicable laws; (D) sell, lease or otherwise dispose of the Collateral at public or private sale; (E) at its sole election and without demand enter, with or without process of law, any premises where Collateral might be and, without charge or liability to IBM Credit therefor, do one or more of the following: (i) take possession of the Collateral and use or store it in said premises or remove it to such other place or places as IBM Credit may deem convenient; (ii) take possession of all or part of such premises and the Collateral and place a custodian in the exclusive control thereof until completion of enforcement, under the UCC or other applicable law, of IBM Credit's security interest in the Collateral or until IBM Credit's removal of the Collateral to such other place or places as IBM Credit may deem convenient; 19 (iii) remain on such premises and use the same, together with Customer's materials, supplies, books and records, for the purpose of liquidating or collecting such Collateral and conducting and preparing for disposition of such Collateral; (iv) remove the same to such place or places as IBM Credit may deem convenient for the purpose of IBM Credit's using the same in connection with IBM Credit's liquidation and collection of such Collateral and to conduct and prepare for the disposition of such Collateral (and Customer grants IBM Credit a security interest in all Customer's contract-related material, supplies, books, and records for such purpose as those described above); and (F) convert all or part of the then current Outstanding Advances to shares of Customer's Series E Preferred Stock as provided in the Note. 7.3 CUSTOMER'S OBLIGATIONS. Upon the occurrence and during the continuance of an Event of Default, Customer shall, if IBM Credit requests, assemble the Collateral and make it available to IBM Credit at a place or places to be designated by IBM Credit. Customer recognizes that if Customer fails to perform, observe or discharge any of its Obligations under this Agreement or the Other Agreements no remedy at law will provide adequate relief to IBM Credit; therefore, Customer agrees that IBM Credit shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. All of IBM Credit's rights and remedies granted under this Agreement and Other Agreements are cumulative and non- exclusive. 7.4 WAIVER. Upon the occurrence and during the continuance of an Event of Default, Customer waives and releases: any and all claims and causes of action which it may now or ever have against IBM Credit as a result of any possession, repossession, collection or sale by IBM Credit of any of the Collateral, notwithstanding the effect of such possession, repossession, collection or sale upon Customer's business; all rights of redemption from any such sale; and the benefit of all valuation, appraisal and exemption laws. IBM Credit's only obligation in respect to its repossession, collection or sale of any Collateral is to act in a commercially reasonable manner. If IBM Credit seeks to take possession of any of the Collateral by replevin or other court process Customer hereby irrevocably waives any bonds, surety and security relating thereto required by any statute, court rule or otherwise as an incident to such possession and any demand for possession of the Collateral prior to the commencement of any suit or action to recover possession thereof. 8. MISCELLANEOUS 8.1 TERMINATION. This Agreement shall expire on the second anniversary of the date of the execution and delivery by Customer of this Agreement. Unless earlier terminated, this Agreement may be terminated by Customer at any time by the giving of written notice of such termination by registered mail or certified mail addressed to IBM Credit at the address provided for in this Agreement. Termination shall be effective on the date specified in the written notification (the "Effective Date of Termination") which date shall be no less than thirty (30) days from the date the written notification is received by IBM Credit. Customer shall not be relieved from any Obligations to IBM Credit until such time as all of the Obligations of Customer shall have been indefeasibly paid in full. Upon the termination of this Agreement by IBM Credit or Customer, all of Customer's Obligations incurred under this Agreement shall be immediately due and payable in their entirety, even if they are not yet due under their terms, on the Effective Date of Termination. IBM Credit's rights under this Agreement and IBM Credit's security interest in the Collateral shall continue after termination of this Agreement until all of Customer's Obligations to IBM Credit are indefeasibly paid in full. The covenants, warranties and representations of this Agreement shall survive termination of the Agreement. 8.2 COLLECTION. Customer agrees that checks and other instruments delivered to IBM Credit on account of Customer's Obligations shall constitute conditional payment until such items are actually paid to IBM Credit. Customer waives the right to direct the application of any and all payments hereafter received by 20 IBM Credit on account of Customer's Obligations. Customer agrees that IBM Credit shall have the continuing exclusive right to apply and reapply any such payments in such manner as IBM Credit may deem advisable notwithstanding any entry by IBM Credit upon any of its books and records. 8.3 DEMAND, ETC. Customer waives to the extent permitted by law: (A) demand, protest and all notices of protest, default or dishonor; (B) all notices of payment and non-payment; (C) all notices required by law; and (D) except as otherwise specifically provided for in this Agreement, all notices of default, non-payment at maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guarantees at any time held by IBM Credit on which Customer may, in any way, be liable and Customer hereby ratifies and confirms whatever IBM Credit may do in that regard. 8.4 ADDITIONAL OBLIGATIONS. (A) IBM Credit, without waiving or releasing any Obligation or Default of Customer, may perform any Obligations of Customer that Customer shall fail to perform. IBM Credit may, at any time or times hereafter, but shall be under no obligation so to do, pay, acquire or accept any assignment of any security interest, lien, encumbrance or claim against the Collateral asserted by any person. All sums paid by IBM Credit in performing in satisfaction or on account of the foregoing and any expenses, including reasonable attorney's fees, court costs, and other charges relating thereto, shall be a part of the Obligations, payable on demand and secured by the Collateral. (B) Following the execution of this Agreement, Customer will use its best efforts to file a Certificate of Amendment to its Certificate of Incorporation to increase the number of authorized shares (if such increase is required) of (i) Series E Preferred Stock to a number sufficient to effect the conversion of the then current Outstanding Advances to Series E Preferred Stock as provided in Section 7.2(F) of this Agreement and (ii) Series F Preferred Stock purchasable upon IBM Credit's exercise of the Warrant. 8.5 INDEMNIFICATION BY CUSTOMER. Customer hereby agrees to indemnify and hold harmless IBM Credit against all loss or liability relating, directly or indirectly, to any of the activities of the Customer or its predecessors in interest, to the execution, delivery or performance of this Agreement or the Other Agreements or the consummation of the transactions contemplated hereby or thereby or to any of the Collateral. Notwithstanding the foregoing, Customer shall not be obligated to indemnify IBM Credit for any loss or liability which is the direct result of IBM Credit's negligence or willful misconduct. The indemnity provided herein shall survive this Agreement. 8.6 INDEMNIFICATION BY IBM. Customer acknowledges that IBM Credit relies on the IBM Indemnification in providing the financial accommodations to Customer hereunder. 8.7 ALTERATIONS/WAIVER. In the event that IBM Credit at any time or from time to time dispenses with any one or more of the Obligations specified in this Agreement or any of the Other Agreements, such dispensation may be revoked by IBM Credit at any time and shall not be deemed to constitute a waiver of any such Obligation subsequent thereto. IBM Credit's failure at any time or times to require strict performance by Customer of any Obligations shall not waive, affect or diminish any right of IBM Credit thereafter to demand strict compliance and performance. Any waiver by IBM Credit of any Default by Customer under this Agreement or any of the Other Agreements shall not waive or affect any other Default by Customer under this Agreement or any of the Other Agreements, whether such Default is prior or subsequent to such other Default and whether of the same or a different type. None of the Obligations of Customer contained in this Agreement or the Other Agreements and no Default by Customer shall be deemed waived by IBM Credit unless such waiver is in writing signed by an authorized representative of IBM Credit and delivered to Customer. 21 8.8 NOTICES. Except as otherwise expressly provided herein, any notice required or desired to be served, given or delivered hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered (i) three (3) Business Days after deposit in the United States mails, registered or certified return receipt with proper postage prepaid, (ii) when sent after receipt of confirmation or answerback if sent by telecopy, or other similar facsimile transmission, (iii) one Business Day after being deposited with a reputable overnight courier with all charges prepaid, or (iv) when delivered, if hand-delivered by messenger, all of which shall be properly addressed to the party to be notified and sent to the address or number indicated in Attachment B or to such other address or number as each party designates to the other in the manner herein prescribed. 8.9 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement. 8.10 ONE LOAN. All loans and advances heretofore, now or hereafter made by IBM Credit to Customer under this Agreement or the Other Agreements shall constitute one loan secured by IBM Credit's security interests in the Collateral and by all other security interests, liens and encumbrances previously, presently or in the future granted by Customer to IBM Credit or any assignor of IBM Credit. 8.11 ADDITIONAL COLLATERAL. All monies, reserves and proceeds received or collected by IBM Credit with respect to Accounts and other property of Customer in possession of IBM Credit at any time or times hereafter are hereby pledged by Customer to IBM Credit as security for the payment of Customer's Obligations and may be held by IBM Credit (without interest to Customer) until Customer's Obligations are paid in full or applied by IBM Credit on account of Customer's Obligations. IBM Credit may release to Customer such portions of such monies, reserves and proceeds as IBM Credit may from time to time determine, in its sole discretion. 8.12 INITIAL PUBLIC OFFERINGS. In the event that Customer offers shares of the Customer's stock for sale to the public, upon the effective date of the Initial Public Offering (i) all Outstanding Advances shall become due and payable and (ii) no further advances shall be extended to Customer. 8.13 OFFSETS. Customer hereby waives any right of set-off it may have against IBM Credit. 8.14 LIMITATION OF LIABILITY. IBM Credit shall not have any liability with respect to any special, indirect or consequential damages suffered by Customer in connection with this Agreement, any other Agreement or any claims in any manner related thereto. 8.15 TIME. Time shall be of the essence hereof. 8.16 ENTIRE AGREEMENT. This Agreement, together with the Other Agreements and any other documents to be delivered pursuant hereto and thereto, constitutes the entire Agreement between the Customer and IBM Credit pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, with respect to the subject matter hereof. 8.17 PARAGRAPH TITLES. The Section titles used in this Agreement and the Other Agreements are for convenience only and do not define or limit the contents of any Section. 8.18 BINDING EFFECT. This Agreement and the Other Agreements shall be binding upon and inure to the benefit of IBM Credit and Customer and their respective successors and assigns but Customer shall have no right to assign this Agreement or any of the Other Agreements without the prior written consent of IBM Credit. 22 8.19 CONDITIONS TO EFFECTIVENESS. In addition to those conditions set forth in Section 5.1, the effectiveness of this Agreement shall be conditioned upon the receipt by IBM Credit of the instruments and other documents specified in Attachment A to this Agreement . 8.20 SUBMISSION BY CUSTOMER. This Agreement and the Other Agreements are submitted by Customer to IBM Credit (for IBM Credit's acceptance or rejection thereof) at IBM Credit's place of business specified in Attachment B of this Agreement, as an offer by Customer to borrow monies from IBM Credit and shall not be binding upon IBM Credit or become effective until and unless accepted in writing by IBM Credit at its said place of business. If so accepted, this Agreement and the Other Agreements shall be deemed to have been made at IBM Credit's said place of business. This Agreement and the Other Agreements and all transactions pursuant thereto shall be governed and controlled as to interpretation, enforcement, validity, construction, effect and in all other respects (including, but not limited to, the legality of the interest charged to Customer pursuant thereto) by the laws, statutes and decisions of the state of IBM Credit's said place of business. Customer, in order to induce IBM Credit to accept this Agreement and the Other Agreements, agrees that all actions or proceedings arising directly or indirectly in connection with this Agreement or the Other Agreements may be litigated, at IBM Credit's sole discretion and election, in courts having situs within the state where IBM Credit's aforesaid place of business is located. Customer hereby consents and submits to the jurisdiction of any local, state or federal court located within such state. Customer hereby waives any right it may have to transfer or change the venue of any litigation brought against it by IBM Credit in accordance with this paragraph. 8.21 JURY TRIAL. CUSTOMER AND IBM CREDIT HEREBY IRREVOCABLY WAIVE THEIR RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY ACTION OR PROCEEDING IN WHICH IBM CREDIT AND CUSTOMER ARE PARTIES. IN WITNESS WHEREOF, the duly authorized representatives of Customer have executed and delivered this Agreement as of the date set forth below. Date: _______________________________ NetObjects, Inc. By: _________________________________ Print Name:__________________________ Title:_______________________________ ATTEST: _______________________________ (Secretary) ACCEPTED this_________day of___________________, 19__, at IBM Credit's place of business specified at the beginning of this Agreement. IBM Credit Corporation By: _______________________ Print Name: __________________ Title: _______________________ 23 SECRETARY'S CERTIFICATE (Revolving Loan and Security Agreement) On I, _______________, do hereby certify that I am the duly elected and acting Secretary of _____________________, a __________ corporation, and as such I am the keeper of the corporate records and seal of said corporation; that the following is a true and correct copy of resolutions duly adopted and ratified by action of the board of directors of said corporation on ______________________, 19__ as ratified and approved by the stockholders of said corporation by action of said stockholders on ___________________, 19__, all in accordance with its by-laws and articles of incorporation and the laws of its jurisdiction of incorporation; and that the same have not been modified, repealed, rescinded or withdrawn, are in full force and effect and do not contravene any provisions of said corporation's articles of incorporation or by-laws: RESOLVED, that the President, each Vice-President, the Secretary, the Treasurer and each other officer and each agent of this Corporation, or any one or more of them, be and they are hereby authorized and empowered on behalf of this corporation: to obtain from IBM Credit Corporation ("IBM Credit") loans in such amounts and on such terms and conditions as such officers deem proper; to execute notes and other evidences of this corporation's indebtedness with respect thereto; to enter into financing and other agreements with IBM Credit relating to the terms and conditions upon which any such loans may be obtained and the security to be furnished by this corporation therefore; from time to time to modify, supplement or amend any such agreements, any such terms or conditions and any such security; from time to time to pledge, assign, guaranty, mortgage, consign, grant security interest in and otherwise transfer to IBM Credit as collateral security for any and all debts and obligations of this corporation to IBM Credit, whenever and however arising, any and all accounts and other forms of obligations, receivables, choses in action, inventory, warehouse receipts, machinery, equipment, land, buildings and other real, personal or fixed property, tangible or intangible, now or hereafter belonging to or acquired by this corporation; for said purposes to execute and deliver any and all assignments, schedules, transfers, endorsements, contracts, debentures, guarantees, agreements, designations, consignments, deeds of trust, mortgages, instruments of pledge or other instruments in respect thereof and to make remittances and payments in respect thereof by checks, drafts or otherwise; and to do and perform all other acts and things deemed by such officer or agent necessary, convenient or proper to carry out any of the foregoing; hereby ratifying, approving and confirming all that any said officers and agents have done or may do in the premises. (Revolving Loan and Security Agreement) I do further certify that the following are the names and specimen signatures of the officers and agents of said corporation so empowered and authorized, namely: PRESIDENT: ___________________________________ (Print Name) ___________________________________ (Signature) VICE-PRESIDENT: ___________________________________ (Print Name) ___________________________________ (Signature) SECRETARY: ________________________ 24 ___________________________________ (Print Name) ___________________________________ (Signature) TREASURER: ___________________________________ (Print Name) ___________________________________ (Signature) AGENT: ___________________________________ (Print Name) ___________________________________ (Signature) Witness my hand and seal of said corporation this _____ day of ____________________, 19___. (Attach corporate seal here) ___________________________________ (Secretary of said corporation) 25 [RFC Letterhead] NetObjects, Inc. 602 Galveston Drive Redwood City, CA 94063 Attention: Mr. Ernest J. Cicogna Ref: Revolving Loan and Security Agreement by and between NetObjects, Inc. ("Customer") and IBM Credit Corporation ("IBM Credit") and dated December 23, 1997 (the "Agreement") Dear Mr. Cicogna: IBM Credit hereby waives the requirement, specified in Section 6.1(P) of the Agreement, that the Customer shall cause a guaranty to be executed by Perseus U.S. Investors, L.L.C. ("Perseus") whereby Perseus guarantees 7.5% of the Obligations. Please sign below indicating your acceptance and agreement with this waiver. IBM CREDIT CORPORATION By: _______________________ Title: ______________________ Agreed and Accepted: NETOBJECTS, INC. By: ________________________ Title: _______________________ Date: _______________________ ATTACHMENT D TO REVOLVING LOAN AND SECURITY AGREEMENT BY AND BETWEEN IBM CREDIT CORPORATION AND NETOBJECTS, INC. DATED: DECEMBER __, 1997 CONVERTIBLE REVOLVING CREDIT NOTE $15,000,000.00 White Plains, New York December __, 1997 FOR VALUE RECEIVED, NETOBJECTS, INC., a Delaware corporation (the Company), HEREBY PROMISES to pay to the order of IBM Credit Corporation (IBM Credit), at its office at 5000 Executive Parkway Suite 450, San Ramon, CA 94583 on the maturity dates set forth in the Loan Agreement (as defined below), the aggregate unpaid principal amount of all outstanding borrowings by the Company from IBM Credit pursuant to Section 2 of the Revolving Loan and Security Agreement (the "Loan Agreement") dated as of December __, 1997, between the Company and IBM Credit, all in lawful money of the United States of America in immediately available funds, together with interest thereon, in like money, at such office, calculated in accordance with Section 2.1.1 of the Agreement. Principal and interest on the aggregate unpaid principal amount of all outstanding borrowings by the Company from IBM Credit pursuant to Section 2 of the Loan Agreement may be prepaid without penalty by the Company at any time. The Company hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by IBM Credit of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. All borrowings evidenced by this Note and all payments of the principal hereof and interest hereon on the respective dates thereof shall be endorsed by IBM Credit on the schedule attached hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof; PROVIDED, HOWEVER, that any failure to endorse such information on such schedule or continuation thereof shall not in any manner affect the obligation of the Company to make payments of principal and interest in accordance with the terms of this Note. This Note is the Revolving Credit Note referred to in the Loan Agreement which, among other things, contains provisions relating to non-payment of principal or interest, notice, events of default, acceleration of the maturity hereof upon the happening of certain events all upon the terms and conditions therein specified. The provisions of the Agreement relating to this Note are incorporated herein by reference. Any capitalized terms used but not defined herein shall have 1 the meaning ascribed to it in the Loan Agreement. This Note shall be governed by and construed in all respects in accordance with the internal laws of the State of New York without regard to the conflict of law principles of such State. CONVERSION UPON DEFAULT. IBM Credit shall have the right, at the option of IBM Credit, at any time, in whole or in part, upon an Event of Default, to convert, subject to the terms and provisions hereof, the unpaid balance of this Note or any portion thereof into fully paid and nonassessable shares of the Company's Series E Preferred Stock ("Preferred Stock"), at the amount thereof per share of Preferred Stock equal to the then current Conversion Price (as defined below). IBM Credit may exercise its Conversion Rights (as defined below) by delivering to the Company at least ten (10) days in advance of the proposed conversion a written notice (a Conversion Notice) of its election to convert this Note on the date and subject to the conditions set forth in such Conversion Notice. On the date specified, or determined as provided, in a Conversion Notice, the Company shall deliver or cause to be delivered to, or upon the written order of, IBM Credit (i) certificates representing the number of fully paid and unassessable shares of Preferred Stock into which this Note, or such portion thereof, is to be converted, registered in the name or names specified in the Conversion Notice in accordance with the provisions hereof, (ii) in the case of a partial conversion of this Note, a replacement Convertible Promissory Note with the same terms as this Note but in an amount equal to the unconverted portion of this Note, and (iii) if applicable, the securities, evidences of indebtedness, assets, options or rights (or, in the case of a partial conversion, a proportionate amount thereof) required to be delivered to IBM Credit on conversion of this Note by Section (c) hereof. IBM Credit shall have conversion rights as follows (the Conversion Rights): (a) RIGHT TO CONVERT. This Note shall be convertible, at the option of IBM Credit, at any time, in whole or in part, into such number of fully paid and nonassessable shares of Preferred Stock (upon an Event of Default) as is determined by dividing the portion of the unpaid balance of this Note to be so applied by the per share amount equal to the lesser of (i) $1.1131258 and (ii) the price determined by an independent party mutually satisfactory to IBM Credit and the Company to be the fair market value price for a share of Preferred Stock at the time of such conversion determined without regard to the consequences of the default, in particular the effects of foreclosure on the Collateral (the "Conversion Price"); provided, however, that the Conversion Price shall not be less than $1.1131258 per share unless the Event of Default is caused by the Company's non-payment of any amounts due under the Note or, any action of the Company that materially impedes payment of the Note to IBM Credit and such Event of Default is not cured within the earlier of (i) twenty (20) days after written notice of the Event of Default is given to the Company and (2) twenty-five (25) days from the date the Event of Default occurred. (b) CONVERSION PRICE ADJUSTMENTS. The Conversion Price shall be subject to adjustment from time to time as follows: 2 (i) In the event the Company should at any time or from time to time after the issuance of this Note fix a record date for the effectuation of a split or subdivision of the outstanding shares of Preferred Stock or the determination of holders of Preferred Stock entitled to receive a dividend or other distribution payable in additional shares of Preferred Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Preferred Stock (hereinafter referred to as Stock Equivalents) without payment of any consideration by such holder for the additional shares of Preferred Stock or the Stock Equivalents (including the additional shares of Preferred Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price shall be appropriately decreased so that the number of shares of Preferred Stock issuable upon conversion of this Note shall be increased in proportion to such increase of outstanding shares. (ii) If the number of shares of Preferred Stock outstanding at any time after the issuance of this Note is decreased by a combination of the outstanding shares of Preferred Stock then, following the record date of such combination, the Conversion Price shall be appropriately increased so that the number of shares of Preferred Stock issuable upon conversion of this Note shall be decreased in proportion to such decrease in outstanding shares. (c) RECAPITALIZATIONS; CERTAIN OTHER TRANSACTIONS. If at any time or from time to time there shall be a recapitalization of the Preferred Stock (other than a subdivision or combination provided for above), provision shall be made so that IBM Credit shall thereafter be entitled to receive upon conversion of this Note the number of shares of stock or other securities or property of the Company or otherwise to which a holder of Preferred Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Note with respect to the rights of IBM Credit after the recapitalization to the end that the provisions hereof (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of this Note) shall be applicable after that event as nearly equivalent as may be practicable. (d) NO IMPAIRMENT. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issuance or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Note and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of IBM Credit against impairment. (e) NO FRACTIONAL SHARES; CERTIFICATE AS TO ADJUSTMENTS. No fractional shares shall be issued upon conversion of this Note, and the number of shares of Preferred Stock to be issued shall be rounded to the nearest whole share. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to the terms hereof, the Company shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to IBM Credit a certificate setting forth such adjustment or readjustment and showing in detail the facts 3 upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of IBM Credit, furnish or cause to be furnished to IBM Credit a like certificate setting forth (A) such adjustments and readjustments, (B) the Conversion Price at the time in effect, and (C) the number of shares of Preferred Stock and the amount, if any, of other property which at the time would be received upon the conversion of this Note. (f) NOTICES OF RECORD DATE. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Company shall mail to IBM Credit, at least 10 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right; and the amount and character of such dividend, distribution or right. (g) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Preferred Stock , solely for the purpose of effecting the conversion of this Note, such number of its shares of Preferred Stock as shall from time to time be sufficient to effect the conversion of this Note and such number of shares of Stock into which the Preferred Stock is convertible; and if at any time the number of authorized but unissued shares of Preferred Stock shall not be sufficient to effect the conversion of this Note, in addition to such other remedies as shall be available to IBM Credit, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Preferred Stock and Common Stock to such number of shares as shall be sufficient for such purposes. (h) TAXES. The Company will pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery of shares of Preferred Stock upon conversion of this Note. 4 IN WITNESS WHEREOF, this Convertible Revolving Credit Note has been duly executed on behalf of the Company on and as of the day and year first above mentioned. NETOBJECTS, INC. by:___________________________ Name: Title: NETOBJECTS, INC. by: ___________________________ Name: Title: [Corporate Seal] Attest: by: ______________________ Name: Title: 5 ATTACHMENT E to the Revolving Loan and Security Agreement dated December __, 1997 by and between IBM Credit Corporation and NetObjects, Inc. TRADEMARK SECURITY AGREEMENT (TRADEMARKS, TRADEMARK REGISTRATIONS, TRADEMARK APPLICATIONS AND TRADEMARK LICENSES) WHEREAS, NetObjects, Inc. (NetObjects) owns the Trademark Collateral (as defined below) listed on Schedule A annexed hereto; WHEREAS, NetObjects and IBM Credit Corporation (IBM Credit) are parties to a Revolving Loan and Security Agreement dated as of December __, 1997 (as the same may be amended and in effect from time to time, the "Loan Agreement"), providing, subject to its terms and conditions, for extensions of credit to be made by IBM Credit (through the making of loans and advances) to NetObjects. WHEREAS, pursuant to the terms of the Loan Agreement, NetObjects has granted to IBM Credit a security interest in substantially all the assets of NetObjects including all right, title and interest of NetObjects in, to and under all NetObjects Trademark Collateral, whether presently existing or hereafter arising or acquired, and all products and proceeds thereof, including, without limitation, any and all causes of action which may exist by reason of infringement thereof for the full term of the Trademark Collateral, to secure the payment of all amounts owing by NetObjects under the Loan Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF SECURITY INTEREST. NetObjects does hereby grant to IBM Credit a continuing security interest in all of NetObjects right, title and interest in, to and under the following (all of the following items or types of property being herein collectively referred to as the Trademark Collateral), whether presently existing or hereafter arising or acquired and wherever located: each trademark, trademark registration, trademark application, service mark, service mark registration and service mark application, trade name and tradestyles referred to in Schedule A annexed hereto, and the goodwill underlying those trademarks and service marks and (i) any similar marks or amendments, modifications and renewals thereof and the goodwill represented by those and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, royalties, profits, damages and other rights relating to said trademarks and service marks including the right to sue for past, present or future infringement; (iii) 1 any other rights and benefits relating to said trademarks and service marks including any rights as a licensor or licensee of said trademark and service mark; (iv) all books and records pertaining to any of the foregoing; and (v) all proceeds, substitutions and replacements for all of the foregoing. 2. PRESERVATION OF COLLATERAL. (a) The Company agrees, at its own expense, to use reasonable efforts to preserve all Trademark Collateral. (b) The Company shall not sell or assign (by operation of law or otherwise) or create or suffer to exist any lien, security interest, or other charge or incumbrance on or with respect to any Trademark Collateral to secure the indebtedness of any person, except as permitted pursuant to the Loan Agreement. 3. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants as follows: (a) The Company is not aware of any proceeding (other than application proceedings) in the United States Patent and Trademark office or any state or federal court regarding the Companys claim of ownership in any Trademark Collateral; and (b) To the best of the Company's knowledge, the Company is the sole owner of all right, title and interest in and to all Trademark Collateral, free and clear of any liens, assignments, mortgages, security interest, charges or encumbrances excluding any applicable trademark license agreements and except for Permitted Liens as defined in the Loan Agreement. 4. FURTHER ASSURANCES. (a) The Company authorizes IBM Credit to record this Trademark Security Agreement, or an excerpt thereof, in the United States Patent and Trademark Office and to take all other steps as are reasonably necessary to perfect the security interest granted herein. (b) The Company will execute such further documents as may be reasonably necessary for IBM Credit to perfect the security interest granted herein. (c) The Company will furnish to IBM Credit, from time to time, upon the reasonable request of IBM Credit, summaries in the form of EXHIBIT A hereto, identifying all Trademark Collateral owned by the Company. 5. LOAN AGREEMENT. This security interest is granted in conjunction with the security interests granted to IBM Credit pursuant to the Loan Agreement. NetObjects and IBM Credit acknowledge and agree that the rights and obligations of NetObjects and IBM Credit with respect to the Trademark Collateral are as set forth in the Loan Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. To the extent of any inconsistency between the terms and provisions of the Loan Agreement and the terms and 2 provisions of this Trademark Security Agreement, the terms and provisions of the Loan Agreement shall control. IN WITNESS WHEREOF, NetObjects has caused this Trademark Security Agreement to be duly executed by its officer thereunto duly authorized as of the ____ day of December, 1997. NETOBJECTS, INC. By: ______________________________ Name: Title: Acknowledged: IBM CREDIT CORPORATION By: ________________________ Name: Title: 3 STATE OF __________________ ) ): ss: COUNTY OF _________________ ) On the ___ day of December, 1997 before me personally came _____________________, personally known to me or proved to me on the basis of satisfactory evidence to be the person described in and who executed the Trademark Security Agreement dated December __, 1997 as ____________________________ of NetObjects, Inc. who being by me duly sworn, acknowledged to me that he is ______________ _________________________________ of NetObjects, Inc., and that he executed the foregoing instrument in his authorized capacity and that by his signature on the instrument the entity upon behalf of which he acted executed the instrument. ______________________________ Notary Public Notary Public, State of California [SEAL] 4 SCHEDULE A TO TRADEMARK SECURITY AGREEMENT TRADEMARK STATUS REPORT (NOVEMBER 18, 1997) U.S. APPLICATIONS Mark: NETOBJECTS Filing Date: December 1 1, 1 99 5 Appl. No.: 75/030,214 Class: 42 Our File: 35392.9 Status: Abandoned Mark: NETOBJECTS Filing Date: December 1 1, 1 995 Appl. No.: 75/030,215 Class: 9 Our File: 35392.8 Status: Statement of Use filed and accepted. Mark: SITEPRODUCER Filing Date: April 3, 1996 Appl. No.: 75/083,235 Class: 9 Our File: 35392.4 Status: Notice of Allowance issued; SOU/2nd EXT. due March 11, 1998. Mark: SITEPUBLISHER Filing Date: April 3, 1 996 Appl. No.: 75/083,268 Class: 9 Our File: 35392.5 Status: Notice of Allowance issued; SOU/2nd EXT. due February 25, 1998. Mark: NETOBJECTS FUSION Filing Date: June 1 7, 1 996 Appl. No.: 75/120,255 Class: 9 Our File: 35392.14 Status: Allaire Corp's request for extension to oppose granted until December 10, 1997; settlement agreement forwarded to NetObjects for signature. Mark: SITESTUDIO 5 Filing Date: July 1 5, 1 996 Appl. No.: 75/134,405 Class: 9 Our File: 35392.17 Status: Notice of Allowance issued; SOU/2nd EXT. due February 25, 1998. Mark: SITESTYLES Filing Date: July 15, 1996 Appl. No: 75/134,406 Class: 9 Our File: 35392.21 Status: Notice of Allowance issued; Statement of Use filed. Mark: STYLEOBJECT Filing Date: July 15, 1996 Appl. No.: 75/134,407 Class: 9 Our File: 35392.20 Status: Notice of Allowance issued; SOU/EXT. due December 10. 1997. Mark: WEBDRAW Filing Date: July 15, 1996 Appl. No.: 75/134,408 Class: 9 Our File: 35392.19 Status: Notice of Allowance issued; SOU/EXT. due December 3, 1997. Mark: PUBLISHSET Filing Date: July 15, 1996 Appl. No.: 75/134,409 Class: 9 Our File: 35392.18 Status: Notice of Allowance issued; SOU/EXT. due December 10, 1997. Mark: FUSION Filing Date: July 15,1996 Appl. No.: 75/134,410 Class: 9 Our File: 35392.15 Status: Abandoned Mark: SITEPARTS Filing Date: July 15,1996 Appl. N o.: 75/134,411 Class: 9 Our File: 35392.16 Status: Notice of Allowance issued; SOU/2nd EXT. due February 25' 1998. Mark: PAGEDRAW 6 Regis. Date: November 18, 1997 Regis. N o.: 2,114,827 Class: 9 Our File: 35392.22 Status: Statement of Use filed and accepted. Mark: SITEARCHITECT Filing Date: July 23,1996 Appl. No.: 75/138,375 Class: 9 Our File: 35392.24 Status: Abandoned. Mark: AUTOSITES Filing Date: July 23,1996 Appl No.: 75/138,376 Class: 9 Our File: 35392.23 Status: Published. Mark: WEBREACH Filing Date: October 25,1996 Appl. No.: 75/187,632 Class: 41 Our File: 35392.47 Status: Response to Office Action filed on October 14, 1997. Mark: THE WEB NEEDS YOU Filing Date: July 25,1997 Appl. No.: 75/330,441 Class: 9 Our File: 35392.62 Status: Priority foreign filing due January 25. 1998 FOREIGN APPLICATIONS CANADA Mark: NETOBJECTS Appl. No: 81,394 Filing Date: June 5, 1 996 Class: 9 Our File: 35392.10 Status: Response to Office Action filed Mark: SlTEPRODUCER Appl. No. 824700 Filing Date: September 30, 1 996 Class: 9 Our File: 35392.41 Status: Provide certified copy of U.S. registration by March 29, 1998. Mark: SITEPUBLISHER 7 Appl. No.: 824701 Filing Date: September 30, 1996 Class: 9 Our File: 35392.42 Status: Provide certified copy of U.S. registration by March 29, 1998. Mark: NETOBJECTS FUSION Appl. No.: 831623 Filing Date: December 13, 1996 Class: 9 Our File: 35392.52 Status: Response to Office Action filed. EUROPEAN COMMUNITY Mark: NETOBJECTS Appl. No.: 297465 Filing Date: June 5, 1 996 Class: 9 and 42 Our File: 35392. 11 Status: Pending Mark: SITEPRODUCER Appl. No.: 390856 Filing Date: October 1, 1996 Class: 9 Our File: 35392.43 Status: Pending. Mark: SITEPUBLISHER 1 Appl. No.: 390815 Filing Date: October 1, 1996 Class: 9 Our File: 35392.44 Status: Pending. Mark: NETOBJECTS FUSION Appl. No.: 432922 Filing Date: December 13, 1996 Class: 9 Our File: 35392.51 Status: Pending JAPAN Mark: NETOBJECTS Appl. No.: 8-58668 Filing Date: May 31, 1 996 Class: 1 Our File: 35392,12 Status: Approved for registration; registration fee paid. Mark: NETOBJECTS 8 Appl. No: 8-58669 Filing Date: May 31, 1996 Class: 42 Our File: 35392.13 Status: Pending Mark: SITEPRODUCER Appl. No.: 8-110598 Filing Date: October 2, 1996 Class: 9 Our File: 35392.45 Status: Pending Mark: SITEPUBLISHER Appl. No.: 8-110599 Filing Date: October 2, 1996 Class: 9 Our File: 35392.46 Status: Pending Mark: NETOBJECTS FUSION Appl. No.: 8-124666 Filing Date: November 7, 1996 Class: 9 Our File: 35392.50 Status: Pending. TAIWAN Mark: NETOBJECTS Appl. No.: 85-056072 Filing Date: November 5, 1 996 Class: 9 Our File: 35392.48 Status: Published. Mark: NETOBJECTS FUSION Appl. No.: 85-056073 Filing Date: November 5, 1996 Class: 9 Our File. 35392.49 Status: Response to Office Action filed. 9 ATTACHMENT F to the Revolving Loan and Security Agreement dated December __, 1997 by and between IBM Credit Corporation and NetObjects, Inc. COPYRIGHT SECURITY AGREEMENT (COPYRIGHTS, COPYRIGHT APPLICATIONS AND COPYRIGHT LICENSES) WHEREAS, NetObjects, Inc. (NetObjects) owns the Copyright Collateral (as defined below) listed on Schedule A annexed hereto: WHEREAS, NetObjects and IBM Credit Corporation (IBM Credit) are parties to a Revolving Loan and Security Agreement dated as of December __, 1997 (as the same may be amended and in effect from time to time, "the Loan Agreement"), providing, subject to its terms and conditions, for extensions of credit to be made by IBM Credit (through the making of loans and advances) to NetObjects; WHEREAS, pursuant to the terms of the Loan Agreement, NetObjects has granted to IBM Credit, a security interest in substantially all the assets of NetObjects including all right, title and interest of NetObjects in, to and under all NetObjects Copyright Collateral whether presently existing or hereafter arising or acquired, and all products and proceeds thereof, including, without limitation, any and all causes of action which may exist by reason of infringement thereof for the full term of the Copyright Collateral, to secure the payment of all amounts owing by NetObjects under the Loan Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF SECURITY INTEREST. NetObjects does hereby grant to IBM Credit a continuing security interest in all of NetObjects right, title and interest in, to and under the following (all of the following items or types of property being herein collectively referred to as the Copyright Collateral), whether presently existing or hereafter arising or acquired and wherever located: each copyright, copyright registration and copyright applications referred to in Schedule A annexed hereto, including without limitation, those copyrights for computer programs, computer databases, flow diagrams, source codes and object codes, computer software, technical knowledge and processes, formal or informal licensing arrangements, and all property embodying or incorporating such copyrights and (i) any similar rights or amendments, modifications and renewals thereof and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, royalties, profits, damages and other rights relating to said copyrights including the right to sue for past, present and future infringement; (iii) any other rights and benefits relating to said copyrights; (iv) all books and records pertaining to any of the foregoing; and (v) all proceeds, substitutions and replacements for all of the foregoing. 2. PRESERVATION OF COLLATERAL. (a) The Company agrees, at its own expense, to use reasonable efforts to preserve all Copyright Collateral. (b) The Company shall not sell or assign (by operation of law or otherwise) or create or suffer to exist any lien, security interest, or other charge or encumbrance on or with respect to any Copyright Collateral to secure the indebtedness of any person, except as permitted pursuant to the Loan Agreement. 3. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants as follows: (a) The Company is not aware of any proceeding (other than application proceedings) in the United States Copyright Office or any state or federal court regarding the Companys claim of ownership in any Copyright Collateral; and (b) To the best of the Company's knowledge, the Company is the sole owner of all right, title and interest in and to all Copyright Collateral, free and clear of any liens, assignments, mortgages, security interest, charges or encumbrances excluding any applicable copyright license agreements and except for Permitted Liens as defined in the Loan Agreement. 4. FURTHER ASSURANCES. (a) The Company authorizes IBM Credit to record this Copyright Security Agreement, or an excerpt thereof, in the United States Copyright Office and to take all other steps as are reasonably necessary to perfect the security interest granted herein. (b) The Company will execute such further documents as may be reasonably necessary for IBM Credit to perfect the security interest granted herein. (c) The Company will furnish to IBM Credit, from time to time, upon the reasonable request of IBM Credit, summaries in the form of EXHIBIT A hereto, identifying all Copyright Collateral owned by the Company. 5. LOAN AGREEMENT. This security interest is granted in conjunction with the security interests granted to IBM Credit pursuant to the Loan Agreement. NetObjects and IBM Credit acknowledge and agree that the rights and obligations of NetObjects and IBM Credit with respect to the Copyright Collateral are as set forth in the Loan Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. To the extent of any inconsistency between the terms and provisions of the Loan Agreement and the terms and provisions of this Copyright Security Agreement, the terms and provisions of the Loan Agreement shall control. Copyright - Net Objects 2 12/18/97 IN WITNESS WHEREOF, NetObjects has caused this Copyright Security Agreement to be duly executed by its officer thereunto duly authorized as of the ____ day of December, 1997. NETOBJECTS, INC. By: ______________________________ Name: Title: Acknowledged: IBM CREDIT CORPORATION By: ________________________ Name: Title: Copyright - Net Objects 3 12/18/97 STATE OF __________________ ) ): ss: COUNTY OF _________________ ) On the ___ day of December, 1997 before me personally came _____________________, personally known to me or proved to me on the basis of satisfactory evidence to be the person described in and who executed the Copyright Security Agreement dated December __, 1997 as ____________________________ of NetObjects, Inc. who being by me duly sworn, acknowledged to me that he is ______________ _________________________________ of NetObjects, Inc., and that he executed the foregoing instrument in his authorized capacity and that by his signature on the instrument the entity upon behalf of which he acted executed the instrument. ______________________________ Notary Public Notary Public, State of California [SEAL] Copyright - Net Objects 4 12/18/97 SCHEDULE A to Copyright Security Agreement COPYRIGHTS
Copyright Effective Date of Registration Description Registration Number - ----------------------------------------------------------------------- NetObjects Fusion 12/20/96 084980397
COPYRIGHT APPLICATIONS
Copyright Application Application Description Date Number - ----------------------------------------------------------------------- N/A
Copyright - Net Objects 5 12/18/97 ATTACHMENT G to the Revolving Loan and Secutity Agreement dated December __, 1997 by and between IBM Credit Corporation and NetObjects, Inc. PATENT SECURITY AGREEMENT (PATENTS, PATENT APPLICATIONS AND PATENT LICENSES) WHEREAS, NetObjects, Inc. (NetObjects) owns the Patent Collateral (as defined below) listed on Schedule A annexed hereto; WHEREAS, NetObjects and IBM Credit Corporation (IBM Credit) are parties to a Revolving Loan and Security Agreement dated as of December __, 1997 (as the same may be amended and in effect from time to time, the "Loan Agreement"), providing, subject to its terms and conditions, for extensions of credit to be made by IBM Credit (through the making of loans and advances) to NetObjects; WHEREAS, pursuant to the terms of the Loan Agreement, NetObjects has granted to IBM Credit, a security interest in substantially all the assets of NetObjects including all right, title and interest of NetObjects in, to and under all NetObjects Patent Collateral whether presently existing or hereafter arising or acquired, and all products and proceeds thereof, including, without limitation, any and all causes of action which may exist by reason of infringement thereof for the full term of the Patent Collateral, to secure the payment of all amounts owing by NetObjects under the Loan Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF SECURITY INTEREST. NetObjects does hereby grant to IBM Credit a continuing security interest in all of NetObjects right, title and interest in, to and under the following (all of the following items or types of property being herein collectively referred to as the Patent Collateral), whether presently existing or hereafter arising or acquired and wherever located: all patents, patent applications and patentable inventions and (i) the inventions and improvements described and claimed therein; (ii) any continuation, division, renewal, extension, substitute or reissue thereof or any legal equivalent in a foreign country for the full term thereof or the terms for which the same may be granted; (iii) all rights to income, royalties, profits, awards, damages and other rights relating to said patents, applications and inventions, including the right to sue for past, present and future infringement; (iv) any other rights and benefits relating to said patents, applications and inventions including any rights as a licensor or licensee of said patents, applications and inventions; (v) all books and records pertaining to any of the foregoing; and (vi) all proceeds, substitutions and replacements for all of the foregoing. 2. PRESERVATION OF COLLATERAL. (a) The Company agrees, at its own expense, to use reasonable efforts to preserve all Patent Collateral. (b) The Company shall not sell or assign (by operation of law or otherwise) or create or suffer to exist any lien, security interest, or other charge or encumbrance on or with respect to any Patent Collateral to secure the indebtedness of any person, except as permitted pursuant to the Loan Agreement. 3. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants as follows: (a) The Company is not aware of any proceeding (other than application proceedings) in the United States Patent and Trademark Office or any state or federal court regarding the Companys claim of ownership in any Patent Collateral; and (b) To the best of the Company's knowledge, the Company is the sole owner of all right, title and interest in and to all Patent Collateral, free and clear of any liens, assignments, mortgages, security interest, charges or encumbrances excluding any applicable patent license agreements and except for Permitted Liens as defined in the Loan Agreement. 4. FURTHER ASSURANCES. (a) The Company authorizes IBM Credit to record this Patent Security Agreement, or an excerpt thereof, in the United States Patent and Trademark Office and to take all other steps as are reasonably necessary to perfect the security interest granted herein. (b) The Company will execute such further documents as may be reasonably necessary for IBM Credit to perfect the security interest granted herein. (c) The Company will furnish to IBM Credit, from time to time, upon the reasonable request of IBM Credit, summaries in the form of EXHIBIT A hereto, identifying all Patent Collateral owned by the Company. 5. LOAN AGREEMENT. This security interest is granted in conjunction with the security interests granted to IBM Credit pursuant to the Loan Agreement. NetObjects and IBM Credit acknowledge and agree that the rights and obligations of NetObjects and IBM Credit with respect to the Patent Collateral are as set forth in the Loan Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. To the extent of any inconsistency between the terms and provisions of the Loan Agreement and the terms and provisions of this Patent Security Agreement, the terms and provisions of the Loan Agreement shall control. IN WITNESS WHEREOF, NetObjects has caused this Patent Security Agreement to be duly executed by its officer thereunto duly authorized as of the ____ day of December, 1997. NETOBJECTS, INC. By: ______________________________ Name: Title: Acknowledged: IBM CREDIT CORPORATION By: ________________________ Name: Title: Patent - Net Obj 2 12/22/97 STATE OF __________________ ) ): ss: COUNTY OF _________________ ) On the ___ day of December, 1997 before me personally came _____________________, personally known to me or proved to me on the basis of satisfactory evidence to be the person described in and who executed the Patent Security Agreement dated December __, 1997 as ____________________________ of NetObjects, Inc. who being by me duly sworn, acknowledged to me that he is ______________ _________________________________ of NetObjects, Inc., and that he executed the foregoing instrument in his authorized capacity and that by his signature on the instrument the entity upon behalf of which he acted executed the instrument. ______________________________ Notary Public Notary Public, State of California [SEAL] Patent - Net Obj 3 12/22/97 EXHIBIT A TO PATENT SECURITY AGREEMENT NETOBJECTS, INC. PATENT APPLICATIONS as of December 19, 1997
- -------------------------------------------------------------------------------- GRAHAM & JAMES DESCRIPTION FILING DATE DOCKET NO. SERIAL NUMBER - -------------------------------------------------------------------------------- Allowed Computer Icon for a World Wide Web Site Editor 07/29/96 or the Like 29/057,658 - -------------------------------------------------------------------------------- Allowed Computer Icon for a World Wide Web Site Editor 07/29/96 or the Like 29/057,657 - -------------------------------------------------------------------------------- Pending Computer Icon for a Style Function of a World 07/29/96 Wide Web Site Editor or the Like 29/057,656 - -------------------------------------------------------------------------------- Pending Computer Icon for a Function of a World Wide 07/29/96 Web Page Editor or the Like 29/057,655 - -------------------------------------------------------------------------------- Pending Computer Icon for a Function of a World Wide 07/29/96 Web Page Editor or the Like 29/057,583 - -------------------------------------------------------------------------------- Pending Computer Icon for a Function of a World Wide 07/29/96 Web Page Editor or the Like 29/057,654 - -------------------------------------------------------------------------------- Allowed Computer Icon for Representing a Page in a Web 07/29/96 Site for a World Wide Web Page Editor or the 29/057,653 Like - -------------------------------------------------------------------------------- Pending Computer Icon for a Goback Function in a World 07/29/96 Wide Web Page Editor or the Like 29/057,571 - -------------------------------------------------------------------------------- Pending Computer Icon for a New Page Function in a 07/29/96 World Wide Web Page Editor or the Like 29/057,660 - -------------------------------------------------------------------------------- Pending Computer Icon for a Preview Function in a 07/29/96 World Wide Web Page Editor or the Like 29/057,569 - -------------------------------------------------------------------------------- Allowed Computer Icon for a Publish Function of a 07/29/96 World Wide Web Page Editor or the Like 29/057,661 - -------------------------------------------------------------------------------- Allowed Computer Icon for an Assets Function of a 07/29/96 World Wide Web Page Editor or the Like 29/057,572 - -------------------------------------------------------------------------------- Pending Primary and Secondary Navigator Bars Having a 07/29/96 Connector and Generated by a Computer Program 29/057,567 - --------------------------------------------------------------------------------
4 ATTACHMENT I TO REVOLVING LOAN AND SECURITY AGREEMENT BY AND BETWEEN IBM CREDIT CORPORATION AND NETOBJECTS, INC. DATED: DECEMBER __, 1997 FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT THIS AMENDMENT TO REGISTRATION RIGHTS AGREEMENT is entered into as of December_, 1997, by and among NetObjects, Inc., a Delaware corporation (the "Company"), Intemational Business Machines Corporation, a New York corporation ("IBM"), and IBM Credit Corporation, a Delaware corporation ("IBM Credit"). RECITALS: A. The Company and IBM are parties to a Registration Rights Agreement dated as of April 11, 1997 (the "Registration Rights Agreement"), pursuant to which the Company has agreed to take certain actions to register under the Securities Act of 1933, as amended, certain of the Company's securities owned by IBM. B. The Company and IBM Credit have entered into a Revolving Loan and Security Agreement of even date (the "Loan Agreement"), pursuant to which IBM Credit will provide financing to the Company. In connection with the Loan Agreement, the Company has issued to IBM Credit a warrant to purchase 500,000 shares (the "Warrant") of the Company's Series F Preferred Stock (the "Series F Preferred Stock"). C. The parties hereto desire to amend the Registration Rights Agreement to provide that IBM Credit shall be entitled to the registration rights set forth therein. NOW. THEREFORE, in consideration of the agreement to provide financing under the Loan Agreement, the issuance of the Warrant and the mutual covenants and agreements set forth herein, the parties hereto agree as follows: 1. AMENDMENT TO REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement is amended as follows: (a) The definition of "Preferred Stock" in Section 1.01 is amended to read in its entirety as follows: " 'Preferred Stock' shall mean the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock." (b) The definition of "Registration Shares in Section 2.01 (b) is amended to read in its entirety as follows: "(b) As used in this Agreement, 'REGISTRATION SHARES' shall mean any shares of Series E Preferred Stock of the Company issued to IBM pursuant to the Merger Agreement, any shares of Series E Preferred Stock issued to IBM upon the exercise of the IBM Warrant described in the Merger Agreement, any shares of Series C Preferred Stock acquired by IBM pursuant to the terms of the Series C Warrants, any shares of Series F Preferred Stock of the Company issued to IBM Credit upon the exercise of a warrant dated December __, 1997, any Common Shares issued to IBM and IBM Credit upon the conversion of shares of Preferred Stock, and any Common Shares or shares of Preferred Stock acquired by IBM and IBM Credit as a result of stock splits, stock dividends, stock combinations, recapitalizations, mergers, reorganizations and any antidilution provision in any security, document or agreement." (c) Except as specifically provided in the Registration Rights Agreement, as amended, or unless the context otherwise requires, the term "IBM" as used in the Registration Rights Agreement shall also refer to IBM Credit 1 2. EFFECTIVENESS OF AMENDMENT. This First Amendment to Registration Rights Agreement shall have no force or effect until the date of effectiveness of the Loan Agreement. In the event the Loan Agreement shall fail to become effective for any reason, then the Registration Rights Agreement shall continue in full force and effect without modification or amendment thereto. 3. REMAINDER OF AGREEMENT. Except as specfically provided herein, the Registration Rights Agreement shall remain in full force and effect. 4. COUNTERPARTS. This First Amendment to Registration Rights Agreement may be signed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the panics hereto have executed or caused this First Amendment to Registration Rights Agreement to be duly executed by their duly authored representatives as of the date first above written. NETOBJECTS, INC. INTERNATIONAL BUSINESS MACHINES CORPORATION By:___________________________ By:______________________ Name: Name Title: Title: IBM CREDIT CORPORATION By:______________________ Name: Title: 2 ATTACHMENT A DATED ____________,1997 TO REVOLVING LOAN AGREEMENT DATED _____________, 1997 Customer's Name: NetObjects, Inc. 1. A/R Revolver Credit Line Fees, Rates and Repayment Terms: (a) Line of Credit in the amount of Fifteen Million Dollars ($15,000,000.00); (b) Revolver Financing Charge: Libor Rate plus 1.50%; (c) Other Charges: 0.20% ($30,000.00) to be paid at the time of execution of the Agreement. 0.20% ($30,000.00) annual renewal fee which shall be due on each anniversary of the Agreement. (d) Delinquency Fee Rate: Libor Rate plus 6.50%. 2. Documentation Requirements: Takeout Advance Option Executed Letter of Direction; and Executed Letter of Notification. 3. Financial Covenants: Definitions: The following terms shall have the following respective meanings in this the Revolving Loan Agreement. All amounts shall be determined in accordance with generally accepted accounting principles (GAAP). Current shall mean within the on-going twelve month period. Current Assets shall mean assets that are cash or expected to become cash within the on-going twelve months. Current Liabilities shall mean payment obligations resulting from past or current transactions that require settlement within the on-going twelve month period. All indebtedness to IBM Credit shall be considered a Current Liability for purposes of determining compliance with the Financial Covenants. Current Ratio shall mean Current Assets divided by Current Liabilities. Long Term shall mean beyond the on-going twelve month period. Long Term Assets shall mean assets that take longer than a year to be converted to cash. They are divided into four categories: tangible assets, investments, intangibles and other. Long Term Debt shall mean payment obligations of indebtedness which mature more than twelve months from the date of determination, or mature within twelve months from such date but are renewable or extendible at the option of the debtor to a date more than twelve months from the date of determination. 1 Net Profit after Tax shall mean Revenue plus all other income, minus all costs, including applicable taxes. Revenue shall mean the monetary expression of the aggregate of products or services transferred by an enterprise to its customers for which said customers have paid or are obligated to pay, plus other income as allowed. Subordinated Debt shall mean Customer's indebtedness to third parties as evidenced by an executed Notes Payable Subordination Agreement in favor of IBM Credit. Tangible Net Worth shall mean: Total Net Worth minus; (a) goodwill, organizational expenses, pre-paid expenses, deferred charges, research and development expenses, software development costs, leasehold expenses, trademarks, trade names, copyrights, patents, patent applications, privileges, franchises, licenses and rights in any thereof, and other similar intangibles (but not including contract rights) and other current and non-current assets as identified in Customer's financial statements; (b) all accounts receivable from employees, officers, directors, stockholders and affiliates; and (c) all callable/redeemable preferred stock. Total Assets shall mean the total of Current Assets and Long Term Assets. Total Liabilities shall mean the Current Liabilities and Long Term Debt less Subordinated Debt, resulting from past or current transactions, that require settlement in the future. Total Net Worth (the amount of owner's or stockholder's ownership in an enterprise) is equal to Total Assets minus Total Liabilities. Working Capital shall mean Current Assets minus Current Liabilities. Customer will be required to maintain the following financial percentage and ratios as of the last day of the fiscal period under review by IBM Credit: a) * Net Profit after Tax, measured on a trailing twelve month basis, not to be worse than negative twenty million dollars ($-20,000,000.00). * IBM Credit may modify or add one or more financial covenants by sending a written notification to Customer accompanied by a revised Attachment A. Any change in or addition of a financial covenant shall be in effect as of the date of such revised Attachment A, or as otherwise stated in such Attachment A. 4. Lockbox Information: 5. Special Account Information Bank Name:_______________________ Bank Name:________________________ 2 Address: _________________________ Address: __________________________ _________________________ __________________________ _________________________ __________________________ 3 ATTACHMENT B DATED ____________,1997 TO REVOLVING LOAN AGREEMENT DATED _____________, 1997 1. The address of IBM Credit's place of business where Notices should be delivered: Street Address: 5000 Executive Parkway Suite 450 -------------------------------- City, State, Zip code: San Ramon, CA 94583 ------------------------- Attention: Remarketer Financingter Manager ------------------------------------- Telecopy Number: (510) 277-5685 ------------------------------- 2. The exact corporate name of Customer as it appears in its certificate of incorporation is as follows: NetObjects, Inc. ---------------- 3. The address of Customer's principal place of business and chief executive office: Street Address: 602 Galveston Drive ------------------------------ County: San Mateo -------------------------------------- City, State, Zip code: Redwood City, CA 94063 ----------------------- Attention: ------------------------------------- Telecopy Number: ------------------------------- 4. The address of Customer's place of business where Notices should be delivered: Street Address: (Same as in Section 3 above) ----------------------------- County: --------------------------------------- City, State, Zip code: ------------------------ Attention: ------------------------------------ Telecopy Number: ------------------------------ 5. The following is a list of entities affiliated or related to Customer in any way and a description of such affiliation and/or relationship OR attach corporate organization chart to Attachment B: Not Applicable ------------------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------------------------------------- 6. The following are all the locations where Customer maintains any inventory, equipment or other assets: a) Street Address: 1089 Mills Way ------------------------------------------- County: San Mateo --------------------------------------------------- City, State, Zip code: Redwood City, CA 94063 ------------------------------------ Legal Name of Warehouse (if applicable): Binaco Corporation ------------------ b) Street Address: (No Additional Locations) ------------------------------------------- County: ----------------------------------------------------- City, State, Zip code: -------------------------------------- Legal Name of Warehouse (if applicable): -------------------- 7. The following are all the places of business of Customer not identified above: 1 a) Street Address: None --------------------------------------------- County: ----------------------------------------------------- City, State, Zip code: -------------------------------------- Collateral Located Here (Yes) (No) ------------- -------------- If Yes, identify Collateral --------------------------------- b) Street Address: --------------------------------------------- County: ----------------------------------------------------- City, State, Zip code: -------------------------------------- Collateral Located Here (Yes) (No) ------------- -------------- If Yes, identify Collateral --------------------------------- 8. For purposes of this Agreement Permitted Liens shall mean: (a) mechanics', carriers', workmen's, repairmen's or other like liens arising from or incurred in the ordinary course of business and securing obligations which are not due or that are being contested in good faith by the Customer (provided that the Customer has set up adequate reserves therefor), Liens for taxes that are not due and payable or which may thereafter be paid without penalty or that are being contested in good faith by the Customer (provided that the Customer has set up adequate reserves for the payment of such taxes) and other imperfections of title or encumbrances, if any, which imperfections of title or other encumbrances do not materially impair the use of the assets to which they relate in the business of the Customer as presently conducted; (b) easements, covenants, rights-of-way and other encumbrances or restrictions of record; (c) zoning, building and other similar restrictions; provided that the same are not violated in any material respect by any improvements of the Customer or by the use thereof for the conduct of the Customer's business; and (d) unrecorded easements, covenants, rights-of-way or other encumbrances or restrictions, and other Liens which that are not material in character or amount, none of which unrecorded items or other Liens materially impairs the use of the property to which they relate in the business of the Customer as presently conducted. 9. For purposes of this Agreement Permitted Prior Liens shall mean: (a) Liens to Comdisco pusuant to the following financing statements filed with California Secretary of State: Filing Number Filing Date ----------------------------------------- 9626160946 09/17/96 9635560238 12/19/96 9707160548 03/11/97 9730960685 11/04/97
(b) Liens relating to capital leases and pursuant to the following financing statements filed with California Secretary of State: Secured Party Filing Number Filing Date ---------------------------------------------------------------- 2 AT&T Capital Leasing Services 9607561125 03/13/96 Sanwa Leasing Corporation 9614560235 05/23/96
10. As of the date of this Attachment B, the following Persons have executed and delivered to IBM Credit the following respective Guaranties: Name: International Business Machines Type: Indemnification Agreement Corporation ------------------------- ------------------------------- Name: Type: ------------------------------- ------------------------- Name: Type: ------------------------------- ------------------------- 3 ATTACHMENT C DATED ____________,1997 TO REVOLVING LOAN AGREEMENT DATED _____________, 1997 NETOBJECTS, INC. COLLATERAL MANAGEMENT REPORT FOR THE MONTH ENDING ______________ GROSS COLLATERAL VALUE 1. ELIGIBLE A/R - Gross Receivables $0.00 - Less Ineligibles: A/R over 90 days 0.00 50% over 90 days 0.00 Other 0.00 ----- ELIGIBLE A/R $0.00 (Attach A/R Aging Report)
Signature _________________________________________ Date ___________ Title _________________________________________ 1?? ATTACHMENT J TO REVOLVING LOAN AGREEMENT DATED DECEMBER __,1997 Borrowing Certificate Date:________________ A. IBM Credit Approved Credit Facility: $15,000,000.00 B. Current Outstanding Loan Balance including amounts committed to, but not yet funded, by IBM Credit: ______________ (Principal PLUS Interest) C. New Cash Advance Request: ______________ D. Total New Outstanding Loan Balance: (B+C)* ______________
Requested by:________________________ Title**:________________________ Net Objects, Inc. * Line D must be less than line A at all times. ** Borrowing Certificate must be signed be an authorized officer of the Corporation SCHEDULE A TO REVOLVING LOAN AND SECURITY AGREEMENT SCHEDULE OF EXCEPTIONS TO REVOLVING LOAN AND SECURITY AGREEMENT NETOBJECTS, INC. December_, 1997 This Schedule is prepared pursuant to Section 6 of the Revolving Loan and Security Agreement, dated as of December__, 1997 (the "Agreement"), by and between IBM Credit Corporation, a Delaware corporation ("IBM Credit"), and NetObjects, Inc., a Delaware corporation (the "Company"), and sets forth exceptions to the representations and warranties of the Company contained in Section 6.1 of the Agreement. Capitalized terms used but not defined herein shall have the meaning ascribed to them in the Agreement. (B) TITLE TO COLLATERAL (1) The Company's software products include certain software licensed from third parties for which the Company has paid license fees or pays ongoing royalties. The Company's software source code includes certain software programs and code made available to the public free of charge over the "Internet." All such software may be copyrighted works of third parties. (2) Under the License Agreement with IBM dated March 18, 1997, IBM was granted certain rights with respect to source code of the Company placed in escrow. (3) Under the Software License Agreement with AT&T dated September 26, 1996, AT&T has certain rights to use the Company's source code to prepare Derivative Works in the event of a change of control of the Company, in the event of the Company's bankruptcy and the like and if the Company fails to meet certain support obligations. (4) Rae Technology, Inc. holds 4 pending utility patents and has granted to the Company a non-exclusive license pursuant to a Patent License Agreement dated April 10, 1997 to fully utilize such inventions and, when issued, such patents. (E) AUTHORIZATION As soon as possible following the execution of the Agreement, the Company will file a Certificate of Amendment to its Certificate of Incorporation to increase the number of authorized shares of Series F Preferred Stock to cover the 500,000 shares subject to the Warrant. (F) Financial Statements (1) A portion of the Company's staffing needs have been and continue to be met through the utilization of independent contractors. There can be no assurance that the IRS will not challenge the Company's classification of these individuals as independent contractors and assess the Company (as well as its responsible persons as defined for this purpose under the Internal Revenue code) substantial penalties and additional tax liabilities, the amount of which cannot be currently estimated by the Company. No estimate of this potential liability, if any has been made. (2) The Company is obligated to pay royalties on a quarterly basis to certain companies whose technology is included in the Company's products. All royalties due under these agreements may not be recorded on the Company's interim financial statements. 1 (3) The Company believes it has made adequate allowances for (i) potential product returns; (ii) stock rotation; (iii) price protection; (iv) technical support; (v) version 2.0 product upgrades; and (vi) uncollectible accounts; but such allowances are subject to audit adjustments. (4) The Company's unaudited financial statements do not include footnotes required by GAAP and are subject to year-end audit adjustments. (5) The Company's unaudited monthly financial statements may not be fully in compliance with Statement of Position No. 97-2 which is effective for the year beginning after December 15, 1997 or with Statement of Financial Accounting Standard No. 123 and are subject to year end audit adjustments. (L) TAX RETURNS The Company has not filed any sales or income tax returns in any jurisdiction other than California, although the Company may have incurred liability for such taxes under applicable law. (M) TAXES See Section G and Section L for a discussion of potential tax liabilities. (T) INSURANCE (1) At present the Company has not obtained any employment practices liability insurance coverage. (2) The Company self-insures a portion of the claims made under Its health insurance program subject to certain stop loss clauses included in the policy. 2 EX-10.8-1 38 EXHIBIT 10.8.1 AMENDMENT TO REVOLVING LOAN AND SECURITY AGREEMENT This Amendment ("Amendment") to the Revolving Loan and Security Agreement is made as of July __, 1998 by and between NetObjects, Inc., a Delaware corporation ("Customer") and IBM Credit Corporation, a Delaware corporation ("IBM Credit"). RECITALS: A. Customer and IBM Credit have entered into that certain Revolving Loan and Security Agreement dated as of December 23, 1997 (as amended, supplemented or otherwise modified from time to time, the "Agreement"). B. The parties have agreed to modify the Agreement as more specifically set forth below, upon and subject to the terms and conditions set forth herein. C. IBM Credit is willing to accommodate Customer's request subject to the conditions set forth below. AGREEMENT NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Customer and IBM Credit hereby agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Agreement. SECTION 2. Amendment. The Agreement is hereby amended as follows: (A) Attachment A to the Agreement is hereby amended by deleting such Attachment A in its entirety and substituting, in lieu thereof, the Attachment A attached hereto. Such new Attachment A shall be effective as of the date specified in the new Attachment A. The changes contained in the new Attachment A include, without limitation, the following: The Line of Credit has been increased from Fifteen Million Dollars ($15,000,000) to Nineteen Million Dollars ($19,000,000). SECTION 3. Representations and Warranties. Customer makes to IBM Credit the following representations and warranties all of which are material and are made to induce IBM Credit to enter into this Amendment. SECTION 3.1 Accuracy and Completeness of Warranties and Representations. All representations made by Customer in the Agreement were true and accurate and complete in every respect as of the date made, and, as amended by this Amendment, all representations made by Customer in the Agreement are true, accurate and complete in every material respect as of the date hereof, and do not fail to disclose any material fact necessary to make representations not misleading. Page 1 of SECTION 3.2 Violation of Other Agreements. The execution and delivery of this Amendment and the performance and observance of the covenants to be performed and observed hereunder do not violate or cause Customer not to be in compliance with the terms of any agreement to which Customer is a party. SECTION 3.3 Litigation. Except as has been disclosed by Customer to IBM Credit in writing, there is no litigation, proceeding, investigation or labor dispute pending or threatened against Customer, which if adversely determined, would materially adversely affect Customer's ability to perform Customer's obligations under the Agreement and the other documents, instruments and agreements executed in connection therewith or pursuant hereto. SECTION 3.4 Enforceability of Amendment. This Amendment has been duly authorized, executed and delivered by Customer and is enforceable against Customer in accordance with its terms. SECTION 4. Ratification of Agreement. Except as specifically amended hereby, all of the provisions of the Agreement shall remain unamended and in full force and effect. Customer hereby, ratifies, confirms and agrees that the Agreement, as amended hereby, represents a valid and enforceable obligation of Customer, and is not subject to any claims, offsets or defenses. SECTION 5. Governing Law. This Amendment shall be governed by and interpreted in accordance with the laws which govern the Agreement. SECTION 6. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute one agreement. IN WITNESS WHEREOF, this Amendment has been executed by duly authorized officers of the undersigned as of the day and year first above written.
NETOBJECTS, INC. IBM CREDIT CORPORATION By: ______________________________________ By: ______________________________________ Print Name: ______________________________ Print Name: ______________________________ Title: ___________________________________ Title: ___________________________________ Date: ____________________________________ Date: ____________________________________
Page 2 of EX-10.9 39 EXHIBIT 10.9 NOTE AND WARRANT PURCHASE AGREEMENT This Note and Warrant Purchase Agreement, dated as of October 8, 1998 (this "Agreement"), is entered into by and among (i) NetObjects, Inc., a Delaware corporation (the "Company"), and (ii) International Business Machines Corporation ("IBM"), and Perseus Capital, L.L.C. ("Perseus Capital") (each a "Purchaser," and collectively, the "Purchasers"). RECITALS A. To provide the Company with additional resources to conduct its business, the Purchasers are willing, severally and not jointly, to purchase from the Company, and the Company is willing to issue and sell to each Purchaser, on the terms and subject to the conditions set forth herein, at a closing to be held on the date hereof (the "Initial Closing"), an aggregate of 5,950 units (the "Units"), each consisting of (i) a Senior Subordinated Secured Convertible Promissory Note of the Company with a principal amount of $1,000 (a "Note"), and (ii) a warrant (a "Warrant") to acquire 90.036 shares of Series E-2 Preferred Stock, par value $0.00000001 per share, of the Company (the "Series E-2 Preferred Stock"). The number of Units to be purchased by each Purchaser at the Initial Closing is set forth in Schedule A hereto. B. In addition, the Purchasers are willing to grant to the Company an option to cause the Purchasers to purchase, on the terms and subject to the conditions set forth herein, up to an aggregate of 4,960 additional Units at a closing to be held on January 10, 1999 (or on such other date as the parties may agree) (the "Option Closing"). The Units to be purchased at the Option Closing shall be allocated among the Purchasers in the same proportion as the Units purchased by them at the Initial Closing. AGREEMENT NOW, THEREFORE, in consideration of the foregoing, and the representations, warranties, covenants and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows: 1. PURCHASE AND SALE OF NOTES AND WARRANTS (a) INITIAL CLOSING. In reliance upon the representations, warranties and covenants of the parties set forth herein, and subject to satisfaction of the conditions set forth in Section 1(f) hereof, the Company agrees to issue, sell and deliver to the Purchasers, and the Purchasers, severally and not jointly, agree to purchase from the Company, at the Initial Closing, the number of Units specified in Schedule A hereto at a purchase price (the "Purchase Price") equal to $1,008.40 per Unit, of which $1,000 shall be for the Note and $8.40 shall be for the Warrant included in each such Unit. The parties hereto hereby agree that the allocation of the Unit Purchase Price between the Note and Warrant is fair and reasonable and accurately reflects the respective value of such securities. (b) GRANT OF OPTION. The Purchasers hereby grant to the Company the option to require the Purchasers to purchase up to an additional 4,960 Units at the Option Closing at the Purchase Price per Unit specified above. Such option shall be exercisable by the Company by no later than December 1, 1998 by the delivery to each Purchaser of a written notice specifying the aggregate number of Units (not to exceed 4,960 Units) to be sold at the Option Closing. Such number of Units shall be allocated among the Purchasers in the same proportion as the Units purchased by them at the Initial Closing. (c) DELIVERY OF NOTES AND WARRANTS; PAYMENT OF PURCHASE PRICE. At the Initial Closing and any Option Closing, the Company shall deliver to each Purchaser the Notes and Warrants purchased by such Purchaser at such Closing, and each Purchaser shall pay the Purchase Price therefor by wire transfer of immediately available funds to an account designated by the Company in writing at least three Business Days prior to such Closing. (d) TERMS OF THE NOTES AND WARRANTS. The terms and conditions of the Notes are set forth in the form of Note attached as EXHIBIT A hereto. The terms and conditions of the Warrants are set forth in the form of Warrant attached as EXHIBIT B hereto. (e) REPAYMENT OF THE NOTES. In the event of any repayment by the Company of the Notes issued hereunder, such repayment must be applied proportionately to the Notes held by all the Purchasers based on the aggregate principal amount of Notes purchased by each such Purchaser, provided that any Purchaser may waive this right to proportional repayment, in which case such repayment shall be applied proportionately only among those Purchasers who do not waive this right to proportional repayment. (f) CONDITIONS. The obligations of the Purchasers under this Section 1 to be performed at each Closing shall be subject to satisfaction of the following conditions: (i) The representations and warranties of the Company contained in this Agreement shall be true and correct, in all material respects, at and as of such Closing, and the Company shall have performed and complied with all the covenants and agreements and satisfied all the conditions required by this Agreement to be performed or compiled with or satisfied by the Company at or prior to such Closing. Each Purchaser shall have received a certificate dated as of the date of such Closing and signed by the president of the Company stating that, to the best of his knowledge after due inquiry, the conditions specified in this Section 1(f)(i) have been satisfied. (ii) Each Purchaser shall have received an opinion of counsel to the Company, in form and substance reasonably satisfactory to the Purchasers, addressing the matters set forth in Exhibit C hereto. (iii) Each other Purchaser shall have performed all of its obligations required to be performed at such Closing and, in the case of the Option Closing, at the Initial Closing. 2 (iv) The Company shall have received all consents and approvals of third parties necessary for the Company to consummate the transactions contemplated hereby and by the Notes and the Warrants. (v) Each Purchaser shall have received from the Company such other documents confirming the accuracy and completeness of the representations and warranties of the Company as the Purchasers may reasonably request. (g) REGISTRATION RIGHTS. The Purchasers shall have the registration rights specified in the Amended and Restated Registration Rights Agreement dated as of October 8, 1998 set forth in Exhibit D hereto. (h) SENIOR INDEBTEDNESS. Without the prior written consent of Perseus Capital, and except for the Senior Debt (as defined in the Notes), after the date hereof, the Company shall not incur any indebtedness for borrowed money, guarantee any such indebtedness or incur any obligation that for financial reporting purposes is required to be carried as an indebtedness of the Company unless (i) such indebtedness, guaranty or obligation is expressly subordinated to the repayment in full of all principal, interest and other amounts due under the Notes or (ii) the proceeds of such Senior Debt are used to retire in full all amounts then due under the Notes. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to the Purchasers that, except as set forth in the Company's Disclosure Schedule attached to this Agreement as Exhibit E (the "Disclosure Schedule"), the statements contained in the following paragraphs of this Section 2 are all true and correct: (a) ORGANIZATION AND GOOD STANDING: CERTIFICATE OF INCORPORATION AND BYLAWS. Each of the Company and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to carry on its business as now conducted and proposed to be conducted. Each of the Company and each of its subsidiaries is duly qualified to conduct business as a foreign corporation and is in good standing as a foreign corporation in all jurisdictions where the properties owned, leased or operated by it are located or where its business is conducted, except where the failure to so qualify or be in good standing is not reasonably likely to have a material adverse effect on the Company's consolidated business, financial condition, results of operations, assets, liabilities or prospects (a "Material Adverse Effect"). The Company has previously delivered to each of the Purchasers a true and complete copy of the Certificate of Incorporation and Bylaws of the Company as in effect on the date hereof. (b) CORPORATE POWER. The Company has all requisite legal and corporate power to enter into, execute, deliver and perform its obligations under this Agreement, the Notes and the Warrants. This Agreement is, and upon their issuance, the Notes and Warrants will be, valid and binding obligations of the Company, enforceable in accordance with their terms, except as enforcement may be limited by bankruptcy laws or other laws affecting creditors' remedies generally or by equitable principles. 3 (c) AUTHORIZATION, ETC. (i) CORPORATE ACTION. All corporate and legal action on the part of the Company, its officers, directors and stockholders necessary for the execution and delivery of this Agreement, the Notes and Warrants, the sale and issuance of the Notes and Warrants, and the performance of the Company's obligations hereunder and thereunder, has been taken. (ii) VALID ISSUANCE. The Notes, the Warrants, any shares of Series E-2 Preferred Stock issued upon conversion of the Notes or exercise or conversion of the Warrants and any shares of Common Stock issued upon conversion of such Series E-2 Preferred Stock, when issued in compliance with the provisions of this Agreement, the Notes, the Warrants or the terms of the Series E-2 Preferred Stock, as the case may be, will be validly issued and, in the case of any such shares of Series E-2 Preferred Stock or Common Stock, will be fully-paid and nonassessable. (iii) NO PREEMPTIVE RIGHTS. No person has any right of first refusal or any preemptive or similar rights in connection with the issuance of the Notes or Warrants, the issuance of shares of Series E-2 Preferred Stock upon conversion of the Notes or exercise or conversion of the Warrants, the issuance of any shares of Common Stock issued upon conversion of such Series E-2 Preferred Stock or the issuance of any other securities by the Company. (iv) SECURITY INTEREST. Section 5 of each Note will create, upon execution and delivery of such Note by the Company, a valid security interest in the Collateral (as defined in the Notes) securing repayment by the Company of the Obligations (as defined in the Notes) thereunder. (d) NONCONTRAVENTION. The execution, delivery and performance of and compliance with this Agreement, the Notes, the Warrants, the issuance and sale of the Series E-2 Preferred Stock upon conversion of the Notes or exercise or conversion of the Warrants and the issuance of Common Stock upon conversion of such Series E-2 Preferred Stock will not result in nor constitute any breach, default or violation of (i) any agreement, contract, lease, license, instrument or commitment (oral or written) to which the Company or any of its subsidiaries is a party or is bound or (ii) any law, rule, regulation, statute or order applicable to the Company, any of its subsidiaries or their respective properties, nor result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or any of its subsidiaries, any of which breach, default or violation under clause (i) or (ii), preceding, would have a Material Adverse Effect. (e) CONSENTS, ETC. No consent, approval, order or authorization of, or designation, registration, declaration or filing with, any federal, state, local or provincial or other governmental authority or other person on the part of the Company is required in connection with the valid execution and delivery of this Agreement, the Notes and the Warrants, or the offer, sale or issuance of the Notes, the Warrants, the Series E-2 Preferred Stock to be issued upon conversion of the Notes or exercise or conversion of the Warrants or any Common Stock issued upon conversion of such Series E-2 Preferred 4 Stock, other than, if required, filings or qualifications under applicable state securities laws, which filings or qualifications, if required, will be timely filed or obtained by the Company. (f) OFFERING. In reliance, in part, on the representations and warranties of the Purchasers in Section 3 hereof, neither the offer, sale nor issuance of the Notes and the Warrants in conformity with the terms of this Agreement or the shares of Series E-2 Preferred Stock issued upon conversion of the Notes or exercise or conversion of the Warrants or any Common Stock issued upon conversion of such Series E-2 Preferred Stock will result in a violation of the requirements of Section 5 of the Securities Act of 1933, as amended, (the "Securities Act") or the qualification or registration requirements of any applicable state securities laws. (g) CAPITALIZATION. The capitalization of the Company consists of the following, and all of the issued and outstanding shares as hereinafter set forth have been duly authorized and validly issued, are fully paid and nonassessable and have been offered, issued, sold and delivered by the Company in compliance with all applicable federal and state securities laws: (i) PREFERRED STOCK. A total of 136,898,000 authorized shares of Preferred Stock, with $0.00000001 par value per share (the "Company Preferred Stock"), consisting of 4,500,000 shares designated as Series A Preferred Stock, of which 3,911,670 shares are issued and outstanding; 198,000 shares designated as Series B Preferred Stock, of which none are issued and outstanding; 17,000,000 shares designated as Series C Preferred Stock, of which none are issued and outstanding; 90,200,000 shares designated as Series E Preferred Stock, of which 65,549,953 are issued and outstanding; and 5,500,000 shares designated as Series F Preferred Stock, of which none are issued and outstanding. No other series of Company Preferred Stock has been designated. (ii) COMMON STOCK. A total of 170,000,000 authorized shares of Common Stock, of which 11,933,884 shares are issued and outstanding. (iii) OPTIONS, WARRANTS, RESERVED SHARES. Except for (A) the conversion privileges of the Series A Preferred Stock, the Series C Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock, (B) a total of 19,200,000 shares of Common Stock reserved for issuance under the Company's 1997 Stock Option Plan and 1997 Special Stock Option Plan to officers, directors and employees of, and consultants rendering bona fide services to the Company, and (C) 13,503,001 shares of Series C Preferred Stock, 20,897,029 shares of Series E Preferred Stock, 5,500,000 shares of Series F Preferred Stock and the foregoing shares of Common Stock reserved for issuance upon the exercise or conversion of warrants issued by the Company, there are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of the Company's capital stock or any securities convertible into or ultimately exchangeable or exercisable for any shares of the Company's capital stock, nor is the Company obligated in any manner to issue any shares of its capital stock or any other securities. 5 (h) FINANCIAL STATEMENTS AND RELATED MATTERS. The Company's balance sheets as of September 30, 1997 and June 30, 1998 and the Company's statements of operations, cash flows and changes in stockholders' equity for the each of the years ended September 30, 1996 and 1997 and for the six months ended June 30, 1998 (collectively, the "Financial Statements"), all of which have been made available to the Purchasers prior to the date hereof, have been prepared in accordance with generally accepted accounting standards consistently applied (except as may be noted therein). Furthermore, the Financial Statements are complete and correct in all material respects and accurately set out and describe in all material respects the financial condition, results of operations, cash flows or changes in stockholders' equity of the Company as of the date or for the period indicated. There has been no material change in the Company's accounting policies except as described in the notes to the Financial Statements. Except as set forth in the Financial Statements, neither the Company nor any of its subsidiaries has any indebtedness, obligation or liability (contingent or otherwise) that, either alone or when combined with all similar obligations or liabilities, would be material to the Company on a consolidated basis, and there does not exist a set of circumstances that, to the knowledge of the Company, could reasonably be expected to result in any such material indebtedness, obligation or liability. Since September 30, 1997, there has been no material adverse change in the business, financial condition, results of operations, assets, liabilities or prospects of the Company, which is not disclosed on the Financial Statements or financial information as of a later date set forth in the Disclosure Schedule. (i) COMPLIANCE WITH LAWS. Neither the Company nor any of its subsidiaries is (i) subject to the terms or provisions of any material judgment, decree, order, writ or injunction or (ii) in violation of any terms or provisions of any laws, rules, or regulations, except where such violations do not and are not likely to have a Material Adverse Effect. (j) TITLE TO PROPERTY AND ASSETS. Each of the Company and each of its subsidiaries owns and possesses its properties and assets (other than Proprietary Assets, which are covered in subsection (k) below) free and clear of all mortgages, deeds of trust, liens, encumbrances, security interests and claims except as reflected in the Financial Statements and except for statutory liens for the payment of current taxes that are not yet delinquent and liens, encumbrances and security interests which arise in the ordinary course of business and which do not affect material properties and assets of the Company and its subsidiaries. With respect to the property and assets it leases, each of the Company and each of its subsidiaries is in compliance with such leases in all material respects. (k) PROPRIETARY ASSETS. (i) Each of the Company and each of its subsidiaries (A) owns or has sufficient rights to all Proprietary Assets used in or necessary for its business as currently conducted and as proposed to be conducted, free and clear of all material liens and other encumbrances; (B) has taken reasonable and customary measures and precautions necessary to protect and maintain the confidentiality and secrecy of all its Proprietary Assets (except the Proprietary Assets whose value would be unimpaired by 6 public disclosure) and otherwise to maintain and protect the value of all its Proprietary Assets; and (C) has not disclosed or delivered to any person, or permitted the disclosure or delivery to any person of the source code, or any portion or aspect of the source code, of any of the Company's products. (ii) Except where such infringement, misappropriation or unlawful use has not or could not reasonably be expected to have a Material Adverse Effect, neither the Company nor any of its subsidiaries is infringing, misappropriating or making any unlawful use of or has at any time infringed, misappropriated or made any unlawful use of, any Proprietary Asset owned or used by any other person; and no claims or notices (in writing or otherwise) with respect to Proprietary Assets have been communicated to the Company or any of its subsidiaries: (A) to the effect that the manufacture, sale, license or use of any Proprietary Assets as now used or currently offered or proposed for use or sale by the Company or any of its subsidiaries infringes or potentially infringes, or constitutes a misappropriation or unlawful use of any copyright, patent, trade secret or other intellectual property right of a third party, or (B) challenging the ownership or validity of any of the rights of the Company or any of its subsidiaries to or interest in such Proprietary Assets. The Company has received no notice to the effect that any patents or registered trademarks, service marks or registered copyrights held by the Company or any of its subsidiaries are invalid or not subsisting except for failures to be valid and subsisting that would not reasonably be expected to have a Material Adverse Effect. To the Company's knowledge, no other person is infringing, misappropriating or making any unlawful use of, and no Proprietary Asset owned or used by any other person infringes or conflicts with, any Proprietary Asset used in or pertaining to the business of the Company or any of its subsidiaries. (iii) The Proprietary Assets used in or pertaining to the business of the Company and its subsidiaries are sufficient in the Company's reasonable judgment, to enable the Company and its subsidiaries to conduct its business in the manner in which such business has been and is being conducted free from liabilities or valid claims of infringement or misappropriation by third parties. Neither the Company nor any of its subsidiaries has licensed any of its Proprietary Assets to any person on an exclusive basis and the Company has not entered into any covenant not to compete or contract limiting its ability to sell the Company's products in any market or geographical area or with any person other than restrictions in a license agreement that are typical of those granted in the ordinary course of business in the software industry. (iv) As used herein, "Proprietary Assets" means: (A) any patent, patent application, trademark (whether registered or unregistered), trademark application, trade name, fictitious business name, service mark (whether registered or unregistered), service mark application, copyright (whether registered or unregistered), copyright application, maskwork, maskwork application, trade secret, know-how, customer list, franchise, system, computer software, computer program, source code, invention, design, blueprint, engineering drawing, proprietary product, technology, proprietary right or other intellectual property right or intangible asset; and (B) any right to use or exploit any of the foregoing. 7 3. REPRESENTATIONS AND WARRANTIES BY THE PURCHASERS. Each of the Purchasers, severally and not jointly, represents, and warrants to, and covenants with, the Company as follows: (a) INVESTMENT INTENT: AUTHORITY. Such Purchaser is acquiring the Notes, and the Warrants, and the shares of Series E-2 Preferred Stock issuable upon conversion or exercise of the Notes or the Warrants for investment for such Purchaser's own account, and not as nominee or agent for investment and not with a view to or for resale in connection with any distribution or public offering thereof within the meaning of the Securities Act. Such Purchaser has the full right, power, authority and capacity to enter into and perform this Agreement and this Agreement will constitute a valid and binding obligation upon such Purchaser. (b) SHARES NOT REGISTERED. Such Purchaser understands and acknowledges that neither the Notes, the Warrants nor shares of Series E-2 Preferred Stock issuable upon conversion or exercise of the Notes or the Warrants will be registered under the Securities Act or qualified under any state securities laws in reliance upon one or more exemptions from registration or qualification under the Securities Act and such state securities laws, and that the Company's reliance upon such exemption is predicated upon such Purchaser's representations set forth in this Agreement. Such Purchaser understands and acknowledges that resale of the Notes, the Warrants and the shares of Series E-2 Preferred Stock issuable upon conversion or exercise of the Notes or the Warrants may be restricted indefinitely unless they are subsequently registered under the Securities Act and qualified under state law or an exemption from such registration and such qualification is available. (c) NO TRANSFER. Such Purchaser will not dispose of any of the Notes, the Warrants or the shares of Series E-2 Preferred Stock issuable upon conversion or exercise of the Notes or the Warrants, other than in conjunction with an effective registration statement or exemption from registration under the Securities Act and other than in compliance with the applicable state securities laws. (d) ACCREDITED INVESTOR. Such Purchaser is an "accredited investor" within the meaning of Securities and Exchange Commission ("SEC") Rule 501 or Regulation D, as presently in effect. 4. MISCELLANEOUS. (a) WAIVERS AND AMENDMENTS. Any provision of this Agreement may be amended, waived or modified upon the written consent of the Company and the Purchaser to be bound by such amendment, waiver or modification. (b) GOVERNING LAW. This Agreement and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of laws provisions of the State of New York or of any other state. In the event of any dispute among or between any of the parties to this Agreement arising out of the terms of this Agreement, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the 8 State of New York for resolution of such dispute, and agree not to contest such exclusive jurisdiction or seek to transfer any action relating to such dispute to any other jurisdiction. (c) ENTIRE AGREEMENT. This Agreement together with the Notes and Warrants constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. (d) EXPENSES. The Company shall pay all of the costs and expenses, including reasonable attorneys' fees, incurred by the Purchasers in connection with the negotiation and consummation of the transactions contemplated hereunder. (e) NOTICES. All notices, requests and other communications hereunder shall be in writing and shall be deemed to have been duly given at the time of receipt if delivered by hand or by facsimile transmission or three days after being mailed, registered or certified mail, return receipt requested, with postage prepaid to the applicable parties hereto at the address stated below or if any party shall have designated a different address or facsimile number by notice to the other party given as provided above, then to the last address or facsimile number so designated. If to the Company: NetObjects, Inc. 602 Galveston Drive Redwood City, CA 94063 Attention: Samir Arora Facsimile: (650) 482-3600 with a copy to: Graham & James LLP 600 Hansen Way Palo Alto, CA 94304-1043 Attention: Alan B. Kalin, Esq. Facsimile: (650) 856-3619 If to IBM: International Business Machines Corporation New Orchard Road Armonk, NY 10504 Attention: Lee A. Dayton Facsimile: (914) 499-7803 with a copy to: International Business Machines Corporation New Orchard Road Armonk, NY 10504 Attention: Donald D. Westfall, Esq. Facsimile: (914) 499-6006 9 If to Perseus Capital: Perseus Capital, L.L.C. Suite 610 The Army and Navy Club Building 1627 I Street, N.W. Washington, D.C. 20006 Attention: Kenneth M. Socha Facsimile: (202) 463-6215 with a copy to: Arnold & Porter 555 Twelfth Street, N.W. Washington, D.C. 20004-1206 Attention: Robert B. Ott, Esq. Facsimile: (202) 942-5999 (f) VALIDITY. If any provision of this Agreement, the Notes or the Warrants shall be judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions thereof shall not in any way be affected or impaired thereby. (g) COUNTERPARTS. This Agreement may be executed in any number of counterparts, and a party's delivery of a signed counterpart by facsimile transmission shall constitute that party's due execution of this Agreement. (h) BUSINESS DAY. As used herein, "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of California or the State of New York are authorized to be closed. [Signatures begin on the following page] 10 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date and year first written above. COMPANY: NETOBJECTS, INC. By: /s/ Michael J. Shannahan --------------------------------- Name: Michael J. Shannahan ------------------------------- Title: VP & CFO ------------------------------ PURCHASERS: INTERNATIONAL BUSINESS MACHINES CORPORATION By: /s/ Lee A. Dayton --------------------------------- Name: Lee A. Dayton ------------------------------- Title: Vice President, Corporate Development and Real Estate ------------------------------ PERSEUS CAPITAL, L.L.C. By: Kenneth M. Socha --------------------------------- Name: Kenneth M. Socha ------------------------------- Title: Executive Vice President ------------------------------ 11 SCHEDULE A
Purchaser No. of Units --------- ------------- IBM 5,500 Perseus Capital 450
12 EX-10.10 40 EXHIBIT 10.10 TECHNOLOGY TRANSFER AGREEMENT This TECHNOLOGY TRANSFER AGREEMENT (the "Amended Agreement") is dated as of February 2, 1996, by and between Rae Technology, Inc., a California corporation ("Transferor"), and NetObjects, Inc., a Delaware corporation ("Transferee"). R E C I T A L S WHEREAS, Transferor and Transferee have entered into that certain Technology License Agreement, dated as of December 21, 1995 (the "Former Agreement"), pursuant to which Transferor granted to Transferee an exclusive license of certain proprietary computer software commonly referred to by Transferor as the "Solo Technology" for a limited field of use, in exchange for the issuance of 10,000,000 shares of Series A Preferred Stock of Transferee to Transferor; WHEREAS, to achieve the business objectives of the parties and to permit full implementation of the "Solo Technology" by Transferee, the parties now desire to amend and restate the Former Agreement, among other things, to provide for an assignment and transfer of all of Transferor's rights, title and interests in and to the "Solo Technology" to Transferee, with Transferee granting back to Transferor a worldwide, perpetual, royalty-free, assignable, exclusive license, with right of sublicense, in the Field of Use (as hereinafter defined) with respect to all of the transferred technology and a limited, nonexclusive, nontransferable license in the Field of Use with respect to Transferee's modifications of the "Solo Technology" for the sole purpose of developing and marketing software applications for the stand-alone Personal Information Management (PIM) market (as hereinafter defined); and WHEREAS, the parties now desire to amend and restate the Former Agreement to provide in its entirety as set forth below. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: A G R E E M E N T 1. AMENDMENT, SUPERSEDING EFFECT. The Former Agreement is hereby amended as set forth in this Amended Agreement. All provisions of the Former Agreement other than Section 3 and Exhibit A thereof shall be superseded by the terms and provisions of this Amended Agreement to the extent provided herein. 2. DEFINITIONS. Terms used in this Amended Agreement shall have the meaning set forth below, unless defined elsewhere or as the context may require: (a) "Technology" shall mean all of the computer software programs, technology and intellectual property rights of Transferor in and to that certain computer software technology commonly referred to by Transferor as the "Solo Technology," as set forth in more detail in Exhibit A of the Former Agreement, including without limitation, all presently existing object code, source code, and all flowcharts, algorithms and documentation related to such software programs. (b) "Confidential Information" shall mean all information relating to the Technology (including Technical Information and Business Records) disclosed or made available to Transferee, its employees or its representatives by Transferor that is marked, designated or described as confidential by Transferor. (c) "Intellectual Property Rights" shall mean all Confidential Information and, whether or not the following constitute Confidential Information, all of Transferor's United States and foreign copyrights, know-how, patents, licenses, patent applications, inventions, trade secrets, formulas, algorithms, processes, methodologies, designs, schematics, diagrams and the like pertaining to the Technology, or the Resulting Technology, as the case may be, and all of Transferee's trademark, service mark and trade name rights to "NetObjects"; provided, however, that the Intellectual Property Rights shall not include any trademark rights relating to the trademark "Solo" or any other trademarks of Transferor. (d) "Field of Use" shall mean all commercial applications of the Technology and the related Technical Information and Intellectual Property Rights to derive or create personal information manager programs, which are single user software programs primarily intended to be used by individuals to manage personal data such as personal contacts, events, schedules, tasks, projects, notes, pictures and lists of documents, files and other personal information. (e) "Resulting Solo-N Technology" shall mean all the results of the research, development and engineering work performed by Transferee after the effective date of this Amended Agreement with respect to the Technology as it existed on the effective date of the Former Agreement, including, without limitation, all derivative works, modifications, improvements, advanced software programs, patentable inventions or copyrightable material or any combination 2 thereof that will allow commercial exploitation of the Technology in the Field of Use. (f) "Resulting Solo-R Technology" shall mean all the results of the research, development and engineering work performed by Transferor after the effective date of this Amended Agreement with respect to the Technology as it existed on the effective date of the Former Agreement, including, without limitation, all derivative works, modifications, improvements, advanced software programs, patentable inventions or copyrightable material or any combination thereof that will allow commercial exploitation of the Technology in the Field of Use. (g) "Business Records" shall mean all non-disclosure agreements, employee and consultant agreements regarding the protection of Confidential Information, business plans, marketing information, financial information, notes, diaries, logs, calendars, accounting records, non-technical research results, product ideas, and all other written materials other than Technical Information. (h) "Technical Information" shall mean all data in written, tangible or machine-readable form relating to the Technology and the Intellectual Property Rights related thereto, which are revealed to Transferee by Transferor pursuant to the terms of this Amended Agreement. 3. TRANSFER OF TECHNOLOGY, CROSS LICENSE. (a) Subject to the terms and conditions herein, Transferor hereby assigns, conveys, and otherwise transfers to Transferee all of Transferor's rights, title and interests in and to the Technology and all of the Intellectual Property Rights, Confidential Information and Technical Information pertaining to the Technology. Transferor hereby assigns, conveys, and otherwise transfers to Transferor all of Transferor's rights and interests in and to the Business Records of Transferor that relate to the Technology and the use thereof outside of the Field of Use or to the proposed business of Transferee as described in that certain Business Plan dated December 4, 1995. (b) Transferor further affirms the right of Transferee to prevent any unauthorized use and disclosure of the Technology and the Intellectual Property Rights, Confidential Information and Technical Information pertaining thereto, and affirms the right of Transferee to disclose all such information as Transferee may deem appropriate in the conduct of its business. (c) Transferor hereby assigns, conveys and otherwise transfers to Transferee all rights, title and interests of Transferor in and to the trademark, service mark and trade name "NetObjects" and all logos currently associated therewith, and in and to 3 Transferor's "Solo" or "S.O.L.O." trademarks and the goodwill associated therewith. Transferor does not transfer, and Transferee shall have no right in and to any other trademarks or service marks of Transferor. (d) Transferee hereby grants to Transferor exclusively in the Field of Use a transferable, worldwide, royalty-free, perpetual, exclusive, assignable, right and license, with right of sublicense to Transferor's customers, to use and reproduce the Technology and the Intellectual Property Rights, Confidential Information, Technical Information and Business Records related thereto, and to prepare derivative works from (including, but not limited to, the Resulting Solo-R Technology) make, use, disclose, perform, display, sell, offer to sell, identify and distribute computer products incorporating the same to be used solely by end users. (e) Transferee hereby grants to Transferor exclusively in the Field of Use a nontransferable, worldwide, royalty-free, perpetual, nonexclusive, nonassignable, right and license, without right of sublicense to Transferor's customers, to use and reproduce the Resulting Solo-N Technology and the Intellectual Property Rights, Confidential Information and Technical Information related thereto, and to prepare derivative works from, make, use, disclose, perform, display, sell, offer to sell, identify and distribute computer products incorporating the same only for use in object code form by end-users. 4. ISSUANCE OF SHARES. Transferor and Transferee hereby confirm the issuance of 10,000,000 shares of Series A Preferred Stock to Transferee on December 21, 1995, as full consideration for the transfer, assignment and conveyance contemplated herein, and Transferor and Transferee agree that no additional shares or any other consideration shall be issued or paid to Transferor pursuant to this Amended Agreement. Transferor hereby agrees that Transferee's ability to obtain equity financing through the sale of shares of Transferee's Series B Preferred Stock to certain investors, including Norwest Equity Partners V and Venrock Associates (the "Series B Preferred Financing"), based on this Amended Agreement constitutes adequate consideration for the covenants and performance of Transferor hereunder. 5. TITLE AND PROPRIETARY RIGHTS. (a) Title and ownership to (i) the Technology, the Resulting Solo-N Technology, and all of the Intellectual Property Rights, Confidential Information and Technical Information related to each and (ii) the trademark, service mark 4 and trade name "NetObjects" and the logos currently associated therewith shall reside in Transferee. (b) Title and ownership to the Resulting Solo-R Technology in the Field of Use and the Intellectual Property Rights related thereto shall reside in Transferor. 6. TECHNICAL INFORMATION. On or before the closing date for the Series B Preferred Financing, Transferor will transfer and deliver to Transferee a complete copy of all of the Technology and all of the Confidential Information and Technical Information related thereto to the extent that Transferor has not furnished them to Transferee already pursuant to the terms of the Former Agreement. 7. SUBSEQUENT INVENTIONS, FURTHER ASSURANCES. (a) All derivative works, modifications and improvements to the Technology and all inventions of whatsoever kind or nature incorporating or otherwise utilizing any of the Intellectual Property Rights related to the Technology developed by Transferee subsequent to the date of this Amended Agreement, including, but not limited to, the Resulting Solo-N Technology, shall be owned by Transferee; provided that all such derivative works, modifications and improvements to the Technology developed by Transferee subsequent to the date of this Amended Agreement shall be licensed to Transferor pursuant to the provisions of Section 3(e) hereof. (b) Transferee shall have full right to cause United States and foreign copyright applications and patent applications to be prepared and prosecuted with respect to the Technology at its own expense, and all such applications and resulting copyrights and patents shall be owned by Transferee. Transferor shall do all such acts and execute, acknowledge and deliver materials, including Technical Information, and all instruments or writings reasonably requested and necessary for Transferee to perfect its title to the Technology, to secure copyrights and letters patent whenever possible, as well as all reissues, renewals and extensions thereof. Nothing contained in this Amended Agreement, however, shall be construed as a representation or warranty by Transferor that any portion of the Technology shall be copyrightable or patentable. (c) Transferor shall have full right to cause United States and foreign copyright applications and patent applications to be prepared and prosecuted with respect to the Resulting Solo-R Technology in the Field of Use at its own expense, and all such applications and resulting copyrights and patents shall be owned by Transferor. Transferee shall do all such acts and execute, acknowledge and deliver all instruments or writings reasonably requested and 5 necessary for Transferor to perfect its title to the Resulting Solo-R Technology in the Field of Use, to secure copyrights and letters patent whenever possible, as well as all reissues, renewals and extensions thereof. Nothing contained in this Amended Agreement, however, shall be construed as a representation or warranty by Transferee that any portion of the Resulting Solo-R Technology in the Field of Use shall be copyrightable or patentable. (d) Transferee shall have full right to cause United States and foreign trademark applications to be prepared and prosecuted with respect to the name "NetObjects," at its own expense, and all such applications and resulting trademarks, service marks and trade names shall be owned by Transferee. Transferor shall do all such acts and execute, acknowledge and deliver all instruments or writings reasonably requested and necessary for Transferee to perfect its title to the name "NetObjects," to secure trade name and trademark registrations whenever possible, as well as all renewals and extensions thereof. Nothing contained in this Amended Agreement, however, shall be construed as a representation or warranty by Transferee that Transferee shall be able to obtain the trade name or trademark rights to the name "NetObjects." 8. CONFIDENTIAL INFORMATION. (a) Transferor understands that all Confidential Information received by Transferee from Transferor is and will remain proprietary and confidential to Transferor, and Transferee and Transferor shall be obligated to protect and maintain the confidentiality of the same. Transferor shall take all necessary and proper action to preserve the secrecy and prevent disclosure of such Confidential Information. Transferor shall not disclose Confidential Information except in connection with its exercise of the licenses received pursuant to Section 3(d) and 3(e) hereof. Confidential Information shall be disclosed or made available to Transferor's employees or representatives only on a need-to-know basis to the extent necessary for Transferor to enjoy the benefits of the license granted by Transferee to Transferor in Section 3(d) and 3(e) of this Amended Agreement. Transferor shall establish a reasonable security procedure to prevent unauthorized access to the Confidential Information. (b) The obligation imposed by this Section 8 to protect and not to disclose Confidential Information shall continue during the term of this Amended Agreement and thereafter, except with respect to such Confidential Information that sooner becomes lawfully within the public domain. 9. WARRANTIES AND DISCLAIMERS OF TRANSFEROR. (a) Transferor represents and warrants that it is the owner of or otherwise has the right to transfer and assign the Technology, the Intellectual Property Rights, the Confidential Information and the Technical Information 6 provided in Section 3 and otherwise to perform its obligations under this Amended Agreement. (b) Transferor warrants that, to the best of its knowledge, the technology and the intellectual property rights related thereto do not infringe any patent, copyright or trade secret right of any third party. (c) TRANSFEROR DOES NOT WARRANT THAT THE TECHNOLOGY OR THE INTELLECTUAL PROPERTY RIGHTS RELATED THERETO WILL MEET ANY SPECIFIED OR UNSPECIFIED REQUIREMENTS OR OPERATE IN ANY SPECIFIED OR UNSPECIFIED COMBINATIONS THAT TRANSFEREE MAY SELECT FOR USE; THAT THE TECHNOLOGY OR THE INTELLECTUAL PROPERTY RIGHTS RELATED THERETO ARE ERROR FREE; THAT ALL DEFECTS IN THE TECHNOLOGY WILL BE CORRECTED; OR THAT THE TECHNOLOGY IS FREE FROM ANY VIRUS, SOFTWARE ROUTINE OR OTHER PROGRAM DESIGNED TO PERMIT UNAUTHORIZED ACCESS, TO DISABLE, TO ERASE, OR OTHERWISE TO HARM SOFTWARE, HARDWARE OR DATA, OR TO PERFORM ANY OTHER SUCH ACTIONS. NO ORAL OR WRITTEN STATEMENT BY TRANSFEROR OR BY A REPRESENTATIVE OF TRANSFEROR SHALL CREATE A WARRANTY OR INCREASE THE SCOPE OF ANY WARRANTY GIVEN. (d) TRANSFEROR DOES NOT MAKE ANY WARRANTY, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE WITH RESPECT TO THE TECHNOLOGY OR THE INTELLECTUAL PROPERTY RIGHTS RELATED THERETO, INCLUDING ANY WARRANTY OF MANUFACTURABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. TRANSFEROR DOES NOT ASSUME OR AUTHORIZE ANY OTHER PERSON TO ASSUME FOR IT ANY LIABILITY IN CONNECTION WITH THE USE OF THE INTELLECTUAL PROPERTY RIGHTS RELATED TO THE TECHNOLOGY, OR THE SALE, USE OR OPERATION OF ANY PRODUCT UTILIZING THE TECHNOLOGY. (e) TRANSFEROR SHALL NOT BE LIABLE FOR ANY INJURY OR DAMAGE TO TRANSFEREE, OR TO ANY OTHER PERSON CAUSED DIRECTLY OR INDIRECTLY BY THE USE OF THE TECHNOLOGY OR THE SALE, USE OR OPERATION OF THE TECHNOLOGY OR ANY DERIVATIVE WORKS USING THE SAME. IN NO EVENT SHALL TRANSFEROR BE LIABLE TO ANY THIRD PARTY FOR ANY LOSS OR INJURY TO EARNINGS, PROFITS, OR GOODWILL, OR FOR ANY DIRECT, SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGES ARISING OUT OF TRANSFEREE'S USE OF THE TECHNOLOGY, THE INTELLECTUAL PROPERTY RIGHTS, THE CONFIDENTIAL INFORMATION OR THE TECHNICAL INFORMATION. 7 10. LIMITATION OF LIABILITY AND INDEMNIFICATION. (a) Except with respect to the breach of any representation or warranty contained in Section 9 hereof, Transferee agrees that Transferor will not be liable for defense or indemnity with respect to any claim against Transferee by any third party arising from Transferee's possession, use or distribution of the Technology, the Resulting Solo-N Technology and/or the Intellectual Property Rights, Confidential Information and Technical Information relating to each, or of products incorporating the same. (b) Except as otherwise provided in subsection (a), Transferee agrees to indemnify and hold harmless Transferor from and against any and all liability, loss, suit, damages, claims and proceedings, including reasonable attorneys' fees, expenses and costs, arising out of or connected with the sale, sublicense, commercialization or use of any of the Technology, the Resulting Solo-N Technology, the Intellectual Property Rights, or products incorporating such Technology, Resulting Solo-N Technology, or Intellectual Property Rights by Transferee, its customers or other third parties. 11. SEVERABILITY. The provisions of this Amended Agreement are severable, and if any one or more such provisions are judicially determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions or portions of this Amended Agreement shall nevertheless be binding on and enforceable by and between the parties hereto. 12. ASSIGNMENT, SUCCESSORS AND ASSIGNS. This Amended Agreement and all of the terms hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the rights of Transferor pursuant to Section 3(e) hereof shall not be assignable without Transferee's prior written consent, which Transferee may withhold in its sole and absolute discretion. 13. EXPORT CONTROL LAWS. (a) Transferee agrees to comply with all laws, rules and regulations applicable to the export of the Technology, the Intellectual Property Rights or products incorporating the Technology or the Intellectual Property Rights, or the Technical Information. Specifically, Transferee shall not export, re-export, transfer, or license the Technology, the Intellectual Property Rights, or the Technical Information, or any documentation thereof, in violation of any United States laws and regulations as may from time to time be applicable. 8 (b) Transferor agrees to comply with all laws, rules and regulations applicable to the export of the Technology, the Resulting Solo-R Technology, the Resulting Solo-N Technology and the Intellectual Property Rights relating to each, or products incorporating any of the foregoing. Specifically, Transferor shall not export, re-export, transfer or license the Technology, the Resulting Solo-R Technology, the Resulting Solo-N Technology or the Intellectual Property Rights related to each, or any documentation thereof, in violation of any United States laws and regulations as may from time to time be applicable. 14. EFFECTIVE DATE. This Amended Agreement has been entered into by Transferor and Transferee as of the date of the closing of the Series B Preferred Financing. Upon execution this Amended Agreement shall be effective as of December 21, 1995 for all purposes. 15. GENERAL. (a) All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery or on the day sent by facsimile transmission if a true and correct copy is sent the same day by first class mail, postage prepaid, or by dispatch by an internationally recognized express courier service, and in each case addressed to the address of the parties as set forth below, unless such party first notifies the other parties hereto in writing of any change in its address: If addressed to Transferor: Rae Technology, Inc. 2055 Woodside Road, Suite 250 Redwood City, CA 94061 Attention: President If addressed to Transferee: NetObjects, Inc. 2055 Woodside Road, Suite 250 Redwood City, CA 94061 Attention: President (b) Neither party has the authority to assume or create any obligation for or on behalf of the other party, express or implied. (c) The Former Agreement, as amended by this Amended Agreement, together with Exhibit A attached hereto, constitutes the entire agreement between the parties relating to the subject matter hereunder and supersedes all prior or contemporaneous oral or written agreements and understandings between the parties. No modification of this Amended Agreement shall be binding on any party unless it is in writing and signed by the party to be charged. 9 No waiver of any provision of this Amended Agreement shall be effective unless made in writing. No waiver of any breach of any provision of this Amended Agreement shall constitute a waiver of any subsequent breach of the same or of any other provision of this Amended Agreement. (d) In the event it is necessary to enforce this Amended Agreement or in the event of any dispute between the parties with respect to its interpretation, validity, or performance, the prevailing party in any such action shall be entitled to costs of suit and reasonable attorneys' fees. (e) The validity, performance and interpretation of this Amended Agreement shall be governed by the laws of the State of California. IN WITNESS WHEREOF, this Amended Agreement is executed as of the date and year first above written. RAE TECHNOLOGY, INC. NETOBJECTS, INC. By: /s/ Samir Arora By: /s/ Samir Arora --------------------------- --------------------------- Its: CEO Its: CEO --------------------------- --------------------------- 10 EX-10.12 41 EXHIBIT 10.12 TECHNOLOGY LICENSE AGREEMENT This Technology License Agreement (the "Agreement") is dated effective as of December 21, 1995, by and between Clement Mok Designs, a California corporation ("Licensor"), and NetObjects, Inc., a Delaware corporation ("Licensee"). R E C I T A L S WHEREAS, Licensor has developed certain proprietary methodology, know-how and intellectual property, commonly referred to by Licensor as the iD System, which, among other uses, can be used creatively to design, guide and implement computer display sites and screens commonly known as Websites and Webpages; WHEREAS, Licensee is in a position to create and add value to such know how and intellectual property, and to exploit its commercial potential; WHEREAS, Licensee desires to obtain, and Licensor desires to grant to Licensee, a royalty-free, perpetual, worldwide, nonexclusive license in the above-referenced know how and intellectual property, in consideration of the issuance of 1,000,000 shares of Series A Preferred Stock of Licensee to Licensor upon the initial capitalization of Licensee. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: A G R E E M E N T 1. DEFINITIONS. Terms used in this Agreement shall have the meaning set forth below, unless defined elsewhere or as the context may require: (a) "Base Technology" shall mean all of the proprietary methodology, know-how and intellectual property, and related documentation, commonly referred to by Licensor as the iD System, as set forth in more detail in Exhibit A, including without limitation all presently existing United States and foreign copyrights, know-how, patents, licenses, patent applications, software, inventions, trade secrets, formulas, algorithms, processes, methodologies, designs, schematics, diagrams and the like pertaining to the Base Technology. (b) "Confidential Information" shall mean (i) with respect to information received by Licensee, all information relating to the Base Technology disclosed or made available to Licensee, its employees or its representatives by Licensor that is marked, designated or described as confidential by Licensor, and (ii) with respect to information received by Licensor, all information relating to the Resulting Technology, and all market information, data, customer lists, and all other business information relating to Licensee that is marked, designated or described as confidential by Licensee. (c) "Intellectual Property Rights" shall mean all Confidential Information and, whether or not the following constitute Confidential Information, all of Licensor's United States and foreign copyrights, know-how, patents, licenses, patent applications, inventions, trade secrets, formulas, algorithms, processes, methodologies, designs, schematics, diagrams and the like pertaining to the Base Technology, or the Resulting Technology, as the case may be. (d) "Resulting Technology" shall mean all the results of the research, development and engineering work performed with respect to the Base Technology by Licensee, including without limitation, all derivative works, modifications, improvements, advanced software programs, patentable inventions or copyrightable material or any combination thereof that will allow commercial exploitation of the Base Technology. 2. GRANT OF RIGHT. (a) Subject to the terms and conditions herein, Licensor grants to Licensee a royalty free, perpetual, nonexclusive, transferable worldwide right and license, with right of sublicense, to use the Base Technology and the Intellectual Property Rights related thereto to develop the Resulting Technology and to commercialize, make, have made, copy, reproduce, duplicate, use, modify, incorporate into other works, compile, perform, exhibit, market, sell and license the Resulting Technology. (b) Licensor further grants the right and license to Licensee to prevent any unauthorized use and disclosure of the Base Technology and the Confidential Information, and the right to disclose the Base Technology and the Confidential Information to sublicensees and assignees of the same from Licensee, subject to Section 7 of this Agreement. 3. ISSUANCE OF SHARES. In consideration of the license granted in this Agreement, Licensee shall issue to Licensor 1,000,000 shares of fully paid, nonassessable Series A Preferred Stock of Licensee (the "Shares"), in connection with the transfer of certain property to Licensee by Licensor and certain other transferors pursuant to a transaction the parties thereto intend to be subject to the provision of Section 351 of the Internal Revenue Code of 1986, as amended. For purposes of California Revenue and Taxation Code Section 6011(c)(1), if and only if the proposed transaction is subject to California sales and use tax, the parties hereto agree that $20.00 of the total value of the license granted hereunder and of the total value of the Series A Preferred Stock issued in exchange therefor is allocable to the media and other tangible personal property on which the Base Technology is set forth, and all of the remaining value of the Series A Preferred Stock issued in exchange for this license is allocable to the intangible personal property comprising the Base Technology. If and only if the proposed transaction is subject to California sales and use tax, the parties hereto agree that each party shall be responsible for 50% of any sales and use tax imposed, except that Licensee shall be responsible for the first $100 in sales and use tax. 4. TITLE AND PROPRIETARY RIGHTS. (a) Title and ownership to the Base Technology and the Intellectual Property Rights related thereto shall reside in Licensor. (b) Title and ownership to the Resulting Technology and the Intellectual Property Rights related thereto shall reside in Licensee. 5. DELIVERY. Within thirty (30) days after execution of this Agreement, Licensor will transfer and deliver to Licensee a complete copy of all physical embodiment of the Base Technology, including all Intellectual Property Rights related thereto, and thereafter, Licensee shall promptly deliver the share certificate or certificates evidencing the Shares to Licensor. 6. SUBSEQUENT INVENTIONS. (a) All derivative works, modifications and improvements to the Base Technology and all inventions of whatsoever kind or nature incorporating or otherwise utilizing any of the Intellectual Property Rights related to the Base Technology developed by Licensee subsequent to the date of this Agreement shall be owned by Licensee. (b) Licensee shall have full right to cause United States and foreign copyright applications and patent applications to be prepared and prosecuted with respect to the Resulting Technology, at its own expense, and all such applications and resulting copyrights and patents shall be owned by Licensee. Licensor shall do all such acts and execute, acknowledge and deliver all instruments or writings reasonably requested and necessary for Licensee to perfect its title to the Resulting Technology, to secure copyrights and letters patent whenever possible, as well as all reissues, renewals and extensions thereof. Nothing contained in this Agreement, however, shall be construed as a representation or warranty by Licensee that any portion of the Resulting Technology shall be copyrightable or patentable. 7. CONFIDENTIAL INFORMATION. (a) Licensee understands that all Confidential Information received by Licensee from Licensor is proprietary and confidential to Licensor, and Licensee is obligated to protect and maintain the confidentiality of the same. Licensee shall refrain from disclosing any Confidential Information to any third party except pursuant to the terms of this Agreement permitting transfers of the Base Technology to third parties and shall take all necessary and proper action to preserve the secrecy and prevent disclosure of such Confidential Information. In furtherance of the foregoing, Licensee shall require all third parties that wish to utilize the Base Technology to first sign an agreement to be bound by the provisions of this Section 7. Confidential Information shall be disclosed or made available to Licensee's employees or representatives only on a need-to-know basis to the extent necessary for Licensee to enjoy the benefits of the license granted in Section 2 of this Agreement. Licensee shall establish a reasonable security procedure to prevent unauthorized access to the Confidential Information. (b) Licensor understands that all Confidential Information received by Licensor from Licensee is proprietary and confidential to Licensor, and Licensor is obligated to protect and maintain the confidentiality of the same. Licensor shall take all necessary and proper action to preserve the secrecy and prevent disclosure of such Confidential Information. Confidential Information shall be disclosed or made available to Licensor's employees or representatives only on a need-to-know basis. Licensor shall establish a reasonable security procedure to prevent unauthorized access to the Confidential Information. (c) Each party receiving Confidential Information from the other party shall appropriately identify and mark all reproductions, copies, extracts or the like of any documents containing Confidential Information as "Confidential," before distributing the same to its partners, representatives, employees, or where permitted hereunder, to others. (d) The obligation imposed by this Section 7 to protect and not to disclose Confidential Information shall continue during the term of this Agreement and thereafter, except with respect to such Confidential Information that sooner becomes lawfully within the public domain. 8. WARRANTIES AND DISCLAIMERS OF LICENSOR. (a) Licensor represents and warrants that it is the owner of or otherwise has the right to grant the licenses provided in Section 2 and otherwise to perform its obligations under this Agreement. Licensor makes no other warranties with respect to the subject matter of this Agreement and except for the warranties set forth in the preceding sentence, Licensor shall have no liability of any with respect hereto. (b) LICENSOR DOES NOT WARRANT THAT THE BASE TECHNOLOGY OR THE INTELLECTUAL PROPERTY RIGHTS RELATED THERETO WILL MEET ANY SPECIFIED OR UNSPECIFIED REQUIREMENTS OR OPERATE IN ANY SPECIFIED OR UNSPECIFIED COMBINATIONS THAT LICENSEE MAY SELECT FOR USE; THAT THE BASE TECHNOLOGY OR THE INTELLECTUAL PROPERTY RIGHTS RELATED THERETO IS ERROR FREE; OR THAT ALL DEFECTS IN THE BASE TECHNOLOGY WILL BE CORRECTED. NO ORAL OR WRITTEN STATEMENT BY LICENSOR OR BY A REPRESENTATIVE OF LICENSOR SHALL CREATE A WARRANTY OR INCREASE THE SCOPE OF THIS WARRANTY. (c) LICENSOR DOES NOT WARRANT THE BASE TECHNOLOGY AGAINST INFRINGEMENT OR THE LIKE WITH RESPECT TO ANY PATENT, COPYRIGHT, TRADE SECRET OR OTHER PROPRIETARY RIGHT OF ANY THIRD PARTY. (d) LICENSOR DOES NOT MAKE ANY WARRANTY, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE WITH RESPECT TO THE BASE TECHNOLOGY OR THE INTELLECTUAL PROPERTY RIGHTS RELATED, INCLUDING ANY WARRANTY OF MANUFACTURABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. LICENSOR DOES NOT ASSUME OR AUTHORIZE ANY OTHER PERSON TO ASSUME FOR IT ANY LIABILITY IN CONNECTION WITH THE USE OF THE INTELLECTUAL PROPERTY RIGHTS RELATED TO THE BASE TECHNOLOGY, OR THE SALE, USE OR OPERATION OF ANY PRODUCT UTILIZING THE BASE TECHNOLOGY. (e) LICENSOR SHALL NOT BE LIABLE FOR ANY INJURY OR DAMAGE TO LICENSEE, OR TO ANY OTHER PERSON CAUSED DIRECTLY OR INDIRECTLY BY THE USE OF THE BASE TECHNOLOGY OR THE SALE, USE OR OPERATION OF ANY RESULTING TECHNOLOGY USING THE SAME. IN NO EVENT SHALL LICENSOR BE LIABLE TO ANY THIRD PARTY FOR ANY LOSS OR INJURY TO EARNINGS, PROFITS, OR GOODWILL, OR FOR ANY DIRECT, SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGES ARISING OUT OF LICENSEE'S USE OF THE BASE TECHNOLOGY, THE RESULTING TECHNOLOGY AND THE INTELLECTUAL PROPERTY RIGHTS. 9. INFRINGEMENT PROSECUTIONS AND DEFENSE. (a) Licensor or Licensee acting on its own may bring an action for infringement of the Base Technology, the Resulting Technology and the Intellectual Property Rights related thereto by any third party. Neither party shall be a necessary party to an action brought by the other party. The party bringing the action shall have sole control over the prosecution of such action and the settlement thereof; provided, however, that if the settlement of the action shall have a material adverse effect on the other party, the settlement shall be subject to the consent of the other party, which consent shall not be unreasonably withheld. (b) Each party shall be responsible for its own costs and expenses, including attorneys' fees incurred, in defending any infringement lawsuit brought against such party by any third party arising from its possession, use or distribution of the Base Technology, the Resulting Technology, or any of the Intellectual Property Rights related thereto, and shall not be entitled to indemnity from the other party hereto with respect to any loss, liability or damages sustained or owed as a result of any such lawsuit. 10. LIMITATION OF LIABILITY. Licensee agrees that Licensor will not be liable for defense or indemnity with respect to any claim against Licensee by any third party arising from Licensee's possession, use or distribution of the Base Technology, the Resulting Technology or the Intellectual Property Rights relating thereto, or products incorporating such Intellectual Property Rights. Licensee shall include the disclaimers of Licensor set forth in Section 8 in all sublicense agreements between Licensee and its customers. 11. SEVERABILITY. The provisions of this Agreement are severable, and if any one or more such provisions are judicially determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions or portions of this Agreement shall nevertheless be binding on and enforceable by and between the parties hereto. 12. ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement and all of the terms thereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 13. EXPORT CONTROL LAWS. Licensee agrees to comply with all laws, rules and regulations applicable to the export of the Resulting Technology or the Base Technology. Specifically, Licensee shall not export, re-export, transfer, or license the Base Technology or the Resulting Technology, or any documentation thereof, in violation of any United States laws and regulations as may from time to time be applicable. 14. GENERAL. (a) All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery or on the day sent by facsimile transmission if a true and correct copy is sent the same day by first class mail, postage prepaid, or by dispatch by an internationally recognized express courier service, and in each case addressed to the address of the parties as set forth below, unless such party first notifies the other parties hereto in writing of any change in its address: If addressed to Licensor: Clement Mok Designs Penthouse, 600 Townsend Street San Francisco, CA 94103 Attention: President If addressed to Licensee: NetObjects, Inc. 2055 Woodside Road, Ste. 250 Redwood City, CA Attention: President (b) The relationship of Licensor and Licensee under this Agreement shall be solely that of licensor and licensee. Neither party has the authority to assume or create any obligation for or on behalf of the other party, express or implied. (c) This Agreement, together with Exhibit A attached hereto, constitutes the entire agreement between the parties relating to the subject matter hereunder and supersedes all prior or contemporaneous oral or written agreements and understandings between the parties. No modification of this Agreement shall be binding on any party unless it is in writing and signed by the party to be charged. No waiver of any provision of this Agreement shall be effective unless made in writing. No waiver of any breach of any provision of this Agreement shall constitute a waiver of any subsequent breach of the same or of any other provision of this Agreement. (d) In the event it is necessary to enforce this Agreement or in the event of any dispute between the parties with respect to its interpretation, validity, or performance, the prevailing party in any such action shall be entitled to costs of suit and reasonable attorneys fees. (e) The validity, performance and interpretation of this License Agreement shall be governed by the laws of the State of California. IN WITNESS WHEREOF, this Agreement is executed and effective as of the date and year first above written. CLEMENT MOK DESIGNS NETOBJECTS, INC. By: /s/ Clement Mok By: /s/ Samir Arora ------------------------------- ------------------------------ Its: Chairman Its: CEO ------------------------------ ------------------------------ EX-10.13 42 EXHIBIT 10.13 DISTRIBUTION AGREEMENT THIS DISTRIBUTION AGREEMENT ("Agreement"), is entered into this 6th day of March, 1997, by and between INGRAM MICRO INC. ("Ingram"), a Delaware corporation, having its principal place of business at 1600 E. St. Andrew Place, Santa Ana, California 92705, and Net Objects, Inc. ("Vendor"), a Delaware corporation, having its principal place of business at 2055 Woodside Road, Redwood City, California 94061. The parties desire to and hereby do enter into a distributor/supplier relationship, the governing terms and mutual promises of which are set out in this Agreement. 1. DISTRIBUTION RIGHTS 1.1. TERRITORY. Vendor grants to Ingram, including its affiliates for resale, and Ingram accepts, the non-exclusive right to distribute in North, Central and South America all computer products produced and/or offered by Vendor ("Product") during the term of this Agreement. Ingram shall have the right to purchase, sell and ship to any reseller within the territory or to Ingram's affiliate, or at Vendor's option Ingram's affiliate may purchase direct from Vendor. 1.2. PRODUCT. Vendor agrees to make available and to sell to Ingram such Product as Ingram shall order from Vendor at the prices and subject to the terms set forth in this Agreement. Ingram shall not be required to purchase any minimum amount or quantity to the Product. 2. TERM AND TERMINATION 2.1. TERM. The initial term of this Agreement is one (1) year. Thereafter the Agreement will automatically renew for successive one (1) year terms, unless it is earlier terminated. 2.2. TERMINATION. (a) Either party may terminate this Agreement, with or without cause, by giving thirty (30) days written notice to the other party. (b) Either party may immediately terminate this Agreement with written notice if the other party: (i) materially breaches any term of this Agreement and such breach continues for thirty (30) business days after written notification thereof; or (ii) ceases to conduct business in the normal course, becomes insolvent, makes a general assignment for the benefit of creditors, suffers or permits the appointment of a receiver for its business or assets, or avails itself or becomes subject to any proceeding under 1 any Bankruptcy Act or any other federal or state statute relating to insolvency or the protection of rights of creditors; or (iii) attempts to assign or otherwise transfer its rights hereunder unless both have agreed in writing to such assignment or transfer. 3. INGRAM OBLIGATIONS 3.1. PRODUCT AVAILABILITY. Ingram will list Product in its catalog(s) as appropriate and endeavor to make such Product available to customers. 3.2. ADVERTISING. Ingram will advertise and/or promote Product in a commercially reasonable manner and will transmit as reasonably necessary Product information and promotional materials to its customers. 3.3. SUPPORT. Ingram will make its facilities reasonably available for Vendor and will assist in Product training and support. Ingram will provide reasonable, general Product technical assistance to its customers, and will direct all other technical directly to Vendor. 3.4. ADMINISTRATION. (a) Upon request, Ingram will furnish Vendor with a valid tax exemption certificate. (b) Ingram will provide Vendor within five (5) days after the end of each calendar month, a printed and/or electronic file in a format acceptable to Ingram and Vendor, a sales-out report and inventory report showing: current inventory levels of each Vendor's Products (including items in transit), weekly runrate snapshots, total sales to the channel for all of Ingram's shipping locations. Reports shall include but are not limited to, the Vendor part number, Ingram part number, Ingram cost, quantity sold and customer zip code. (c) Ingram may handle its customers' Product returns by batching them for return to Vendor at regular intervals. 4. VENDOR OBLIGATIONS 4.1. SHIPPING EXPORT. (a) Vendor shall ship Product pursuant to Ingram purchase order(s) ("P.O."). The terms and conditions of this Agreement shall apply to each order accepted or shipped by Vendor hereunder. The provisions of Ingram's form of purchase order or other business form shall not apply to any order notwithstanding Vendor's acknowledgment or acceptance of such order except for the following terms which Vendor shall accept with respect to each order pursuant and subject to the provisions of this Agreement: (i) quantity and type of Ingram Products ordered; (ii) 2 requested delivery dates and (iii) freight terms. Product shall be shipped F.O.B. Ingram's designated warehouse with risk of loss or damage to pass to Ingram upon delivery to the warehouse specified in Ingram's P.O. (b) Ingram requires concurrent with the execution of this Agreement Export Administration Regulations product classification and supporting documentation: Certificate of Origin (General Use and/or NAFTA), Export Commodity Control Number's; (ECCN's), General License and/or Individual Validated License information and Schedule "B"/Harmonized Numbers. This applies when distribution rights granted under Section 1.1 are outside the United States for the initial Product/s and when additions or changes to these Products occurs. 4.2. INVOICING. For each Product shipment to Ingram, Vendor shall issue to Ingram an invoice showing Ingram's order number, the Product part number, description, price and any discount. Upon Ingram's request, Vendor shall provide an aging report listing all invoices outstanding. 4.3. PRODUCT AVAILABILITY. Vendor agrees to maintain sufficient Product inventory to fill Ingram's orders. If a shortage of any Product exists, Vendor agrees to allocate its available inventory of such Product to Ingram in proportion to Ingram's percentage of all Vendor's customer orders for such Product during the previous sixty (60) days. 4.4. PRODUCT MARKING. Vendor will clearly mark each unit of Product with the Product name and computer compatibility. Such packaging will also bear a machine-readable bar code identifier scannable in standard Uniform Product Code (UPC) format. The bar code must identify the Product as specified by the Uniform Code Council (UCC). If the Vendor or Ingram customers' require serial number tracking the serial number must be clearly marked and bar coded on the outside of the individual selling unit. The bar code shall fully comply with all conditions regarding standard product labeling set forth in Exhibit B in the then-current Ingram GUIDE TO BAR CODE: THE PRODUCT LABEL. Vendor may be assessed a reasonable per unit charge for all Product not in conformance herewith. 4.5. PRODUCT NOTES. Vendor will either thirty (30) days provide product note information in accordance with Ingram's specifications noted in Exhibit C or instruct Ingram to do so in which case a charge per SKU will apply. 4.6. SUPPORT. At no charge to Ingram, Vendor shall support Product and any reasonable Ingram efforts to sell Product. Vendor shall also provide to Ingram, its employees, and its customers reasonable amounts of sales literature, advertising materials, and training and support in Product sales. 4.7. NEW PRODUCT. Vendor shall endeavor to notify Ingram at least thirty (30) days before the date any new Product is introduced. Vendor shall make such Product 3 available for distribution by Ingram no later than the date it is first offered for sale in the marketplace. 4.8. INSURANCE. Vendor shall carry insurance coverage for product liability/completed operations with minimum limits of three million ($3,000,000). Within ten (10) days of full execution of this Agreement, Vendor shall provide Ingram with a Certificate of Insurance. This Certificate of Insurance must include: (i) a broad form endorsement naming Ingram as an additional insured, and (ii) a mandatory thirty (30) day notice to Ingram of insurance cancellation. 4.9. WARRANTIES/CERTIFICATION. (a) GENERAL WARRANTY. Vendor represents and warrants that (i) it has good transferable title to the Products, (ii) the Product or its use does not infringe any patents, copyrights, trademarks, trade secrets,, or any other intellectual property rights, (iii) that there are no suits or proceedings pending or threatened which allege any infringement of such proprietary rights, and (iv) the Product sales to Ingram do not in any way constitute violations of any law, ordinance, rule or regulation in the distribution territory. (b) PRODUCT WARRANTY AND LIMITATION OF LIABILITY. EXCEPT FOR THE EXPRESS WARRANTIES IN THE END USER LICENSE AGREEMENTS ACCOMPANYING THE VENDOR'S PRODUCTS, VENDOR DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, WITH REGARD TO THE VENDOR PRODUCTS LICENSED HEREUNDER, INCLUDING ALL WARRANTIES OR MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND AGAINST INFRINGEMENT OR THE LIKE. In no event shall Vendor be liable for any damages arising from performance or nonperformance of any Vendor Products or for any lost profits or other consequential damages even if Vendor has been advised the possibility of such damages, nor shall Vendor be liable for any claim against Ingram or its customers by any other party except as provided otherwise in the applicable End User License Agreement. The warranty provided in the applicable End User License Agreement is the only warranty made with respect to the Vendor Product sand the remedy provided therein for breach of such warranty is Ingram's and its customers' exclusive remedy therefor. (c) WARRANTY. Vendor hereby represents and warrants that any Product offered for distribution does not contain any obscene, defamatory or libelous matter or violate any right of publicity or privacy. (d) END-USER WARRANTY. Vendor shall provide a warranty statement with Product for end user benefit. This warranty shall commence upon Product delivery to end-user. (e) MADE IN AMERICA CERTIFICATION. Vendor by the execution of this Agreement certifies that it will not label any of its products as being "Made in America," 4 "Made in U.S.A.," or with similar wording, unless all components or elements of such Product is in fact made in the United States of America. Vendor further agrees to defend, indemnify and hold harmless from and against any and all claims, demands, liabilities, penalties, damages, judgments or expenses (including attorney's fees and court costs) arising out of or resulting in any way from Product that does not conform to the Certification. 5. PRICING 5.1. INGRAM PRICING. The suggested retail price and any Ingram discount for Product is set out in Exhibit D. Vendor may modify Exhibit D with a minimum of thirty (30) days advance written notice to Ingram. All Ingram order Products will be billed at the price in effect when the order is placed. Ingram shall have sole discretion as to selling price of Product to its customers. 5.2. VENDOR PRICING. Vendor agrees that the prices and terms it offers to Ingram are now and will continue to be the same as any other similar type of customer as Ingram for the territory Ingram has distribution rights to. If Vendor offers price discounts, promotional discounts or other special prices to its other customers, Ingram shall also be entitled to participate in and receive notice of the same no later than Vendor's other similar type of customer as Ingram for the territory Ingram has distribution rights to. 5.3. INTERNATIONAL PRICING. If Vendor offers a better price outside the U.S. and Ingram has distribution rights in that territory then the same price shall be offered to Ingram for Product sales into that territory. 5.4. PRICE ADJUSTMENTS. If Vendor reduces any Product price, or offers increased discounts to any other similar type of customer as Ingram for the territory Ingram has distribution rights to, Vendor will promptly credit Ingram for the difference between the original Product price and the reduce Product price for Ingram's inventory, including: (i) any Customer Product in-transit from/to Ingram, (ii) any unshipped orders, and (iii) orders in-transit to Ingram on the price reduction or increased discount offer date. In the event that Vendor shall raise the list price of a Product, all orders for such Product placed prior to the effective date of the price increase shall be invoiced at the lower price. Vendor shall provide Ingram with thirty (30) days advance notice of any price increases. 5.5. PAYMENT TERMS. Ingram's initial order payment terms shall be net sixty (60) days. Subsequent order payment terms shall be [***] percent ([***]%) fifteen (15) days, net thirty (30) days. Payment shall be deemed made on the payment postmark date. 5.6. RIGHT TO WITHHOLD. Notwithstanding any other provision in this Agreement to the contrary, Ingram shall not be deemed in default if it withholds any specific amount *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406 5 to Vendor because of a legitimate dispute between the parties as to that specific amount pending the timely resolution of the disputed amount. 6. MARKETING 6.1. TRADEMARKS. Ingram may advertise and promote the Product and/or Vendor, and may thereby use Vendor's trademarks, service marks and trade names. Neither party shall acquire any rights in the trademarks, service marks or trade names of the other. 6.2. MARKETING DEVELOPMENT FUNDS. Vendor agrees to provide allowances for the reimbursement of Ingram's expenditures for advertising and market development of Vendor's Products. Such allowances will accrue in an amount equal to [***] percent ([***]%) of the total amount invoiced by Vendor to Ingram (net of Product returns and similar deductions) for shipments of Products but only if Ingram has provided to Vendor on a timely basis the proof of performance. Vendor and Ingram will agree to the market development expenditures in advance. Vendor may provide additional project based funds for marketing development at Vendor's sole discretion. Vendor reserves the right in its sole discretion to increase, decrease or terminate such allowance for any reason upon forty-five (45) days advance written notice to Ingram. Such allowance may only be used to reimburse Ingram for advertising and market development which occurs in the six (6) month period following the calendar month in which such allowance was accrued. To be eligible for such allowance Ingram must provide Vendor with evidence of Ingram's expenditure on which such claim for reimbursement is based on and such other information as Vendor may reasonably request. Such reimbursement will take the form of a credit on Ingram's account for future orders from Ingram under this Agreement or as mutually agreed to, a deduction from Vendor's invoice to Ingram for past orders from Vendor. 6.3. QUARTERLY MINIMUMS, VOLUME CREDITS. Vendor agrees to provide Ingram with Volume Incentive Rebate program which will be paid on net sales. Ingram will receive a guaranteed [***] percent ([***]%) rebate and will be eligible to receive additional rebates up to [***] percent ([***]%) based on the following functional objectives: (1) Reseller breadth, (2) net sales (excluding site management licenses) and (3) an additional function objective to be determined quarterly. Prior to the beginning of each calendar quarter during the term of this Agreement, Vendor will notify Ingram of all goals. Vendor will provide Ingram a credit within thirty (30) days after the end of the quarter based on the invoice amount or the quantity of Products that Ingram sold to Resellers during such quarter if Ingram meets the goals established by Vendor in such notice. Not withstanding any other provision of this Agreement, Ingram will not be entitled to any credits for any quarter under this section if: (1) Vendor has not given Ingram notice of Minimum Amount and Breadth goals and credits for such quarter, (2) Ingram does not provide Vendor on a timely basis with all the reports required by section 3.4b (the monthly sales and inventory reports) for each month of such quarter. All credits under this section will apply to outstanding invoices from Vendor under this *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406 6 Agreement. If there are no outstanding invoices Vendor shall issue a check. In the event that this Agreement is terminate, Vendor will, within thirty (30) days after termination, pay Ingram all unused or unpaid credits which has accrued to Ingram's account, less any amounts owed by Ingram to vendor. Upon request, Ingram will provide documentation regarding Ingram's attainment of Breadth and Minimum Amount goals. 6.4. SUPPORT PRODUCT. Vendor shall consign a reasonable amount of demonstration Product to aid Ingram in its support and promotion of Product. All such consigned Product will be returned to Vendor upon request. 7. RETURNS 7.1. STOCK BALANCING. For the purpose of inventory balancing, Ingram may return Products once per calendar quarter provided Products are in their original packaging for full credit of the Products' purchase price, plus all freight charges for returned Product. The aggregate dollar amount of all individual Ingram returns shall not exceed twenty-five percent (25%) of the value of Ingram's net purchase of Products from Vendor during the three (3) months immediately preceding such returns. Vendor agrees to consider in good faith any Ingram requests on a cases by case basis for returns in excess of said twenty-five percent (25%) amount. 7.2. POST-TERM/TERMINATION For one hundred eighty (180) days after the expiration or earlier termination of this Agreement, Ingram may return to Vendor any Product for credit against outstanding invoices, or if there are no outstanding invoices for a cash refund. Any credit or refund due Ingram for returned Product shall be equal to the Product purchase price plus all freight charges incurred by Ingram in returning the Product. 7.3. PRODUCT DISCONTINUATION Vendor shall give Ingram thirty (30) days advance written notice of Product discontinuation. Ingram may return all such Product to Vendor within one hundred eighty (180) days following discontinuation for full credit of Product purchase price plus all freight charges incurred by Ingram in returning the Product. 7.4. DEFECTIVE PRODUCT (a) Ingram may return any Product to Vendor that Ingram or its customer finds defective during the warranty period. Vendor shall immediately credit Ingram for the Product purchase price, plus all freight charges incurred by Ingram in returning the defective Product. (b) If any Product is recalled by Vendor because of defects, revisions or upgrades, Ingram will, at Vendor's request, provide reasonable assistance with the recall. Vendor will pay Ingram's expenses in connection with such recall. 7 8. INDEMNIFICATION 8.1. PRODUCT INDEMNITY Vendor shall defend, indemnify, and hold harmless Ingram from and against any claims, demands, liabilities, or expenses (including attorney's fees and costs), any personal or bodily injury or property damage, arising out of or resulting in any way from any defect in Products. This duty to indemnify Ingram shall be in addition to the warranty obligations of Vendor. 8.2. GENERAL INDEMNITY Each party shall indemnify, defend and hold the other harmless from and against any and all claims, actions, damages, demands, liabilities, costs and expenses, including reasonable attorney's fees and expenses, resulting from any act or omission of the acting party or its employees under this Agreement, that causes or results in property damage, personal injury or death. 8.3. INTELLECTUAL PROPERTY RIGHTS INDEMNITY Vendor shall defend, indemnify and hold Ingram, harmless from and against all damages and costs incurred by any of them arising from the infringement of any U.S. patent, copyright, trademark, trade secret or other proprietary right by reason of the manufacture, sale, marketing, or use of Product. 8.4. PRODUCT INFRINGEMENT. Upon threat of claim of infringement, Vendor may, at its expense and option (i) procure the right to continue using any part of Product, (ii) replace the infringing Product with a non-infringing Product of similar performance, or (iii) modify Product to make it non-infringing. If Vendor does not so act within ninety (90) days after such claim, Ingram may return Product to Vendor for a full credit against future purchases or for a cash refund, at Ingram's option. 8.5. LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR LOST PROFITS OF BUSINESS, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES, WHETHER BASED IN CONTRACT OR TORT (INCLUDING NEGLIGENCE, STRICT LIABILITY OR OTHERWISE), AND WHETHER OR NOT ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THIS LIMITATION IS IN NO WAY MEANT TO LIMIT VENDOR'S LIABILITY FOR PERSONAL INJURY OR DEATH AS A RESULT OF A DEFECT IN ANY PRODUCT IN THOSE JURISDICTIONS WHERE THE LAW DOES NOT ALLOW THIS LIMITATION. 9. COMPLIANCE WITH FEDERAL LAWS AND REGULATIONS 9.1. EXECUTIVE ORDER 11246. Vendor agrees to include the Equal Employment Opportunity Clause by reference in every contract, agreement and purchase order entered into with subcontractors or suppliers as required by 41 CFR 60-1.4. 9.2. EMPLOYER INFORMATION REPORT EEO-1/ WRITTEN AFFIRMATIVE ACTION PROGRAM. Vendor agrees that if the value of any contract or purchase order is fifty thousand dollars ($50,000) or more and the Vendor has fifty (50) or more employees, Vendor will 8 (i) file an EEO-1 report (Standard Form 100) and comply with and file such other compliance reports as may be required under Executive Order 11246, as amended, and Rules and Regulations adopted thereunder and (ii) will develop a written affirmative action compliance program for each of its establishments as required by Title 41 CFR 60-1.40. 9.3. VETERANS EMPLOYMENT CLAUSE. Vendor agrees to abide by and comply with the provisions of the Affirmative Action Clause, 41 CFR 60-250.4. 9.4. EMPLOYMENT OF HANDICAPPED PERSONS. Vendor agrees that it will abide by and comply with the provisions of the Affirmative Action Clause, CFR 60-741.4. 9.5. SMALL BUSINESS CONCERNS AND SMALL BUSINESS CONCERNS OWNED AND CONTROLLED BY SOCIALLY AND ECONOMICALLY DISADVANTAGED INDIVIDUALS. Where a government contract is expected to exceed five hundred thousand dollars ($500,000), Vendor agrees to comply with all requirements of P.L. 95-507 and regulations promulgated thereunder. Vendor shall comply with instructions contained in Exhibit F. 9.6. WOMEN-OWNED BUSINESS CONCERNS. Vendor shall comply with instructions contained in Exhibit F. Where a government contract is expected to exceed five hundred thousand dollars ($500,000), Vendor agrees to comply with all requirements of Executive Order 12138 and all regulations promulgated thereunder. 10. GOVERNMENT PROGRAM 10.1. PARTNERSHIP AMERICA. Vendor may, at its sole option, participate in Ingram's government reseller program in which case the provisions of Exhibit G, Partnership America, shall apply. A draft copy is provided solely for your information and review. 11. GENERAL PROVISIONS 11.1. NOTICES. Any notice which either party may desire to give the other party must be in writing and may be given by (i) personal delivery to an officer of the party, (ii) by mailing the same by registered or certified mail, return receipt requested, to the party to whom the party is directed at the address of such party as set forth at the beginning of this Agreement, or such other address as the parties may hereinafter designate, and (iii) by facsimile or telex communication subsequently to be confirmed in writing pursuant to item (ii) herein. 11.2. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of California, except that body of law concerning conflicts of law. The United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement. 9 11.3. COOPERATION. Each party agrees to execute and deliver such further documents and to cooperate as may be necessary to implement and give effect to the provisions contained herein. 11.4. FORCE MAJEURE. Neither party shall be liable to the other for any delay or failure to perform which results from causes outside its reasonable control. 11.5. ATTORNEYS FEES. In the event there is any dispute concerning the terms of this Agreement or the performance of any party hereto pursuant to the terms of this Agreement, and any party hereto retains counsel for the purpose of enforcing any of the provisions of this Agreement or asserting the terms of this Agreement in defense of any suit filed against said party, each party shall be solely responsible for its own costs and attorney's fees incurred in connection with the dispute irrespective of whether or not a lawsuit is actually commenced or prosecuted to conclusion. 11.6. EXPORT REGULATIONS. Ingram agrees by the purchase or Products to conform to, and abide by, the export laws and regulations of the United States, including but not limited to, the Export Administration Act of 1979 as amended and its implementing regulations. Ingram shall include a statement in it's standard sales terms and conditions that any shipment of Product outside the United States will require a valid export license. Ingram further agrees to distribute Product in accordance with the territory as defined in Section 1.1. Whenever a EU country is specified as Territory under Section 1.1, Territory shall include all EU countries. 12. AGREEMENT 12.1. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12.2. SECTION HEADINGS. Section headings in this Agreement are for convenience only, and shall not be used in construing the Agreement. 12.3. INCORPORATION OF ALL EXHIBITS. Each and every exhibit referred to hereinabove herein by reference as if set forth herein in full. 12.4. SEVERABILITY. A judicial determination that any provision of this Agreement is invalid in whole or in part shall not affect the enforceability of those provisions found to be valid. 12.5. NO IMPLIED WAIVERS. If either party fails to require performance of any duty hereunder by the other party, such failure shall not affect its right to require performance of that or any other duty thereafter. The waiver by either party of a breach of any provision of this Agreement shall not be a waiver of the provision itself or a waiver of any breach thereafter, or a waiver of any other provision herein. 10 12.6. BINDING EFFECT/ASSIGNMENT. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, and their respective representatives, successors and permitted assigns. This Agreement shall not be assignable by Vendor, without the express written consent of Ingram, which consent shall not be unreasonably withheld, including to a Person in which it has merged or which has otherwise succeeded to all or substantially all of such party's business and assets to which this Agreement pertains and which has assumed in writing or by operation of law its obligations under this Agreement. Any attempted assignment in violation of this provision will be void. 12.7. SURVIVAL. Sections 5.5 (Payment Terms), 5.6 (Right to Withhold), 7.2 (Post-Term Termination) and 8, (Indemnification) shall survive the expiration or earlier termination of this Agreement. 12.8. ENTIRETY. This Agreement constitute the entire agreement between the parties regarding its subject matter. This Agreement supersedes any and all previous proposals, representations or statements, oral or written. Any previous agreements between the parties pertaining to the subject matter of this Agreement are expressly terminated. The terms and conditions of each party's purchase orders, invoices, acknowledgments/confirmations or similar documents shall not apply to any order under this Agreement, and any such terms and conditions on any such document are objected to without need of further notice or objection. Any modifications to this Agreement must be in writing and singed by authorized representatives of both parties. 12.9. AUTHORIZED REPRESENTATIVE. Either party's authorized representative for execution of this Agreement or any amendment hereto shall be president, a partner, or a duly authorized vice-president of their respective party. The parties executing this Agreement warrant that they have the requisite authority to do so. IN WITNESS WHEREOF, the parties hereunto have executed this Agreement. "Ingram" "Vendor" Ingram Micro Inc. NetObjects, Inc. 1600 E. St. Andrew Place 2055 Woodside Road Santa Ana, California 92705 Redwood, City, California 94601 By: /s/ V L Cotten By: /s/ Mark Patton --------------------------------- ------------------------------------ Name: Victoria L. Cotten Name: Mark Patton ------------------------------- ---------------------------------- Title: Sr. Vice President Purchasing Title: V.P. Sales & Corp. Marketing ------------------------------ --------------------------------- Date: 5-30-97 Date: 5/22/97 ------------------------------- ---------------------------------- *AGREEMENT MUST BE SIGNED BY PRESIDENT OR BY A DULY AUTHORIZED VICE PRESIDENT OR PARTNER. 11 EXHIBITS: A - Vendor Routing Guide B - Guide to Bar Code: The Product Label C - Product Notes D - Product Price List E - "IMAGINE" Program F - Small And Disadvantaged Business Certification G - Partnership America 12 EX-10.14 43 EXHIBIT 10.14 COMMERCIAL APPLICATION PARTNER (CAP) AGREEMENT ---------------------------------------------- This Agreement is made effective 30 June 1997 between Sybase, Inc. ("Sybase") with offices at 6475 Christie Ave, Emeryville, California 94608, and NetObjects, Inc. ("Partner") with offices at 2055 Woodside Road, Redmond City, California 94061. 1. LICENSE GRANT. Subject to the terms and conditions below, Sybase grants to Partner a nonexclusive and nontransferable license to market and distribute copies of unmodified object code versions of those Sybase and/or Powersoft software products identified in the attached initialed Schedules along with accompanying documentation ("Programs") to Partner's customers ("End-Users") who will use the Programs only for their own internal business purposes in the applicable Territory described in each Schedule A, provided that the Programs are distributed for use with computer application programs developed by Partner for commercial distribution to more than one third party and containing significant added functionality over the Programs ("Application Software"). Partner shall license to each End-User the same number of copies of the Programs and the same number of Seats/Named Users for such Programs as Partner licenses to such End-User for its Application Software. In addition to being able to distribute "full use" copies of the Programs, "full use" Seats and "full use" Named Users, Partner may also distribute, with respect to certain Programs identified in Sybase's then-current price list, Application Deployment Copies, Application Deployment Seats and Application Deployment Named Users (which are restricted licenses defined in the Sybase license agreement accompanying each copy of the Program ("Sybase Shrinkwrap")). Partner may also sell to End-Users certain Sybase services as described in the Schedule(s). Notwithstanding the above, if the Territory includes any of the Prohibited Countries set forth in Sybase's then current "Prohibited Country List" (a current copy of which has been provided to Partner), Partner may not market or distribute Programs for use in such Prohibited Countries. Partner shall not use or allow its End Users to use the Programs for timesharing, rental or service bureau purposes or on behalf of any third party (but the foregoing restrictions shall not be construed to prevent Partner from distributing the Application Software together with the Programs over the internet). In connection with the distribution rights granted above, Partner may appoint distributors to distribute the Programs to End-Users within the Territory. The appointment of distributors shall be by contracts which require that the distributor market the Programs only in accordance with the terms of this Agreement and on a basis which protects the proprietary interests of Sybase in and to the Programs to the same extent that Partner's proprietary interests in its own products are protected (but in any event no less than a reasonable extent). Partner may order under this Agreement (a) copies of the Programs for its own internal production purposes and/or developing and supporting the Application Software ("Internal Use Copies"), (b) copies of the Programs which may only be used for developing and supporting the Application Software ("Development Copies"), (c) copies of the Programs which may be distributed to End-Users for evaluation purposes and for up to the number of days designated in the applicable Schedule A, ("Evaluation Copies") which Partner agrees to ensure become disabled after such period of time, and (d) up to that number of copies of the Programs shown on Schedule A for purposes of Partner providing demonstrations and training for the Application Software ("Demonstration Copies"). Partner is authorized to incorporate into the documentation for the Application Software portions of the documentation for the Program to the extent such portions are necessary to document usage of the Program in conjunction with the Application Software. 2. FEES AND PAYMENT TERMS. For the first year of this Agreement, Partner shall be responsible for paying to Sybase a non-refundable program fee shown in Schedule A ("Initial Fee"). The Initial Fee is due upon execution of this Agreement by Partner. For each additional year, a non-refundable annual program renewal fee ("Annual Renewal Fee") as set forth in such Schedule is due and payable upon each anniversary of the date of this Agreement. Fees as set forth in the attached Schedule(s) shall be due to Sybase for each copy of the Programs and each service ordered by Partner; such fees shall be based on Sybase's then-current price list for the country in which the Programs are to be used or the services are to be delivered ("Price List"). The license fee for Development Copies is the same as the fee for Internal Use Copies unless Sybase designates otherwise in its Price List. The license fee for Demonstration Copies, if any, is set forth in the Schedule(s). Notwithstanding the above, there is no charge for authorized Evaluation Copies distributed to End-Users. License fees, if any, for Internal Use Copies, Development Copies, Demonstration Copies, and copies of the Programs which Sybase ships to Partner for distribution to End-Users shall be due and payable to Sybase with Partner's order for the Programs or, upon Sybase credit approval of Partner, 60 days after the date of Sybase's invoice for the Programs. Any past-due invoice may subject Partner to credit hold at the sole discretion of Sybase. All fees under this Agreement are stated in United States dollars. 3. OWNERSHIP. Programs are owned by Sybase or its licensors and are protected by copyright law, trade secret laws and international conventions. All rights in and to patents, copyrights, trademarks and trade secrets in the Programs are and shall remain with Sybase and its licensors. No title to or ownership of the Programs is transferred to Partner or End-User. Partner shall not translate, localize or modify any portion of the Programs without the prior written consent of Sybase. 4. ORDERING AND DELIVERY. Internal Use Copies, Development Copies, Demonstration Copies, Evaluation Copies and copies of the Programs for distribution directly or indirectly to End-Users shall be ordered from Sybase and delivered by Sybase to Partner (or in the case of Evaluation Copies and copies for distribution to End-Users, Sybase shall deliver the copies directly to the End-Users if so instructed by Partner). Partner will use the "Exhibit A" form adopted by Sybase from time to time (or a Purchase Order containing the same information) to order Programs from Sybase. All shipments are FOB origin, and Partner is responsible for all shipping charges. Except for taxes on Sybase's income, Partner shall be responsible for any sales, use, excise or any other form of taxes resulting from this Agreement. 5. LICENSE ACCOMPANYING PROGRAMS. If Partner uses the Programs, Partner agrees to be bound by the terms and conditions of the Sybase Shrinkwrap. Notwithstanding the above, Development Copies and Demonstration Copies shall only be used for the purposes outlined in Section 1 above and shall be returned to Sybase upon expiration or termination of this Agreement. Partner shall ensure that the End-User's use of the Programs is either subject to the terms and conditions of (a) the Sybase Shrinkwrap or (b) an executed license agreement or shrinkwrap agreement between Partner and End-User which is substantially similar to, and no less restrictive in protecting Sybase's interests than, the Sybase Shrinkwrap. If Evaluation Copies are being licensed, the Sybase Shrinkwrap or license agreement between Partner and End-User (as applicable) shall be modified by Partner to provide that the Programs may only be used for the designated evaluation period (which is not to exceed 90 days in length) after which the license shall terminate and the Programs will become disabled. If a conflict arises between this Agreement and any such license agreement, the terms of this Agreement shall prevail. Partner shall undertake reasonable efforts to enforce the terms of any license agreement between Partner and an End-User as it relates to the Programs. 6. REPORTS. Partner shall keep or cause to be kept full and accurate accounts and records of all transactions made by it and by its authorized distributors under this Agreement (including Evaluation Copies) in form such that all amounts owing hereunder to Sybase may be readily and accurately determined. Partner shall undertake to assure that its distributors are (a) accurately reporting to Partner all sales to End-Users and (b) otherwise complying with this Agreement. Partner shall allow Sybase to examine its records to determine compliance with this Agreement, and not more than annually provided a previous audit did not show non-compliance with this Agreement. Any examination shall be at the expense of Sybase, shall occur during regular business hours at Partner's offices and shall not interfere unreasonably with Partner's regular activities. Sybase shall give Partner 30 days or more prior written notice of the date of each such examination and the name of the accountant who will be conducting the examination. All information obtained from conducting the examinations shall be maintained as Confidential Information. Partner agrees to pay Sybase any amounts owing as a result of Partner's non-compliance with the payment provisions of this Agreement within 60 days of the date of the examination report which details such non-compliance. In the event such amounts owed by Partner to Sybase exceeds 10% of total royalties due, Partner shall pay the costs of such examination. 7. SUPPORT & MAINTENANCE. Partner shall be solely responsible for providing End-User technical support and service of warranty claims for Partner's Application Software, including the Programs, provided that Partner may also sell Sybase technical support services for the Programs only, on the terms described in the attached Schedules. Partner may distribute to End-Users to whom it has licensed Application Deployment Copies of a Program updates to such Program which are made generally available by Sybase so long as Partner has paid Sybase all applicable Application Deployment Maintenance Fees. 8. INDEPENDENT CONTRACTORS. Partner and Sybase are independent contractors and are not agents or representatives of each other. Partner does not have the right to bind Sybase and shall not misstate or misrepresent its relationship to Sybase. 9. ADVERTISING; TRADEMARKS. Sybase may identify Partner as a Commercial Application Partner in Sybase advertising and marketing materials given Partner's prior approval. Partner shall not make any representations concerning the Programs which are inconsistent with Sybase's marketing materials and advertising. Partner may utilize applicable Sybase trademarks and logos only in accordance with Sybase's then-current published guidelines, and trademarks shall remain the exclusive property of Sybase or its licensors. Partner shall suitably feature, except when Partner's business interests may be adversely affected, the Programs and related trademarks and Sybase's ownership of the Program in any advertising, marketing literature, product documentation, and packaging of the Application Software. Partner shall give recognition in the Application Software of Sybase's proprietary rights in the Programs, and shall do so in the same manner, places and times, and no less conspicuously, than the recognition of the proprietary rights of any other software (excluding the Application Software), but in any event Partner shall include such recognition in the "Help About" dialogue box or equivalent. 10. TERM AND RIGHTS UPON TERMINATION. This Agreement will become effective as of the date first shown above and shall continue in force for a period of 3 years, subject to (a) Partner's payment of all fees owing hereunder, or (b) termination under Section 11 below. Thereafter, this Agreement shall automatically renew for additional one-year terms subject to payment of Sybase's then-current Annual Renewal Fee and provided that Partner is not then in default of this Agreement, unless written notice of termination is given by either party at least 30 days prior to the expiration of the term then in effect. No expiration or termination of this Agreement shall impair or affect (i) Internal Use Copies, which shall continue so long as Partner is not in breach of the Sybase Shrinkwrap or (ii) copies of Programs distributed by Partner to End-Users in accordance with this Agreement prior to the effective date of the expiration or termination of this Agreement. All Demonstration Copies shall be returned to Sybase. Termination or expiration shall not release either party from its liability to pay any fees accruing prior to the date of the termination or expiration. Sections 3, 5, 10, 11, 12, 13, 14 and 18 of this Agreement shall survive any expiration or termination of this Agreement. 11. DEFAULT. Either party may immediately terminate this Agreement or any license granted hereunder by written notice to the other if such other party breaches any term or condition of this Agreement, including but not limited to failure to pay when due any fee hereunder, and does not remedy such breach within 30 days of written notice thereof from the non-breaching party. Each party will reimburse the other party for all reasonable costs incurred by the other party (including attorneys' fees) in collecting past due amounts hereunder. Any breach which by its nature cannot be remedied shall entitle the non-breaching party to terminate this Agreement immediately upon written notice to the other party. This remedy shall not be an exclusive remedy and shall be in addition to any other remedies which the non-breaching party may have under this Agreement or otherwise. 12. CONFIDENTIAL INFORMATION. Each party will not disclose or use any business and/or technical information of the other designated orally or in writing as "Confidential" or "Proprietary" (together, "Confidential Information") without the prior written consent of the other party. Such restrictions do not extend to any item of information which (a) is now or later becomes available in the public domain without the fault of the receiving party; (b) is disclosed or made available to the receiving party by a third party without restrictions and without breach of any relationship of confidentiality; (c) is independently developed by the receiving party without access to the disclosing party's Confidential Information, (d) is known to the recipient at the time of disclosure, or (e) is produced in compliance with applicable law or court order, provided that the disclosing party is given reasonable notice of such law or order and an opportunity to attempt to preclude or limit such production. Upon termination or expiration of this Agreement, each party shall immediately return all copies of Confidential Information received from the other party. Partner shall not release the results of any benchmark of the Programs to any third party without the prior written approval of Sybase for each such release. 13. DISCLAIMER OF WARRANTY; LIMITATION OF LIABILITY. Except as expressly provided in the Sybase Shrinkwrap, NO EXPRESS OR IMPLIED WARRANTY OR CONDITION IS MADE WITH RESPECT TO THE PROGRAMS OR SERVICES SUPPLIED BY SYBASE OR ITS SUBSIDIARIES, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. The aggregate liability to Sybase and its subsidiaries, if any, for any losses or damages arising out of or in connection with this Agreement, whether the claim is in contract, tort or otherwise, shall not exceed the amount paid by Partner to Sybase under this Agreement for the affected Programs or services. UNDER NO CIRCUMSTANCES SHALL SYBASE, ITS SUBSIDIARIES OR ITS LICENSORS BE LIABLE FOR SPECIAL, INDIRECT, EXEMPLARY, INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LEGAL FEES, LOSS OF PROFITS, LOSS OR INACCURACY OF DATA OR LOSS RESULTING FROM BUSINESS DISRUPTION, EVEN IF SYBASE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT IF PARTNER IS FOUND TO HAVE (i) MADE UNAUTHORIZED COPIES OF THE PROGRAM(S) OR (ii) DISTRIBUTED THE PROGRAM(S) TO THIRD PARTIES IN VIOLATION OF THIS AGREEMENT, PARTNER SHALL NOT BE LIABLE FOR SPECIAL, INDIRECT, EXEMPLARY, INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LEGAL FEES, EVEN IF PARTNER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 14. INDEMNIFICATION. Partner indemnifies and holds harmless Sybase, its affiliates, directors, employees and agents from all third party claims, including court costs and reasonable fees of attorneys and expert witnesses, arising in connection with (a) a breach by Partner of its agreement with an End-User or distributor (unless such breach was caused by Sybase's breach of this Agreement or the Sybase Shrinkwrap), or (b) use of the Application Software if liability is not caused in whole or in part by the Programs as provided by Sybase. Sybase indemnifies and holds harmless Partner, its affiliates, directors, employees and agents from all third party claims, including court costs and reasonable fees of attorneys and expert witnesses, arising in connection with (i) a breach by Sybase of the Sybase Shrinkwrap or (ii) use of the Programs as provided by Sybase if liability is not caused in whole or in part by the Application Software. 15. EXPORT RESTRICTION. Partner shall not transfer, directly or indirectly, any restricted Programs or technical data received from Sybase or its subsidiaries, or the direct product of such data, to any destination subject to export restrictions under U.S. law, unless prior written authorization is obtained from the appropriate U.S. agency. 16. ASSIGNMENT. This Agreement may not be assigned (by operation of law or otherwise) or otherwise transferred in whole or in part by Partner unless Partner has received prior written permission from Sybase, such permission not to be unreasonably denied by Sybase. Notwithstanding the immediately preceding sentence, Partner may assign or otherwise transfer this Agreement to the surviving entity as a result of a merger, acquisition or reorganization of all or substantially all of the Partner's assets or stock provided that (a) such entity is not a direct competitor of Sybase, (b) such entity agrees that it will be bound by the terms and conditions of this Agreement and (c) in the event of any assignment to a surviving entity, such entity's rights to use the Program shall be limited to use of the Program in connection with the business acquired from Partner. To the extent Partner is permitted to assign this Agreement, all provisions of this Agreement shall be binding upon Partner's successors or assigns. 17. NOTICES. All notices under this Agreement shall be in writing and either delivered personally, sent by first class mail, express carrier or by confirmed facsimile transmission to the address of the party set forth above (and if to Sybase, to the attention of the General Counsel). All notices shall be deemed given on the business day actually received. 18. OTHER. This Agreement, the initialed Schedules, and any documents explicitly referred to therein, constitute the entire agreement between the parties, supersede any and all previous agreements authorizing Partner to distribute the Programs to third parties and no representation, condition, understanding or agreement of any kind, oral or written, shall be binding upon the parties unless incorporated herein. This Agreement may not be modified or amended, nor will the rights of either party be deemed waived, except by an agreement in writing signed by authorized representatives of Partner and Sybase. Purchase orders shall be binding as to the products and services ordered, and the site for delivery of Programs or performance of services as set forth on the face side of or a special attachment to the purchase order. Other terms and preprinted terms on or attached to any purchase order shall be void. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California without regard to its conflict of laws rules or the United Nations Convention on the International Sale of Goods. If any provision of this Agreement is held to be unenforceable, the parties shall substitute for the affected provision an enforceable provision which approximates the intent and economic effect of the provision. The parties have requested that this Agreement and all documents contemplated hereby be drawn up in English. ACCEPTED AND AGREED ON BEHALF OF: NetObjects, Inc. ("Partner") Sybase, Inc. ("Sybase") /s/ Morris Taradalsky /s/ Mitchell L. Gaynor - ----------------------------------- -------------------------------------- (Authorized Signature) (Authorized Signature) Morris Taradalsky Mitchell L. Gaynor - ----------------------------------- --------------------------------------- (Printed Name) (Printed Name) Vice President, General EVP Business Development 6/30/97 Counsel and Secretary 6/30/97 - ----------------------------------- --------------------------------------- (Title) (Date) (Title) (Date) SCHEDULE A - SILVER LEVEL TO THE COMMERCIAL APPLICATION PARTNER AGREEMENT DEVELOPMENT TOOL PARTNER FEES AND GUIDELINES - ------------------------------------------------------------------------------- TERRITORY United States and Canada; however, Partner may sell application-specific deployment seats worldwide. - ------------------------------------------------------------------------------- INITIAL FEE $[***] ANNUAL RENEWAL FEE $[***] ONLY ONE INITIAL AND ANNUAL FEE REQUIRED PER AGREEMENT. - ------------------------------------------------------------------------------- EVALUATION COPIES Entitled to 90-Day Evaluation Copies. - ------------------------------------------------------------------------------- DISCOUNT FOR SOFTWARE Sybase will check block and initial if authorized to PROGRAMS sell: / / DEVELOPMENT TOOLS / / DESIGN TOOLS / / WORKPLACE DATABASES Discounts for the above software Programs are specified in the then-current Development Tools Partner Products Price List. - ------------------------------------------------------------------------------- DISCOUNT FOR SALE OF [***] discount off then-current Price List on technical END-USER TECHNICAL support offerings that Sybase makes generally available SUPPORT OR UPGRADE to its customers. SUBSCRIPTIONS [***] discount off then-current Price List on upgrade subscriptions. PARTNER SHALL NOT SELL RENEWALS OF EITHER UPGRADE SUBSCRIPTIONS OR TECHNICAL SUPPORT. - ------------------------------------------------------------------------------- COMMISSION INCENTIVES When a Partner refers Sybase to a potential sale and has significantly influenced the customer decision to purchase the software Programs, Partner may be eligible to receive a commission. All commissions shall be in accordance with Sybase then-current policy which Sybase may change at its sole discretion from time to time. - ------------------------------------------------------------------------------- DISCOUNT FOR PARTNER [***] discount off then-current Price List on any TECHNICAL SUPPORT commercially available end-user technical support offering. - ------------------------------------------------------------------------------- DISCOUNT FOR PARTNER [***] discount off then-current Price List on any TRAINING Sybase standard training rates for Partner employees or agents trained at Sybase or Powersoft public training centers. - ------------------------------------------------------------------------------- ACCEPTED AND AGREED: (MT) 6/30/97 MG 6/30/97 ---------------------------- -------------------------- (PARTNER INITIALS) (Date) (SYBASE INITIALS) (Date) DEVELOPMENT TOOLS PRODUCTS LIST AND ALL DISCOUNTS ARE SUBJECT TO CHANGE UPON 30 DAYS PRIOR WRITTEN NOTICE. *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. SQL ANYWHERE -TM- MASTER DISK ADDENDUM (PAGE 1 OF 3) TO THE COMMERCIAL APPLICATION PARTNER (CAP) AGREEMENT This Master Disk Addendum ("Addendum") for SQL Anywhere database server software ("SQL Anywhere") is made 30 June 1997 between Sybase, Inc. ("Sybase") and NetObjects, Inc. ("Partner"). This Addendum supplements and amends the terms of the Commercial Application Partner Agreement dated 30 June 1997 ("Agreement") between the parties hereto. In the event of a conflict between the Agreement and this Addendum, the terms and conditions of this Addendum shall prevail. This Addendum shall expire or terminate with the Agreement. Capitalized terms not otherwise defined in this Addendum shall have the meanings set forth in the Agreement. For purposes of this Addendum, "Application Software" means Partner's software known as "Fusion Multi-User Software" or such successor name. SQL ANYWHERE MASTER DISK PROGRAM AND GUIDELINES - ------------------------------------------------------------------------------- LICENSE FEE Upon Partner's signing of this Addendum, Partner shall pay PREPAYMENT Sybase the Prepay Amount designated below. The Prepay Amount is non-refundable and irrevocable, and may only be used as specified in this Addendum. - ------------------------------------------------------------------------------- REPORTING & Partner shall, within 30 days after each calendar-quarter end, LICENSE FEE provide Sybase (i) a written report showing the cumulative PAYMENTS number of SA Servers or 10-Seat-Bundles and SA Server Updates or 10-Seat-Bundle Updates (including Evaluation Copies and Demonstration Copies) distributed by Partner during such preceding calendar quarter along with the name of the Application Software with which such SA Servers or 10-Seat- Bundles and SA Server Updates or 10-Seat-Bundle Updates were distributed and (ii) payment (once the Prepay Amount is depleted) for any SA Server or 10-Seat-Bundle fees and SA Server or 10-Seat-Bundle Update fees due. - ------------------------------------------------------------------------------- ACCESS AND (1) An "SA Server" is a copy of SQL Anywhere bundled with AD SEATS Partner's Application Software and licensed for use with not more than ten (10) AD Seats (without the purchase of additional licenses). (2) A "10-Seat-Bundle" is a license which permits an additional ten (10) AD Seats to access an existing licensed SA Server. (3) An application deployment seat ("AD Seat")" is a license for a copy of a Program or a Seat (as applicable) which can only be used for the purpose of (1) an End-User running non-custom Application Software (excluding any third party application programs marketed by Partner) and (2) extracting data on a read only basis from the Application Software for use with other applications; such extraction may either be through tools within the Application Software or through third party tools. As used in the prior sentence, the phrase "running non-custom Application Software" means that the End User cannot use the Programs to create or alter columns, tables, schemas or databases unless (a) such columns, tables, schemas and databases are created or altered by and within the context of the Application Software (i.e., the Application Software must generate the commands without the End-User itself using the Program's command verbs) and only include data first captured in the specific Application Software in which the new columns or tables are created or altered (i.e., not transferred into such Application Software from other Application Software or applications), and (b) the commands to insert, delete or modify data in the new or altered columns, tables, schemas or databases must be included within existing "begin transaction" and "commit transaction" statements in the original version of the Application Software. Moreover, an AD Seat may not be used to run copies of Programs which have been modified through a full- use license to include modifications not permitted above. Notwithstanding the above, the End User may use standard database administration command verbs used for backup, recovery, space/index management and consistency checking in the course of systems administration. Additionally, for the purpose of this Addendum only, use of SQL Anywhere on a server or a standalone device such as a laptop shall also be counted as an AD Seat. (4) A "Seat" means a specific identifiable unique accessor of information such as a terminal, PC, single user workstation or real time device licensed to access SQL Anywhere without regard to when the access occurs; use of software or hardware which reduces the number of accessors (sometimes called "multiplexing" or "pooling") does not reduce the number of Seats, but rather the number of Seats is equal to the number of distinct inputs to the multiplexing software or hardware. (5) Partner may exercise all rights granted under the Agreement and this Addendum with regard to SA Servers and 10-Seat-Bundles on a worldwide basis only in conjunction with their Application Software. (6) Partner may use SA Servers and 10-Seat-Bundles for internal use only in conjunction with their Application Software. In addition, Partner may use SA Servers and 10-Seat-Bundles as Demonstration Copies and need not return said Demonstartion Copies to Sybase. - ------------------------------------------------------------------------------- ----------------THIS ADDENDUM IS CONTINUED ON THE NEXT PAGE---------------- SQL ANYWHERE -TM- MASTER DISK ADDENDUM (PAGE 2 OF 3) - ------------------------------------------------------------------------------- AD SEAT Except if this Addendum or this Agreement is terminated due to SURVIVAL Partner's default, should Partner have SA Servers or 10-Seat- Bundles that remain of those prepaid for herein, then upon expiration or termination of this Addendum Partner may continue to distribute said remaining SA Servers or 10-Seat-Bundles (in inventory as of the date of said expiration or termination) in accordance with the terms and conditions of this Addendum and the Agreement. It is expressly understood and agreed by Partner that any price protection or price related to maintenance, updates or support shall expire upon said expiration or termination. - ------------------------------------------------------------------------------- RESTRICTION Partner shall comply with the authentication routines ("Routine(s)") delivered within SQL Anywhere that allows SQL Anywhere to work only with Partner's Application Software and with other software all as described above in the section "Access and AD Seats". Partner shall ensure that the Routine(s) operates effectively. Partner shall not take any action which may reduce the effectiveness of the Routine(s). All aspects of the Routine(s) including its mechanism and the manner in which it is applied to the Application Software is Confidential Information under section 12 of the Agreement. Partner shall verify the effectiveness of the Routine prior to releasing the Application Software. Such verification will include tests to ensure that SQL Anywhere operates with the Application Software and with other software only as described above in the section "Access and AD Seats". If the Routine(s) is ineffective, Partner shall (a) promptly notify Sybase in writing and (b) refrain from distributing the Application Software until the Routine(s) is corrected provided that Sybase promptly corrects and delivers to Partner revised Routine(s) to include in the Application Software and Partner cooperates with Sybase in determining the cause of the ineffectiveness of the Routine(s). Partner shall be released from its obligation under (b) above if Sybase fails to deliver corrected Routine(s) within five (5) business days of Sybase's receipt of written notice pursuant to (a) above. - ------------------------------------------------------------------------------- DISTRIBUTORS Notwithstanding anything contained in this Addendum or the Agreement to the contrary, Partner may appoint its distributors to reproduce, license and sublicense the SA Servers and 10-Seat- Bundles on behalf of Partner only as part of Partner's Application Software worldwide. Partner represents and warrants that it shall ensure that each such distributor arrangement be pursuant to the following requirements: (i) be in the form of a written agreement between Partner and distributor that complies with the terms and conditions of this Agreement, and (ii) that Partner shall enforce the terms and conditions of such agreements with said distributors, and (iii) that Partner and distributor exercising such rights shall be jointly and severally liable to Sybase under this Agreement, and (iv) any such agreement with each distributor must specifically identify Sybase as an intended third party beneficiary. - ------------------------------------------------------------------------------- MASTER DISK Partner and its distributors are authorized to distribute SA Servers and AD Seats (as defined below) and Partner, but not its distributors, is authorized to make Evaluation Copies and Demonstration Copies of the Programs and copies of the Programs to be licensed as SA Servers and AD Seats from Master Disks ("Master Disks") that Sybase will make available to Partner. Partner may make as many Evaluation Copies and Demonstration Copies as it reasonably requires. Partner shall ensure that all Sybase copyright and other proprietary notices which are included in the Master Disks are included on any copies made from the Master Disks. Partner acknowledges that Master Disks may contain devices which count or limit the number of copies which can be made and Partner will not tamper with such devices. Partner shall maintain Master Disks under lock and key and shall allow only a specified number of its own employees to make copies from Master Disks. Partner shall fully account for all copies of the Programs. Partner shall not modify or alter any proprietary rights notice contained within the Programs. Partner is strictly prohibited from providing access or transferring the Master Disk to any third party without the prior written approval of Sybase, except as authorized in the immediately preceding section to this Addendum titled "Distributors". If Partner elects under Section 5 of the Agreement to utilize the Sybase Shrinkwrap in connection with its distribution of the Programs, Partner may reproduce the Sybase Shrinkwrap for such purposes. Sybase shall deliver to Partner a Master Disk of SQL Anywhere containing its database engine, network server, ODBC drivers, network requestor software and related administration tools. Sybase shall exercise reasonable efforts to provide Partner with a trial version of SQL Anywhere suitable for downloading over the internet in conjunction with downloadable version of the Application Software. Partner acknowledges that such trial version of SQL Anywhere may be limited in functionality or may contain a mechanism to disable it after a certain time period has elapsed. - ------------------------------------------------------------------------------- ----------------This Addendum Is Continued On The Next Page--------------- SQL ANYWHERE -TM- MASTER DISK ADDENDUM (PAGE 3 OF 3) - ------------------------------------------------------------------------------- PARTNER Partner shall perform the following marketing obligations: MARKETING => Spend at least $100,000 during the twelve (12) months OBLIGATIONS following the signing of the Agreement on mutually-agreed joint marketing activities with Sybase. Such activities shall be agreed to in advance in writing by the Parties respective authorized representatives. Partner shall notify Sybase in writing of its representative authorized to approve such marketing activities. => Assist in issuing a mutually agreed upon joint press release between the parties. => The SQL Anywhere logo, as provided by Sybase, shall be prominently displayed, except when Partner's business interests may be adversely affected, on the exterior of each package that contains the Application Software that is used in conjunction with SQL Anywhere. => As appropriate, publicize SQL Anywhere by specifically promoting it in press releases, press tours, consultant and/or analyst briefings relating to your Application Software. => A senior executive of Partner shall provide Sybase a positive testimonial regarding SQL Anywhere for use by Sybase in its own advertising and marketing activities as mutually agreed upon by the parties. - ------------------------------------------------------------------------------- SYBASE At no charge to Partner and with mutual agreement between the MARKETING parties, Sybase commits to: OBLIGATIONS => Spend at least $100,000 during the twelve (12) months following the signing of the Agreement on mutually-agreed joint marketing activities with Partner. Such activities shall be agreed to in advance in writing by the Parties respective authorized representatives. Sybase's authorized representative for purposes of such joint marketing activities shall be Brian Vink. => Assist in issuing a mutually agreed upon joint press release between the parties. => Place Partner's name on Sybase's partner website and internet website. => Provide a web-link to Partner's website from Sybase's partner website. => Provide a half-page Partner ad in one issue of the Sybase "Connections" newsletter. => Availability through 31 December 1997 to Sybase's partner mailing list via a blind third-party mailing house for Partner's direct mailing use. - ------------------------------------------------------------------------------- VERSION OF SQL ANYWHERE BEING ACQUIRED: SQL Anywhere AD Seats for Windows 3.1, Windows'95, Windows NT, DOS, OS/2 and Netware.
- ------------------------------------------------------------------------------- PREPAY AMOUNT* PER SA SERVER FEE OR PER PER SA SERVER UPDATE FEE OR (NON-REFUNDABLE) 10-SEAT-BUNDLE FEE PER 10-SEAT-BUNDLE UPDATE FEE - ------------------------------------------------------------------------------- $[***] $[***] $[***] - -------------------------------------------------------------------------------
* ONLY SA SERVER AND 10-SEAT-BUNDLE FEES CAN BE APPLIED AGAINST THE PREPAY AMOUNT. THE PREPAY AMOUNT EXCLUDES SA SERVER UPDATE FEES AND 10-SEAT-BUNDLE UPDATE FEES. UPDATES: Sybase may make certain minor corrections, fixes, etc. ("Maintenance Releases") to SQL Anywhere that are available to other existing Sybase customers. Sybase will make such Maintenance Releases available to Partner. Partner may provide such Maintenance Releases to new users in accordance with the per AD Seat fee contained in this Addendum and Partner may update existing users of SQL Anywhere to the Maintenance Releases at no additional charge. Sybase may make certain major corrections, enhancements, etc. ("Update") to SQL Anywhere. Partner may provide an Update to NEW users in accordance with the per SA Server fee or per 10-Seat-Bundle fee, as applicable, contained in this Addendum, and Partner may provide an Update to EXISTING users of SQL Anywhere for the per SA Server Update fee or per 10-Seat-Bundle Update fee, as applicable, indicated above. For each Update, an Update fee is required. Except as amended above, the Agreement shall remain in full force and effect. NetObjects, Inc. ("Partner") Sybase, Inc. ("Sybase") /s/ Morris Taradalsky /s/ Mitchell L. Gaynor - -------------------------------- ------------------------------------- (Authorized Signature) (Authorized Signature) Morris Taradalsky Mitchell L. Gaynor - -------------------------------- ------------------------------------- (Printed Name) (Printed Name) Vice President, General EVP Business Development 6/30/97 Counsel and Secretary 6/30/97 - -------------------------------- ------------------------------------- (Title) (Date) (Title) (Date) *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. INSTALLMENT PAYMENT AGREEMENT This Installment Payment Agreement ("IPA") is made as of the date set forth below by and between Sybase, Inc. ("Licensor") and NetObjects Inc. ("Customer"). Customer promises to pay to the order of Licensor ("Payee"), at its office located at 6475 Christie Avenue, Emeryville, CA 94608, or at such other place as the holder of this IPA may from time to time designate, total fees of [***] UNITED STATES DOLLARS (U.S. $[***]). Such fees are owing in connection with the licensing of software products and services as specified in the SQL Anywhere Master Disk Addendum dated June 30, 1997, to the Commercial Application Partner (CAP) Agreement (as amended, the "AGREEMENT") between Sybase and Partner dated June 30, 1997. Customer has elected to pay in installments the total amount set forth above rather than make the payments specified on the SQL Anywhere Master Disk Addendum within 30 days. Sales and use taxes relating to such products and services are not included in the installments and will be due and payable by Customer within 30 days of the date hereof. 1. The fees shall be due and payable in six consecutive quarterly installments, each in the amount of $[***], commencing on December 30, 1997, and on the same day of each quarter thereafter to and including March 30, 1999, when the remaining unpaid balance of this IPA, together with any interest on late payments, if any, accrued thereon, shall be immediately due and payable. If any installment shall not be paid when due, such overdue payment shall bear interest (calculated on the basis of a 365-day year and actual days elapsed) at the rate of 10% per annum until paid. Customer may prepay payments under this IPA at any time, but shall not be entitled to any discount or rebate therefor. Customer hereby waives grace, demand, presentment for payment, notice of non-payment, protest and notice of protest, notice of dishonor or default, notice of intent to accelerate, notice of acceleration and diligence in collecting and bringing of suit. All obligations of Customer under this IPA shall survive any termination of the licenses relating to the Licensed Software. 2. Customer represents and warrants to the holder hereof that (a) the Customer is a corporation duly organized, validly existing and in good standing under applicable state law; (b) this IPA is a genuine, legal, valid and binding obligation of Customer, enforceable against Customer in accordance with its terms, subject to applicable bankruptcy and other similar laws affecting creditors' rights generally, and the execution, delivery and performance of the IPA will not violate or create a default under any law (including any applicable usury law), regulation, judgment, order, instrument, agreement or charter document binding on Customer or its property; (c) the IPA has been duly authorized, executed and delivered by Customer; (d) each signatory of this IPA has the authority to bind Customer to this IPA; (e) the Licensed Software has been delivered to and accepted by Customer and (f) the financial statements and other information furnished and to be furnished to Payee are and will be true and correct and prepared in accordance with generally accepted accounting principles (GAAP) consistently applied. 3. If any of the following events shall occur (each an "Event of Default"), then the holder of this IPA may, at its option and without notice to Customer or any other person, declare the outstanding balance of this IPA, together with any interest or other sums that Customer may owe to the holder hereof under or in connection with this IPA, immediately due and payable and exercise any other remedies available at law or equity: (i) Customer fails to pay when due all or any portion of any installment or any other amounts payable hereunder; (ii) any representation or warranty made by Customer or any endorser, guarantor or surety hereof in any writing furnished in connection with this IPA or the indebtedness evidenced hereby proves to be false in any material respect when made; (iii) final judgment for the payment of money shall be rendered against Customer or any endorser, guarantor or surety hereof and the same shall remain undischarged for a period of 60 days during which execution of such judgment shall not be effectively stayed, if the amount of such judgment is such that it may materially adversely affect Customer's financial condition or its ability to perform its obligations under this IPA; or (iv) Customer or any endorser, guarantor or surety shall cease doing business as a going concern or transfer all or a substantial part of its assets; or become or be adjudicated insolvent or bankrupt, admit in writing its inability to pay its debts as they become due, or make an assignment for the benefit of creditors; or Customer or any endorser, guarantor or surety shall apply for or consent to the appointment of any receiver, trustee or similar officer for it or for all or any substantial part of its property; or such receiver, trustee or similar officer shall be appointed without the consent of Customer; or Customer or any endorser, guarantor or surety shall institute any bankruptcy, insolvency, reorganization, moratorium, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it under the laws of any jurisdiction, or any such proceeding is instituted against Customer or any endorser, guarantor or surety and is not dismissed within 60 days; or any judgment, writ, warrant or attachment or execution of similar process is issued or levied against a substantial part of Customer's property and remains unsatisfied for 30 days. 4. In the event that suit is brought hereon, or an attorney is employed or costs or expenses are incurred to compel payment of this IPA or any portion of the indebtedness evidenced hereby or to protect, preserve or enforce the rights of the holder hereof, Customer promises to pay all such costs, expenses and attorneys' fees (including but not limited to those incurred on appeal) to the holder hereof in addition to all other amounts owing hereunder. Notwithstanding any other provisions of this IPA or any document or instrument executed or delivered in connection with this IPA, interest, fees and the like shall not exceed the maximum rate permitted by applicable law. In addition to all other rights and remedies of Licensor and the Assignee, upon an Event of Default Licensor shall have the right, to terminate all licenses granted to Customer under the Software Agreement relating to Licensed Software, except that licenses granted to customers and users will remain in effect. *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. 5. No delay or omission on the part of the holder hereof in exercising any right hereunder shall operate as a waiver of such right or of any other right under this IPA or under any other document or instrument executed or delivered in connection with this IPA. Each notice or other communication required or permitted to be given or delivered hereunder shall be in writing and shall be sent or delivered, if to Customer, at the address indicated beneath Customer's signature below and, if to the holder hereof, at the address set forth in the first paragraph hereof, or, if such holder is not the Payee, at the last address designated by such holder to Customer and shall become effective when delivered, or if mailed, when deposited in the United States mail with proper postage prepaid for registered or certified mail, return receipt requested. 6. This IPA has been entered into in connection with a Commercial Application Partner (CAP) Agreement (as amended, the "AGREEMENT") between Sybase and Partner. The use of the Licensed Software by Customer is subject to the terms of the applicable Agreement. In the event that software licensed from Licensor does not perform as warranted or in the event of any other dispute or default under an Agreement, Customer shall be entitled to pursue against Licensor all of Customer's rights and remedies arising under the applicable Agreement. Customer hereby acknowledges and agrees that Payee has transferred or assigned, or may transfer or assign, this IPA to such transferee or assignee as Payee in its discretion may select (each such transferee or assignee, together with any subsequent transferees or assignees, being collectively referred to as "ASSIGNEE"). The Customer agrees that upon such transfer or assignment it will not assert against Assignee any claim or defense which it may have against Payee or Licensor, and that upon the written instruction of Payee or Assignee that payments under this IPA are to be made to Assignee, Customer shall promptly comply with, and (if requested) acknowledge in writing, such instructions. The Customer agrees that upon such transfer or assignment its obligations to pay amounts due under this IPA to Assignee are absolute and unconditional, and shall not be subject to any defenses, setoffs or counterclaims that it may have against Licensor, regardless of whether or not (a) Licensor has breached any of its warranties or other covenants under an Agreement, (b) the licenses granted under the Agreements and/or any maintenance, support or other services provided thereunder have been revoked or otherwise terminated for any reason whatsoever or (c) an Agreement has expired or been terminated for any reason whatsoever. Accordingly, in the event of any breach or default under an Agreement, Customer's sole remedy shall be against Licensor under that Agreement, and Customer shall have no right to not make the installment payments required hereunder. ASSIGNEE MAKES NO WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE SOFTWARE OR SERVICES COVERED BY THE AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR OF MERCHANTABILITY. CUSTOMER HEREBY WAIVES ANY CLAIM (INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT) THAT IT MAY HAVE AGAINST ASSIGNEE FOR ANY LOSS, DAMAGE (INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS, LOSS OF DATA OR SPECIAL, PUNITIVE, INCIDENTAL OR CONSEQUENTIAL DAMAGE) OR EXPENSE CAUSED BY THE SOFTWARE OR ANY SERVICES COVERED BY THE AGREEMENT, EVEN IF ASSIGNEE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE, LOSS, EXPENSE OR COST. CUSTOMER ACKNOWLEDGES THAT ASSIGNEE DID NOT SELECT, MANUFACTURE, DISTRIBUTE OR LICENSE THE SOFTWARE COVERED BY THE AGREEMENT AND THAT THE CUSTOMER HAS MADE THE SELECTION OF SUCH SOFTWARE BASED UPON ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS ANY RELIANCE ON STATEMENTS MADE BY ASSIGNEE OR ITS AGENTS. 7. This IPA shall be governed in all respects by and construed in accordance with the laws of the State of California. Any action against Customer concerning this IPA and the indebtedness evidenced hereby may be brought in any court of competent jurisdiction located in the State of California, and Customer hereby accepts the nonexclusive jurisdiction of any such court and waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action. This IPA shall constitute the complete and exclusive agreement of Customer and Payee with respect to the payment of the amounts owing hereunder and supersedes all prior oral or written understandings. No term or provision of this IPA may be amended, waived, discharged or terminated except by a written instrument signed by Customer and the Payee. IN WITNESS WHEREOF, the undersigned have executed this IPA as of the date set forth below. SYBASE, INC. NETOBJECTS INC. By /s/ Scott Ivey By /s/ Morris Taradalsky ------------------------------ ------------------------------- Name: Scott Ivey Name: Morris Taradalsky --------------------------- ---------------------------- Title: Treasurer Title: EVP Business Development -------------------------- --------------------------- Date: 6/27/97 Address: 2055 Woodside Rd Redwood City, CA 94061 --------------------------- -------------------------- NOTICE OF ASSIGNMENT June 25, 1997 NetObjects Inc. 2055 Woodside Road Ste. 250 Redwood City, CA 94061 Re: Installment Payment Addendum or Installment Payment Agreement ("IPA") of NetObjects Inc. ("Customer") dated June 30, 1997, payable to the order of Sybase, Inc. in the original principal amount of $[***]. There are six quarterly payments of $[***] remaining as of the date hereof with the next payment being due December 30, 1997. Customer: Notice is hereby given that Sybase, Inc. has sold and assigned the rights to receive the remaining payments due under the IPA, to Newcourt Financial USA Inc. ("Assignee"). Customer is hereby directed, and by signature below agrees, to pay directly to the Assignee at the address set forth below, all payments required to be paid by the Customer under the terms of the IPA. Assignee is the holder in due course of the IPA. Assignee: Newcourt Financial USA Inc. P.O. Box 71521 Chicago, IL 60694-1521 Very truly yours, AGREED Sybase, Inc. NetObjects Inc. By: /s/ Scott Ivey By: /s/ Morris Taradalsky --------------------------- -------------------------------- Title: Treasurer Title: EVP Business Development ------------------------ ----------------------------- *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. EX-10.15 44 EXHIBIT 10.15 EXHIBIT 10.15 NETOBJECTS, INC. MASTER DISTRIBUTOR AGREEMENT TABLE OF CONTENTS
Page 1. Definitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 (a) "Actual Sales Percentage". . . . . . . . . . . . . . . . . . 1 (b) "Adapted Documentation". . . . . . . . . . . . . . . . . . . 1 (c) "Confidential Information" . . . . . . . . . . . . . . . . . 1 (d) "Distributor". . . . . . . . . . . . . . . . . . . . . . . . 2 (e) "Distributor Sales". . . . . . . . . . . . . . . . . . . . . 2 (f) "Effective Date" . . . . . . . . . . . . . . . . . . . . . . 2 (g) "End-User License Agreement" . . . . . . . . . . . . . . . . 2 (h) "Golden Master". . . . . . . . . . . . . . . . . . . . . . . 2 (i) "Minimum Value". . . . . . . . . . . . . . . . . . . . . . . 2 (j) "NetObjects" . . . . . . . . . . . . . . . . . . . . . . . . 2 (k) "NetObjects Products". . . . . . . . . . . . . . . . . . . . 2 (l) "Packaging Specifications" . . . . . . . . . . . . . . . . . 2 (m) "Prior Agreement " . . . . . . . . . . . . . . . . . . . . . 3 (n) "Products" . . . . . . . . . . . . . . . . . . . . . . . . . 3 (o) "Stand-Alone Product". . . . . . . . . . . . . . . . . . . . 3 (p) "Suggested Resale Price" . . . . . . . . . . . . . . . . . . 3 (q) "Target Sales Percentage". . . . . . . . . . . . . . . . . . 3 (r) "Term" . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 (s) "Territory". . . . . . . . . . . . . . . . . . . . . . . . . 3 (t) "US Street Price". . . . . . . . . . . . . . . . . . . . . . 3 (u) "Worldwide Sales". . . . . . . . . . . . . . . . . . . . . . 3 2. Appointment as Authorized NetObjects Distributor. . . . . . . . . 3 (a) Exclusive Right to Distribute Stand-Alone Products . . . . . 3 (b) Non-Exclusive OEM Rights . . . . . . . . . . . . . . . . . . 4 (c) Nature of Distribution . . . . . . . . . . . . . . . . . . . 4 (d) Appointment of Subdistributors and Resellers.. . . . . . . . 4 3. Adaptation for Local Market . . . . . . . . . . . . . . . . . . . 5 (a) Local Adaptation of NetObjects Fusion 2.0 Windows-TM-. . . . 5 (b) Local Adaptation of Other NetObjects Products. . . . . . . . 5 4. Grant of License; Delivery of Golden Master and Adapted Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (a) Grant of License.. . . . . . . . . . . . . . . . . . . . . . 5 (b) Delivery of Golden Master and Adapted Documentation. . . . . 5 (c) No Other License or Right. . . . . . . . . . . . . . . . . . 5 5. Media; Packaging. . . . . . . . . . . . . . . . . . . . . . . . . 6 i TABLE OF CONTENTS (continued) Page 6. Technical Support.. . . . . . . . . . . . . . . . . . . . . . . . 6 (a) Pre- and Post-Sale Support; Technical Support. . . . . . . . 6 (b) Training.. . . . . . . . . . . . . . . . . . . . . . . . . . 6 7. Acknowledgment of Obligation for Payment Under Prior Agreement; Pre-Payment of Royalty . . . . . . . . . . . . . . . . 6 (a) Payment for Distribution Rights. . . . . . . . . . . . . . . 6 (b) Royalty Pre-Payment. . . . . . . . . . . . . . . . . . . . . 7 8. Royalty Payment; Independent Pricing by Distributor . . . . . . . 7 (a) Royalty Payment. . . . . . . . . . . . . . . . . . . . . . . 7 (b) Payment Terms. . . . . . . . . . . . . . . . . . . . . . . . 7 (c) No Set-off . . . . . . . . . . . . . . . . . . . . . . . . . 7 (d) Independent Pricing. . . . . . . . . . . . . . . . . . . . . 7 9. Withholding Tax . . . . . . . . . . . . . . . . . . . . . . . . . 8 10. Target Sales Percentage . . . . . . . . . . . . . . . . . . . . . 8 (a) Target Sales Percentage. . . . . . . . . . . . . . . . . . . 8 (b) Failing to Meet Target Sales Percentage. . . . . . . . . . . 8 11. Inspections, Records and Reporting. . . . . . . . . . . . . . . . 9 (a) Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (b) Notification . . . . . . . . . . . . . . . . . . . . . . . . 9 (c) Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 12. Promotional Activities Distributor. . . . . . . . . . . . . . . . 9 (a) Promotion Efforts; Failure to Perform. . . . . . . . . . . . 9 (b) Quarterly Marketing Plans. . . . . . . . . . . . . . . . . . 9 (c) Marketing Reports. . . . . . . . . . . . . . . . . . . . . . 10 (d) Distributor Personnel. . . . . . . . . . . . . . . . . . . . 10 (e) Technical Expertise. . . . . . . . . . . . . . . . . . . . . 10 (f) Distributor Covenants. . . . . . . . . . . . . . . . . . . . 10 (g) Compliance with Law. . . . . . . . . . . . . . . . . . . . . 10 (h) Governmental Approval. . . . . . . . . . . . . . . . . . . . 10 (i) Market Conditions. . . . . . . . . . . . . . . . . . . . . . 11 (j) Marketing Materials. . . . . . . . . . . . . . . . . . . . . 11 (k) Costs and Expenses . . . . . . . . . . . . . . . . . . . . . 11 ii TABLE OF CONTENTS (continued) Page 13. Promotional Activities of NetObjects. . . . . . . . . . . . . . . 11 (a) Marketing Manager. . . . . . . . . . . . . . . . . . . . . . 11 (b) Marketing Payments . . . . . . . . . . . . . . . . . . . . . 12 14. Confidential Information. . . . . . . . . . . . . . . . . . . . . 12 (a) Confidential Information.. . . . . . . . . . . . . . . . . . 12 (b) Markings.. . . . . . . . . . . . . . . . . . . . . . . . . . 12 (c) Injunctive Relief. . . . . . . . . . . . . . . . . . . . . . 12 15. Trademarks, Trade Names, Logos, Designations, and Copyrights. . . 12 (a) NetObjects Trademarks. . . . . . . . . . . . . . . . . . . . 12 (b) Distributor Does Not Acquire Proprietary Rights. . . . . . . 13 (c) No Continuing Rights . . . . . . . . . . . . . . . . . . . . 13 16. No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 13 17. Duration and Termination of Agreement . . . . . . . . . . . . . . 13 (a) Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 (b) NetObjects Termination For Cause . . . . . . . . . . . . . . 13 (c) Distributor Termination For Cause. . . . . . . . . . . . . . 14 (d) Effect of Termination or Expiration. . . . . . . . . . . . . 14 (e) No Damages for Termination, Expiration or Lapse of Exclusive Rights . . . . . . . . . . . . . . . . . . . . . . 15 (f) Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 15 18. Relationship of the Parties . . . . . . . . . . . . . . . . . . . 15 19. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 16 (a) Indemnification of Distributor . . . . . . . . . . . . . . . 16 (b) No Combination Claims. . . . . . . . . . . . . . . . . . . . 16 (c) Limitation . . . . . . . . . . . . . . . . . . . . . . . . . 16 (d) Indemnification of NetObjects. . . . . . . . . . . . . . . . 16 20. Limited Warranty; Disclaimer of Warranties. . . . . . . . . . . . 17 (a) Limited Warranty . . . . . . . . . . . . . . . . . . . . . . 17 (b) Disclaimer of Warranties . . . . . . . . . . . . . . . . . . 17 (c) Distributor Warranty . . . . . . . . . . . . . . . . . . . . 17 21. Limited Liability . . . . . . . . . . . . . . . . . . . . . . . . 17 iii TABLE OF CONTENTS (continued) Page 22. Entire Agreement; Superseding Effect. . . . . . . . . . . . . . . 18 23. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 (a) Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 (b) Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 18 (c) Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . 18 (d) Execution of Agreement, Controlling Law, Jurisdiction. . . . 18 (f) Severability . . . . . . . . . . . . . . . . . . . . . . . . 19 (g) Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . 19 (h) Release of Claims. . . . . . . . . . . . . . . . . . . . . . 19 (i) Choice of Language . . . . . . . . . . . . . . . . . . . . . 19 (j) Due Execution. . . . . . . . . . . . . . . . . . . . . . . . 19 (k) Counterparts; Facsimile. . . . . . . . . . . . . . . . . . . 19
iv MASTER DISTRIBUTOR AGREEMENT This Master Distributor Agreement (this "Agreement") is made as of September 30, 1997 by and between NetObjects, Inc., a Delaware corporation ("NetObjects"), and Mitsubishi Corporation, a Japanese corporation ("Distributor"). RECITALS A. NetObjects and Distributor are parties to the Master Distributor Agreement, dated as of September 30, 1997 (the "Prior Agreement"), pursuant to which, among other things, (i) NetObjects appointed Distributor as the exclusive master distributor of certain products of NetObjects on a stand-alone basis, (ii) NetObjects agreed to appoint Distributor as a non-exclusive distributor of certain NetObjects products on a bundled basis, upon terms to be negotiated, (iii) in consideration of the rights granted to Distributor under the Prior Agreement, Distributor agreed to pay to NetObjects a non-refundable fee of [***] U.S. Dollars (US$[***]), and (iv) the parties agreed to further negotiate and execute a revised and restated Master Distributor Agreement to constitute their comprehensive agreement regarding their relationship. B. The parties desire to enter into this Agreement to memorialize their comprehensive agreement regarding their relationship, which shall supersede the Prior Agreement in its entirety. AGREEMENT NOW, THEREFORE, NetObjects and Distributor agree as follows: 1. DEFINITIONS. Terms used in this Agreement and its appendices shall have the meaning ascribed to them in this Section 1: (a) "ACTUAL SALES PERCENTAGE" shall have the meaning ascribed thereto in Section 10(a) hereof. (b) "ADAPTED DOCUMENTATION" shall have the meaning ascribed thereto in Section 3(a) hereof. (c) "CONFIDENTIAL INFORMATION" shall mean, (i) as to NetObjects all documentation and all information relating to the Products disclosed to Distributor under this Agreement which is marked as "Confidential" or described as "confidential" at the time of disclosure and subsequently confirmed in writing as "confidential, and (ii) as to either party, any information disclosed pursuant to this Agreement, including product plans, designs, costs, prices, project names, finances, financial conditions, marketing plans, business opportunities, supplier lists, and information, research, development or know-how that is designated in writing by the disclosing party as confidential or, if *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. disclosed orally, designated as the "confidential" at the time of disclosure; and the terms and conditions of this Agreement and the Prior Agreement. However, "Confidential Information" will not include information that (i) is or becomes generally known or available by publication, commercial use or otherwise through no fault of the receiving party; (ii) is already known by a party and is not subject to restriction; (iii) is independently developed by the receiving party without use of the disclosing party's Confidential Information; (iv) is lawfully obtained from a third party who has the right to make such disclosure; or (v) is released for publication by the disclosing party in writing. (d) "DISTRIBUTOR" shall have the meaning ascribed thereto in the Preamble to this Agreement. (e) "DISTRIBUTOR SALES" shall mean the total revenues of Distributor consistent with its revenue recognition policies for external financial reporting purposes with respect to Stand-Alone Products excluding (i) credits to third parties for discounts, rebates, actual returns and allowances for defective products, and (ii) freight, insurance, packing, sales or use taxes. (f) "EFFECTIVE DATE" shall mean September 30, 1997. (g) "END-USER LICENSE AGREEMENT" shall have the meaning ascribed thereto in Section 2(d) hereof. (h) "GOLDEN MASTER" shall mean the software programs for the Stand-Alone Products, in object-code format only, delivered in a magnetic medium suitable for duplication for further distribution by Distributor under the terms of this Agreement. (i) "MINIMUM VALUE" shall be the lower of (i) $[***] or (ii) the amount calculated as follows: Minimum Value = US Street Price X ([***]/[***]) X 0.[***]. For illustrative purposes, assuming that the US Street Price is $[***], the Minimum Value shall be $[***] X ([***]/[***]) X 0.[***], or $[***]. This amount represents the Minimum Value on the Effective Date. (j) "NETOBJECTS" shall have the meaning ascribed thereto in the Preamble to this Agreement. (k) "NETOBJECTS PRODUCTS" shall mean the software products developed and marketed from time to time by NetObjects, in any version or release, including without limitation NetObjects-Registered Trademark- Fusion 2.0 for Windows-TM-. (l) "PACKAGING SPECIFICATIONS" shall mean the packaging specifications for the Stand-Alone Products as determined upon by NetObjects and as set forth in EXHIBIT C hereto. *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. 2 (m) "PRIOR AGREEMENT " shall have the meaning ascribed thereto in Recital A to this Agreement. (n) "PRODUCTS" shall mean and include the NetObjects Products and the Stand-Alone Products. (o) "STAND-ALONE PRODUCT" shall mean a version of a NetObjects Product, as adapted for the local market in the Territory pursuant to Section 3 hereof, packaged for sale, license and transfer solely as a stand-alone product and marketed solely under the trade names and trademarks of NetObjects. (p) "SUGGESTED RESALE PRICE" shall mean the suggested resale price in the Territory of the Stand-Alone Products, as determined from time to time by Distributor in its discretion. (q) "TARGET SALES PERCENTAGE" shall have the meaning ascribed thereto in Section 10(a) hereof. (r) "TERM" shall have the meaning ascribed thereto in Section 17(a) hereof, as may be renewed or extended hereunder. (s) "TERRITORY" shall mean Japan. (t) "US STREET PRICE" shall mean the U.S. price of the NetObjects Products, as determined by NetObjects in good faith at any time and from time to time, but with reference to prices paid by end user customers of such Products. (u) "WORLDWIDE SALES" shall mean the total worldwide revenues of NetObjects with respect to all versions of any of the Products which have been localized for the Territory, as determined in accordance with U.S. generally accepted accounting principles excluding (i) credits to third parties for discounts, rebates, actual returns and allowances for defective products, (ii) freight, insurance, packing, sales or use taxes and duties; and (iii) revenue derived from service, support and maintenance which is charged for separately from the sale and license of Products; provided, Worldwide Sales shall not include revenues with respect to NetObjects Products which have not been adapted for the local market in the Territory pursuant to Section 3 hereof within a reasonable time after the Effective Date or after such NetObjects Products have been released for commercial shipment in the United States, whichever is later. 2. APPOINTMENT AS AUTHORIZED NETOBJECTS DISTRIBUTOR. (a) EXCLUSIVE RIGHT TO DISTRIBUTE STAND-ALONE PRODUCTS. Subject to the terms of this Agreement, and subject to the distribution rights in the Territory granted by NetObjects to its contractual partners prior to the Effective Date, including without limitation, the distribution rights of IBM Corporation and Lotus Development Corp., NetObjects hereby appoints Distributor, and Distributor accepts such appointment, as the exclusive master distributor of the Stand-Alone Products in and limited to the 3 Territory, with rights to appoint subdistributors and resellers as provided in Section 2(d) hereof. After the Effective Date, and for so long as Distributor is not in default under this Agreement, NetObjects shall not appoint any other distributor in the Territory with respect to the Stand-Alone Products, and Distributor shall not distribute web site or web page creation and maintenance software of any other firm while Distributor acts as such exclusive master distributor. If Distributor fails to meet the Target Sales Percentage for any calculation period as set forth in Section 10 hereof, or if Distributor fails to meet its marketing and support activities as set forth in Section 12 of this Agreement, NetObjects shall have the right to terminate the exclusive right of Distributor, and if it exercises such right by written notice to Distributor, NetObjects shall no longer be bound by the provisions of this Section 2(a). Thereafter, Distributor may remain a non-exclusive distributor of the Stand-Alone Products for the remainder of the Term (as defined in Section 17), at Distributor's option. (b) NON-EXCLUSIVE OEM RIGHTS. After the Effective Date, the parties hereto shall negotiate in good faith the distribution rights of Distributor with respect to OEM distribution rights for certain NetObjects Products, which shall be on a non-exclusive, royalty-bearing basis. Distributor agrees and acknowledges that NetObjects has granted OEM rights and bundled distribution rights worldwide for certain NetObjects Products under certain conditions to Netscape Communications, Inc. and other companies. (c) NATURE OF DISTRIBUTION. Distributor's appointment only grants to Distributor a license to distribute the Stand-Alone Products, and does not transfer any right, title or interest to any such Stand-Alone Products to Distributor or Distributor's customers. Stand-Alone Products shall be distributed only pursuant to the terms of an End-User License Agreement relating to such Products, containing substantially the terms set forth in the attached Exhibit A ("End-User License Agreement"), as adapted for the local market in the Territory and as may be amended from time to time by NetObjects. NetObjects will sell Products to Distributor only to the extent that such Products consist of non-software items on the terms specified herein. Use of the terms "sell," "license," "purchase," "license fees" and "price" will be interpreted in accordance with this Section 2(c). (d) APPOINTMENT OF SUBDISTRIBUTORS AND RESELLERS. Distributor may appoint subdistributors and resellers in the Territory, solely for the further distribution of the Stand-Alone Products, as packaged by Distributor, subject to the reasonable prior written consent of NetObjects. Notwithstanding the foregoing, Distributors shall at all times remain primarily liable under this Agreement for all of its actions and the actions of its subdistributors and resellers. In no event shall Distributor permit its subdistributors and resellers to have access to the Golden Masters. Nothing in this Agreement shall be deemed to create any business relationship between NetObjects, on the one hand, and any of the subdistributors and resellers of Distributor. 4 3. ADAPTATION FOR LOCAL MARKET (a) LOCAL ADAPTATION OF NETOBJECTS FUSION 2.0 WINDOWS-TM-. NetObjects has engaged Lotus Development Corporation's Japanese subsidiary to adapt NetObjects Fusion 2.0 for Windows-TM- for the local market, and to translate and modify the documentation and manuals relating to such NetObjects Products (the "Adapted Documentation")]. (b) LOCAL ADAPTATION OF OTHER NETOBJECTS PRODUCTS. Within five (5) months from the Effective Date, NetObjects and Distributor shall mutually agree upon the NetObjects Products to be adapted as Stand-Alone Products, which may include NetObjects Fusion 3.0 for Windows-TM- in single-user format and multi-user format. Within four (4) months from the Effective Date, NetObjects and Distributor shall mutually agree upon the timetable for local adaptation of the NetObjects Products to be adapted as Stand-Alone Products, together with the Adapted Documentation related thereto. 4. GRANT OF LICENSE; DELIVERY OF GOLDEN MASTER AND ADAPTED DOCUMENTATION. (a) GRANT OF LICENSE. Subject to the terms hereof, and subject to Distributor's exclusive rights in Section 2(a) hereof, NetObjects hereby grants to Distributor a personal, non-exclusive and non-transferable right and license to make, copy, bundle, display, distribute, sell and offer for sale the Stand-Alone Products, together with the Adapted Documentation for such Products, solely within the Territory. Distributor may appoint subdistributors and resellers solely for the distribution of the Stand-Alone Products, and may grant sublicenses to such parties solely to display, distribute, sell and offer for sale the Stand-Alone Products. (b) DELIVERY OF GOLDEN MASTER AND ADAPTED DOCUMENTATION. Within ninety (90) days from the Effective Date, NetObjects shall provide Distributor with the Golden Master and the Adapted Documentation relating to NetObjects Fusion 2.0 for Windows-TM-. NetObjects shall provide Distributor with the Golden Master and Adapted Documentation for other NetObjects Products when and as may be agreed upon by NetObjects and Distributor. Distributor may not copy or permit others to copy any portion of the Golden Master except to fulfill Distributor's distribution obligations pursuant to this Agreement. (c) NO OTHER LICENSE OR RIGHT. Other than as expressly provided in this Agreement, Distributor has no right or license with respect to any copyrights, trademarks, patents, trade secrets and intellectual property rights of NetObjects. Title and ownership of the NetObjects Products, the Stand-Alone Products, the Bundled Products, the Adapted Documentation and all proprietary rights and intellectual property rights relating thereto, including copyrights, patents, trademarks, and trade secrets shall remain the property of NetObjects at all times. At the request of NetObjects, Distributor shall execute and deliver, and cause its subdistributors and resellers to execute and 5 deliver, any and all assignments, instruments and documents necessary to vest and confirm all such right, title and ownership in and to NetObjects at all times. 5. MEDIA; PACKAGING. Distributor shall bear all costs of preparing and manufacturing the computer media, documentation and packaging for the Stand-Alone Products. The Stand-Alone Products, including the Adapted Documentation, shall be packaged in accordance with the packaging specifications attached hereto as Exhibit B ("Packaging Specifications"). NetObjects reserves the right to change the packaging specifications for the Stand-Alone Products at any time and from time to time, provided, however, that NetObjects shall provide Distributor with sufficient prior written notice to allow Distributor to prepare and manufacture the new packaging, and Distributor shall have the right to use its existing inventory of preexisting packaging until such inventory has been exhausted. 6. TECHNICAL SUPPORT. (a) PRE- AND POST-SALE SUPPORT; TECHNICAL SUPPORT. Distributor shall provide demonstrations, samples and pre- and post-sales support to the end users of the Stand-Alone Products in the Territory. Distributor shall provide level one and level two technical support to the end-users of the Stand-Alone Products, on terms as may be agreed upon by the parties, generally comparable to the level of technical support for similar or competitive products within the Territory as defined in Exhibit C ("Technical Support"). At the request of NetObjects, Distributor may provide additional technical support for the Stand-Alone Products on a fee-based basis, and Distributor shall pay additional fees to the NetObjects based on revenues derived from such fees, upon such terms as may be agreed upon by the parties. (b) TRAINING. Distributor shall send two (2) of its employees to attend training at NetObjects' principal office or at such other place as may be designated by NetObjects upon a schedule as may be designated by NetObjects on the features, uses and technical support of the Stand-Alone Products. Such training shall be provided by NetObjects and charged to Distributor at the same rates that NetObjects charges its U.S. distributors. Distributor shall be responsible for all transportation, lodging and other incidental costs incurred by its employees in connection with such training classes. 7. ACKNOWLEDGMENT OF OBLIGATION FOR PAYMENT UNDER PRIOR AGREEMENT; PRE-PAYMENT OF ROYALTY. (a) PAYMENT FOR DISTRIBUTION RIGHTS. In consideration of the rights granted to Distributor by NetObjects under the Prior Agreement, Distributor agreed to pay to NetObjects a non-refundable payment of [***] US Dollars (US$[***]). *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. 6 (b) ROYALTY PRE-PAYMENT. Upon the delivery of the Golden Master and the Adapted Documentation on relating to NetObjects Fusion 2.0 for Windows-TM-to Distributor pursuant to Section 4(b) hereof, Distributor shall pay to NetObjects a non-refundable prepayment of [***] U.S. Dollars (US$[***]) (the "Prepayment Credit"), less any applicable withholding tax. Distributor estimates the withholding tax to be [***] U.S. Dollars ($[***]), and shall withhold this amount and provide NetObjects with a withholding tax certificate, unless NetObjects and Distributor, together with their respective tax advisors, have determined prior to payment that withholding tax is not required to be withheld. The Prepayment Credit shall be credited towards future royalty payment as follows: For any Stand-Alone Products sold or distributed by Distributor in the Territory (regardless of type of product or channel sold through) within the first two years after the first customer shipment date mutually agreed by the parties in the Territory, Distributor may apply the Prepayment Credit towards 33 percent of the royalty otherwise due to NetObjects with respect to such product sale, until all of the Prepayment Credit has been applied. Any Prepayment Credit not applied within the first two years after the first customer shipment date as provided above shall be forfeited by Distributor. 8. ROYALTY PAYMENT; INDEPENDENT PRICING BY DISTRIBUTOR. (a) ROYALTY PAYMENT. With respect to any Stand-Alone Product sold, distributed or otherwise transferred by Distributor to its customers (regardless of the type of product or channel sold through), Distributor shall pay to NetObjects a royalty equal to the greater of (i) [***] percent of the Suggested Resale Price or (ii) the Minimum Value. (b) PAYMENT TERMS. All payments shall be made in United States dollars, free of any currency control or other restrictions to NetObjects at the address designated by NetObjects or in the absence of such designation, at the address set forth in Section 23(b). Within fifteen (15) days from the end of each calendar month, Distributor shall submit a distribution report to NetObjects setting forth, in reasonable detail, the number, types and time of sale of Stand-Alone Products sold, distributed and transferred in the previous month. NetObjects shall prepare and issue an invoice to Distributor based on such monthly reports, setting forth the royalty amount due, and Distributor shall pay such invoice in full within thirty (30) days from the date of invoice, less any amounts withheld to satisfy withholding tax in Japan, if any. (c) NO SET-OFF. Distributor will not set off or offset against NetObjects' invoices amounts that Distributor claims are due to it. Distributor will bring any claims or causes of action it may have in a separate action and waives any right it may have to set off or withhold any payment owned to NetObjects by Distributor. (d) INDEPENDENT PRICING. Notwithstanding any provision herein to the contrary, NetObjects shall have no right or authority at any times to determine the price at which Distribution or its subdistributors or resellers sell the Stand-Alone Products in the Territory. *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. 7 9. WITHHOLDING TAX. With respect to withholding required by the government of Japan in connection with royalty payments to NetObjects under this Agreement, Distributor shall withhold such amounts from the royalty payments and make payment to the appropriate tax authorities in Japan. The parties shall cooperate with each other to minimize the withholding tax on any royalty payment under this Agreement. Distributor agrees to furnish NetObjects with copies of any withholding tax certificate, official tax receipt or other appropriate evidence of any taxes or withholding imposed by law on payments made under this Agreement. Distributor shall use its best efforts to cooperate with NetObjects to obtain refunds of any withholding tax to the extent permitted by Japanese laws. Upon thirty (30) days' written notice to Distributor, NetObjects may elect to supply packaged NetObjects Products to Distributor instead of letting Distributor copy Golden Masters of the NetObjects Products and provide the packaging itself or through Distributor's own vendors, if NetObjects has determined that by fulfilling Distributor's and its subdistributor's orders for NetObjects Products, NetObjects will reduce its tax liabilities. In that event, Distributor will stop making copies of NetObjects Products from Golden Masters and will purchase packaged Products from NetObjects or its suppliers upon NetObjects' standard terms and conditions of sale. Further, Distributor will no longer be obligated to pay royalties to NetObjects but instead shall purchase the NetObjects Products at prices to be determined by NetObjects and Distributor taking into account the previously effective royalties and NetObjects' fulfillment costs. Thereafter, this method of fulfillment will apply for all purposes under this Agreement until termination or agreed otherwise by the parties. 10. TARGET SALES PERCENTAGE. (a) TARGET SALES PERCENTAGE. NetObjects and Distributor expect that Distributor will achieve the Target Sales Percentages set forth below. Distributor's Actual Sales Percentage for each year (or part year) ending as of each anniversary of the Effective Date will be the Distributor Sales divided by the Worldwide Sales for such year (or part year) with the quotient multiplied by 100. The Target Sales Percentage for each year following the Effective Date is set forth in the following table:
YEAR Target Sales Percentage 1(partial year) [***] percent of Worldwide Sales 2 [***] percent of Worldwide Sales 3 [***] percent of Worldwide Sales
(b) FAILING TO MEET TARGET SALES PERCENTAGE. If Distributor fails to meet the Target Sales Percentage for any given year (or part year) because the Target Sales Percentage exceeds the Actual Sales Percentage, NetObjects may immediately terminate Distributor's exclusive distribution rights under Section 2(a) of this Agreement upon written notice to Distributor. *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. 8 11. INSPECTIONS, RECORDS AND REPORTING. (a) REPORTS. Within thirty (30) days after the end of each calendar month, Distributor will provide to NetObjects a written report showing, for the periods reasonably requested by NetObjects, Distributor's unit sales for the month by channel, and current inventory levels by product, including all Stand-Alone Products distributed by Distributor. If Distributor's inventory of each Stand-Alone Product exceeds its forecast of sales for the next four (4) months, the report also shall include Distributor's description of its plan for reducing inventory levels. (b) NOTIFICATION. Distributor will: (i) notify NetObjects in writing of any claim or proceeding involving NetObjects Products within ten (10) days after Distributor learns of such claim or proceeding; (ii) report promptly to NetObjects all claimed or suspected product defects; and (iii) notify NetObjects of any material change in market conditions affecting sales of Stand-Alone Products. (c) AUDITS. NetObjects may, upon reasonable notice in writing to Distributor, cause an independent audit to be made of the books and records of Distributor, and the inventory of Stand-Alone Products held by Distributor, in order to verify the royalty statements rendered hereunder, and the inventory level, and prompt adjustment shall be made by Distributor to compensate for any errors or omissions disclosed by such audit, together with interest thereon at a rate of [eighteen percent per annum (18%)] or such lower maximum rate as may be allowed by law from the date such payment should have been made. Any such audit shall be conducted only by an independent, certified public accountant during regular business hours at Distributor's office, no more often than once per calendar year. NetObjects will bear all expenses and fees of the audit, but if such audit or statement reveals an underpayment of royalties by Distributor of more than five percent (5%), Distributor shall pay all expenses incurred in connection with such audit. 12. PROMOTIONAL ACTIVITIES DISTRIBUTOR. (a) PROMOTION EFFORTS; FAILURE TO PERFORM. Distributor will use its best efforts to vigorously promote the distribution of the Stand-Alone Products in the Territory as set forth in this Section 12, as well as the general marketing policies of NetObjects announced from time to time. Distributor agrees to be responsible for promoting market and customer awareness and acceptance of the NetObjects Products and trademarks in Japan for as long as Distributor has exclusive rights pursuant to Section 2(a) of this Agreement. (b) QUARTERLY MARKETING PLANS. Within thirty (30) days after the commencement of each calendar quarter, Distributor shall provide to NetObjects a quarterly marketing plan, including proposed advertising and public relations activities, trade shows and other event-based marketing such as roadshows, channel promotions, web site marketing and other significant marketing activities, together with the proposed budget for such activities. 9 (c) MARKETING REPORTS. Within thirty (30) days after the end of each calendar month, Distributor will provide to NetObjects a written report summarizing its marketing activities with respect to the Stand-Alone Products for the previous month. (d) DISTRIBUTOR PERSONNEL. Distributor will train and maintain a sufficient number of capable technical and sales personnel having the knowledge and training necessary to: (i) inform customers properly concerning the features and capabilities of the Stand-Alone Products and, if necessary, competitive products; (ii) service and support the Stand-Alone Products in accordance with Distributor's obligations under this Agreement; and (iii) otherwise carry out the obligations and responsibilities of Distributor under this Agreement. (e) TECHNICAL EXPERTISE. Distributor and its staff will be conversant with the technical language conventional to the Products and similar computer software in general, and will develop sufficient knowledge of the industry, of the Products and of products competitive with the Products (including specifications, features and benefits) to be able to explain in detail to its customers the differences between Stand-Alone Products and competitive products. (f) DISTRIBUTOR COVENANTS. Distributor will: (i) conduct business in a manner that reflects favorably at all times on the Products and the good name, good will and reputation of NetObjects; (ii) avoid deceptive, misleading, or unethical practices that are or might be detrimental to NetObjects, the Products or the public; (iii) make no false or misleading representations with regard to NetObjects or the Products; (iv) not publish or employ, or cooperate in the publication or employment of, any misleading or deceptive advertising material with regard to NetObjects or the Products; (v) make no representations, warranties or guarantees to customers or to the trade with respect to the specifications, features, or capabilities of the Products that are inconsistent with the literature distributed by NetObjects or by Distributor; (vi) not enter into any contract or engage in any practice detrimental to the interests of NetObjects or the Products; and (vii) sell and deliver the Stand-Alone Products only in the Territory. (g) COMPLIANCE WITH LAW. Distributor will comply with all applicable international, national, state, regional, and local laws and regulations in performing its duties hereunder and in any of its dealings with respect to the Products. (h) GOVERNMENTAL APPROVAL. If any approval with respect to this Agreement, or the notification or registration thereof, will be required at any time during the term of this Agreement with respect to giving legal effect to this Agreement in the Territory, or with respect to compliance with exchange regulations or other requirements so as to assure the right of remittance abroad of U.S. dollars pursuant to Section 8 hereof or otherwise, Distributor will immediately take whatever steps may be necessary in this respect, and any charges incurred in connection therewith will be for the account of Distributor. Distributor will keep NetObjects currently informed of its efforts in this connection. NetObjects will be under no obligation to ship the Golden Masters to Distributor hereunder until Distributor has provided NetObjects with 10 satisfactory evidence that such approval, notification or registration is not required or that it has been obtained. (i) MARKET CONDITIONS. Distributor will advise NetObjects promptly concerning any market information that comes to Distributor's attention respecting NetObjects, the Stand-Alone Products, NetObjects' market position or the continued competitiveness of the Stand-Alone Products in the marketplace. Distributor will confer with NetObjects from time to time at the request of NetObjects on matters relating to market conditions, sales forecasting and product planning relating to the Stand-Alone Products. (j) MARKETING MATERIALS. Distributor shall adapt and translate marketing materials provided by NetObjects for the Products for the local market in the Territory, using such standards as are consistent with NetObjects' standards for marketing materials, and shall use such marketing materials in its marketing efforts, as adapted and translated for the local market, subject to the prior written consent of NetObjects. All rights and title to the marketing materials, as provided by NetObjects or as adapted and translated by Distributor for the local market in the Territory, shall be vested in NetObjects, and Distributor shall execute such assignments and instruments as may be reasonably requested by NetObjects to transfer and vest all of such rights and title in NetObjects. (k) COSTS AND EXPENSES. Except as expressly provided herein or agreed to in writing by NetObjects and Distributor, Distributor will pay all costs and expenses incurred in the performance of Distributor's obligations under this Agreement. 13. PROMOTIONAL ACTIVITIES OF NETOBJECTS. (a) MARKETING MANAGER. After the Effective Date, NetObjects agrees to hire an individual whose primary responsibility will be to help Distributor market and establish the Products in the Territory. NetObjects and Distributor shall mutually discuss the scope of the principal responsibilities of such manager, which may include the following: (i) providing assistance to the parties in scheduling the release dates for the Stand-Alone Products, and the functions and specifications of each such Product; (ii) providing assistance to the parties in preparing product marketing information, specifically in the Territory, for the Stand-Alone Products; (iii) coordinating resolution of problems with the Stand-Alone Products, including problems unique to the versions adapted to the local market in the Territory; 11 (iv) providing assistance to the parties in preparing and reviewing technical support information in the Territory, particularly contents published at NetObjects' web site or web page specifically for the Territory; and (v) managing any other communications issues between the parties with respect to marketing and technical support. (b) MARKETING PAYMENTS. For the first two calendar quarters following the Effective Date commencing January 1, 1998, NetObjects agrees to contribute [***] U.S. Dollars ($[***]) per quarter to support marketing activities approved by NetObjects. Payment shall be made within thirty (30) days after the end of the quarter. 14. CONFIDENTIAL INFORMATION. (a) CONFIDENTIAL INFORMATION. Each party understands that all Confidential Information exchanged between the parties under the terms of this Agreement is proprietary and confidential to the disclosing party, and the receiving party is obligated to protect and maintain the confidentiality of the same. Each party shall refrain from disclosing any Confidential Information to any third party except pursuant to the terms of this Agreement and shall take necessary and appropriate action to preserve the secrecy and prevent disclosure of such Confidential Information through the establishment of reasonable security procedures to prevent unauthorized access to the Confidential Information. Notwithstanding the foregoing to the contrary, each person may disclose Confidential Information, subject to any available protective order, to the extent required in connection with legal proceedings or by applicable securities laws or export control laws. (b) MARKINGS. Each party receiving Confidential Information from the other party shall appropriately identify and mark all reproductions, copies, extracts or the like of any documents marked as "Confidential," before distributing the same to its partners, representatives, employees, or where permitted hereunder, to others. (c) INJUNCTIVE RELIEF. Each party agrees that the unauthorized use and disclosure of Confidential Information disclosed under this Section 14 would lead to irreparable harm which could not be compensable by damages alone, and that each party shall have the right to enforce this Section 14 by injunction, specific performance or other equitable relief without prejudice to any other rights and remedies that the parties may have under this Agreement. 15. TRADEMARKS, TRADE NAMES, LOGOS, DESIGNATIONS, AND COPYRIGHTS. (a) NETOBJECTS TRADEMARKS. During the term of this Agreement, Distributor is authorized by NetObjects to use the trademarks, trade names, logos and designations NetObjects uses for NetObjects Products solely to identify the Stand- *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. 12 Alone Products in connection with Distributor's advertisement, promotion, distribution and sale of such Products and shall use only the NetObjects' trademarks, trade names, logos and designations in connection therewith. Distributor's use of such trademarks, trade names, logos and designations will be in accordance with NetObjects' policies in effect from time to time. Distributor will include on each copy of a Stand-Alone Product that it distributes, and on all containers and storage media therefor, all trademark, copyright and other notices of proprietary rights required by NetObjects with respect to such Products. (b) DISTRIBUTOR DOES NOT ACQUIRE PROPRIETARY RIGHTS Distributor has paid no consideration for the use of NetObjects' trademarks, trade names, logos, designations or copyrights, and nothing contained in this Agreement will give Distributor any right, title or interest in any of them. (c) NO CONTINUING RIGHTS. Upon expiration or termination of this Agreement for any reason, Distributor will immediately cease all display, advertising and use of all NetObjects trademarks, trade names, logos and designations and will not thereafter use, advertise or display any trademark, trade name, logo or designation which is, or any part of which is, similar to or confusing with any trademark, trade name, logo or designation associated with any Product. 16. NO ASSIGNMENT. NetObjects has entered into this Agreement with Distributor because of Distributor's commitments in this Agreement and NetObjects' confidence in Distributor, which is personal in nature. This Agreement will not be assignable by Distributor, and Distributor may not delegate its duties hereunder without the prior written consent of NetObjects. Except as otherwise provided herein, the provisions hereof shall be binding upon and inure to the benefit of the parties, their successors and permitted assigns. 17. DURATION AND TERMINATION OF AGREEMENT. (a) TERM. This Agreement is for a term (the "Term") of two (2) years from the Effective Date; PROVIDED THAT, if Distributor is not in default at the expiration of the initial Term, Distributor may renew this Agreement on a non-exclusive basis for one (1) additional year from the date of expiration of the initial Term by delivering a written notice of renewal to NetObjects no later than sixty (60) days prior to the date of expiration of the initial Term. Distributor may renew this Agreement on an exclusive basis with the written consent of NetObjects. Notwithstanding the provisions of this Section 17(a), or any other provisions of this Agreement to the contrary, this Agreement may be terminated prior to the expiration of its stated term as set forth below. (b) NETOBJECTS TERMINATION FOR CAUSE. NetObjects may terminate this Agreement upon written notice at any time prior to the expiration of its stated term in the event that: 13 (i) Distributor defaults in any payment due to NetObjects and such default continues unremedied for a period of ten (10) days following written notice of such default; (ii) Distributor fails to perform any other material obligation, warranty, duty or responsibility or is in default with respect to any term or condition undertaken by Distributor under this Agreement and such failure or default continues unremedied for a period of thirty (30) days following written notice of such failure or default; (iii) if a receiver is appointed for Distributor or its property, Distributor makes an assignment for the benefit of its creditors, any proceedings are commenced by, for or against Distributor under any bankruptcy, insolvency or debtor's relief law, or Distributor is liquidated or dissolved; (iv) Distributor is merged, consolidated, sells all or substantially all of its assets, or implements or suffers any substantial change in management or control; or (v) Any bill, law or regulation granting Distributor extra contractual compensation upon termination or expiration of this Agreement is introduced into or by the legislature or other governing body of the Territory. (c) DISTRIBUTOR TERMINATION FOR CAUSE. Distributor may terminate this Agreement upon written notice at any time prior to the expiration of its stated term in the event that: (i) NetObjects fails to perform any other material obligation, warranty, duty or responsibility or is in default with respect to any term or condition undertaken by NetObjects under this Agreement and such failure or default continues unremedied for a period of thirty (30) days following written notice of such failure or default; or (ii) if a receiver is appointed for NetObjects or its property, NetObjects makes an assignment for the benefit of its creditors, any proceedings are commenced by, for or against NetObjects under any bankruptcy, insolvency or debtor's relief law, or NetObjects is liquidated or dissolved. (d) EFFECT OF TERMINATION OR EXPIRATION. Upon termination or expiration of this Agreement for cause: (i) Distributor shall immediately cease any distribution, sale or transfer of the Stand-Alone Products, shall make or have made no additional copies of the Golden Master, and shall return the Golden Master to NetObjects upon request. In addition, upon the request of NetObjects, Distributor shall certify to the destruction of its inventory of Stand-Alone Products. 14 (ii) All royalty payments accrued and payable to NetObjects shall become due and payable on the effective date of termination, even if longer terms had been provided previously. (e) NO DAMAGES FOR TERMINATION, EXPIRATION OR LAPSE OF EXCLUSIVE RIGHTS. NETOBJECTS SHALL NOT BE LIABLE TO DISTRIBUTOR FOR DAMAGES OF ANY KIND, INCLUDING INCIDENTAL OR CONSEQUENTIAL DAMAGES, ON ACCOUNT OF THE TERMINATION OR EXPIRATION OF THIS AGREEMENT IN ACCORDANCE WITH THIS SECTION 17, OR THE CONVERSION OF THE EXCLUSIVE TERM OF THIS AGREEMENT TO A NON-EXCLUSIVE TERM. DISTRIBUTOR WAIVES ANY RIGHT IT MAY HAVE TO RECEIVE ANY COMPENSATION OR REPARATIONS ON TERMINATION OR EXPIRATION OR CONVERSION TO NON-EXCLUSIVE STATUS OF THIS AGREEMENT UNDER THE LAW OF THE TERRITORY OR OTHERWISE, OTHER THAN AS EXPRESSLY PROVIDED IN THIS AGREEMENT. NetObjects shall not be liable to Distributor on account of termination or expiration or conversion to a non-exclusive status of this Agreement for reimbursement or damages for the loss of goodwill, prospective profits or anticipated income, or on account of any expenditures, investments, leases or commitments made by Distributor or for any other reason whatsoever based upon or growing out of such termination or expiration. Distributor acknowledges that (i) Distributor has no expectation and has received no assurances that any investment by Distributor in the promotion of the Products will be recovered or recouped or that Distributor will obtain any anticipated amount of profits by virtue of this Agreement, and (ii) Distributor will not have or acquire by virtue of this Agreement or otherwise any vested, proprietary or other right in the promotion of the Products or in "goodwill" created by its efforts hereunder. THE PARTIES ACKNOWLEDGE THAT THIS SECTION HAS BEEN INCLUDED AS A MATERIAL INDUCEMENT FOR NETOBJECTS TO ENTER INTO THIS AGREEMENT AND THAT NETOBJECTS WOULD NOT HAVE ENTERED INTO THIS AGREEMENT BUT FOR THE LIMITATIONS OF LIABILITY SET FORTH HEREIN. (f) SURVIVAL. NetObjects' rights and Distributor's obligations to pay NetObjects all amounts due hereunder, as well as Distributor's obligations under Sections 6(a), 8(c), 9, 11, 15, 17, and 19 shall survive termination or expiration of this Agreement. Sections 14, 20, 21, 22 and 23 shall survive termination or expiration of this Agreement. 18. RELATIONSHIP OF THE PARTIES. Distributor's relationship with NetObjects during the term of this Agreement will be solely that of an independent contractor. Distributor is not an agent of NetObjects for any purpose, and Distributor will not have, and will not represent that it has, any power, right or authority to bind NetObjects, or to assume or create any obligation or responsibility, express or implied, on behalf of NetObjects or in NetObjects' name, except as herein expressly provided. 15 19. INDEMNIFICATION. (a) INDEMNIFICATION OF DISTRIBUTOR. NetObjects will, at its expense, defend Distributor against and, subject to the limitations set forth herein, pay all costs and damages made in settlement or awarded against Distributor resulting from any claim based on an allegation during the Term of the Agreement (and any renewal periods) that a Stand-Alone Product as supplied by NetObjects hereunder infringes a patent or copyright of a third party created under the law of the Territory, provided that Distributor (i) has given NetObjects prompt written notice of any such claim, (ii) allows NetObjects to direct the defense and settlement of the claims, and (iii) provides NetObjects with the information and assistance necessary for the defense and settlement of the claim. If a final injunction is obtained in an action based on any such claim against Distributor's use or sale of a Stand-Alone Product by reason of such infringement, or if in NetObjects' opinion such an injunction is likely to be obtained, NetObjects may, at its sole option, either (i) obtain for Distributor the right to continue using such Stand-Alone Product, (ii) replace or modify the Stand-Alone Product so that it becomes noninfringing, or (iii) if neither (i) nor (ii) can be reasonably effected by NetObjects, credit to Distributor the royalties paid to NetObjects for the allegedly infringing product the twelve (12) months prior to the credit, and Distributor shall immediately cease all further duplication, marketing, sales and distribution of such allegedly infringing product. (b) NO COMBINATION CLAIMS. Notwithstanding subsection (a) of this Section 19, NetObjects shall not be liable to Distributor for any claim arising from or based upon the combination, operation or use of any Stand-Alone Product with equipment, data or programming not supplied by NetObjects, or arising from any alteration or modification of Products by any person or entity other than NetObjects or an agent of NetObjects designated in writing. (c) LIMITATION. THE PROVISIONS OF THIS SECTION 19 SET FORTH THE ENTIRE LIABILITY OF NETOBJECTS AND THE SOLE REMEDIES OF DISTRIBUTOR WITH RESPECT TO INFRINGEMENT AND ALLEGATIONS OF INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS OR OTHER PROPRIETARY RIGHTS OF ANY KIND IN CONNECTION WITH THE INSTALLATION, OPERATION, DESIGN, DISTRIBUTION OR USE OF THE PRODUCTS. (d) INDEMNIFICATION OF NETOBJECTS. Distributor agrees to indemnify NetObjects (including paying all reasonable attorneys' fees and costs of litigation) against and hold NetObjects harmless from, any and all claims by any other party resulting from the acts of Distributor, or its subdistributors, resellers and agents (other than the marketing of the Products as approved by NetObjects), omissions or misrepresentations, regardless of the form of action. 16 20. LIMITED WARRANTY; DISCLAIMER OF WARRANTIES. (a) LIMITED WARRANTY. NETOBJECTS MAKES NO IMPLIED OR EXPRESS WARRANTIES OR REPRESENTATIONS AS TO THE PERFORMANCE OF THE STAND-ALONE PRODUCTS OR AS TO SERVICE TO DISTRIBUTOR OR TO ANY OTHER PERSON, EXCEPT AS SET FORTH IN NETOBJECTS' LIMITED WARRANTY ACCOMPANYING THE STAND-ALONE PRODUCTS. NETOBJECTS RESERVES THE RIGHT TO CHANGE THE WARRANTY AND SERVICE POLICY SET FORTH IN SUCH LIMITED WARRANTY, OR OTHERWISE, AT ANY TIME, EFFECTIVE UPON NOTICE TO DISTRIBUTOR. (b) DISCLAIMER OF WARRANTIES. TO THE EXTENT PERMITTED BY APPLICABLE LAW, ALL IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED, TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT, ARE HEREBY EXCLUDED BY NETOBJECTS. (c) DISTRIBUTOR WARRANTY. Distributor will make no warranty, guaranty or representation, whether written or oral, on NetObjects' behalf. 21. LIMITED LIABILITY. (a) NOTWITHSTANDING ANY PROVISION HEREIN OR IN THE END-USER LICENSE AGREEMENT (AS ADAPTED FOR THE STAND-ALONE PRODUCTS) TO THE CONTRARY, NETOBJECTS WILL NOT BE LIABLE FOR ANY LOST PROFITS OR FOR ANY DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR OTHER SPECIAL DAMAGES SUFFERED BY DISTRIBUTOR, ITS CUSTOMERS OR OTHERS ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE PRODUCTS, FOR ALL CAUSES OF ACTION OF ANY KIND (INCLUDING TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY AND BREACH OF WARRANTY) EVEN IF NETOBJECTS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. (b) IN NO EVENT WILL NETOBJECTS' TOTAL CUMULATIVE LIABILITY IN CONNECTION WITH THIS AGREEMENT OR THE PRODUCTS, FROM ALL CAUSES OF ACTION OF ANY KIND, INCLUDING TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY AND BREACH OF WARRANTY, EXCEED THE TOTAL AMOUNT PAID BY DISTRIBUTOR HEREUNDER. (c) Distributor agrees that the limitations of liability and disclaimers of warranty set forth in this Agreement will apply regardless of whether NetObjects has tendered delivery of any products or services hereunder or whether Distributor has accepted any product or services hereunder. Distributor acknowledges that NetObjects has set its prices and entered into this Agreement in reliance on the disclaimers of liability, the disclaimers of warranty and the limitations of liability set forth in this Agreement and that the same form a basis of the bargain between the parties. 17 22. ENTIRE AGREEMENT; SUPERSEDING EFFECT. This Agreement and the Exhibits hereto constitute the complete and exclusive agreement between the parties pertaining to the subject matter hereof, and supersede in their entirety any and all written or oral agreements between the parties with respect to such subject matter, including without limitation, the Prior Agreement. Distributor acknowledges that it is not entering into this Agreement on the basis of any representations not expressly contained herein. Any modifications of this Agreement must be in writing and signed by both parties hereto. Any such modification shall be binding upon NetObjects only if and when signed by one of its duly authorized officers. 23. GENERAL. (a) WAIVER. The waiver by either party of any default by the other shall not waive subsequent defaults of the same or different kind. (b) NOTICES. All notices and demands hereunder will be in writing and will be served by personal service, mail or confirmed facsimile transmission at the address of the receiving party set forth below (or at such different address as may be designated by such party by written notice to the other party), and shall be deemed complete upon dispatch. IF TO NETOBJECTS: NetObjects, Inc. 602 Galveston Drive Redwood City, California 94063 Facsimile No.: 650/562-0288 Attn: Vice President, International Sales IF TO DISTRIBUTOR: Mitsubishi Corporation 3-1, Marunouchi 2-Chome Chiyoda-Ku, Tokyo Facsimile No.: 81/3210-7616 Attn: General Manager, Computer Business Unit (c) ATTORNEYS' FEES. In the event any litigation is brought by either party in connection with this Agreement, the prevailing party in such litigation shall be entitled to recover from the other party all the costs, attorneys' fees and other expenses incurred by such prevailing party in the litigation. (d) EXECUTION OF AGREEMENT, CONTROLLING LAW, JURISDICTION. This Agreement will become effective only after it has been signed by Distributor and has been accepted by NetObjects at its principal place of business, and its effective date shall be the date on which it is signed by NetObjects. It shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law known as conflicts of laws. The Convention on Contracts for the International Sale of Goods is expressly not applicable to this Agreement. The English-language version 18 of this Agreement controls when interpreting this Agreement. Distributor consents to the enforcement of any judgment rendered in California in any action between Distributor and NetObjects. (e) JURISDICTION; VENUE. In the event any litigation is brought by either party in connection with this Agreement, the parties agree to submit to the exclusive jurisdiction and venue of the State Court of California for Palo Alto, California, and the Federal District Court for the Northern District of California, and the parties agree to waive all defenses based on personal or subject matter jurisdiction or venue. (f) SEVERABILITY. In the event that any of the provisions of this Agreement shall be held by a court or other tribunal of competent jurisdiction to be unenforceable, such provision will be enforced to the maximum extent permissible and the remaining portions of this Agreement shall remain in full force and effect. (g) FORCE MAJEURE. NetObjects shall not be responsible for any failure to perform due to unforeseen circumstances or to causes beyond NetObjects' reasonable control, including but not limited to acts of God, war, riot, embargoes, acts of civil or military authorities, fire, floods, accidents, strikes, failure to obtain export licenses or shortages of transportation, facilities, fuel, energy, labor or materials. (h) RELEASE OF CLAIMS. Any and all claims against NetObjects arising under prior agreements, whether oral or in writing, between NetObjects and Distributor are waived and released by Distributor by acceptance of this Agreement. (i) CHOICE OF LANGUAGE. The original of this Agreement has been written in English. Distributor waives any right it may have under the law of Distributor's Territory to have this Agreement written in the language of Distributor's Territory. (j) DUE EXECUTION. The individual executing this Agreement on behalf of the parties hereto represents and warrants that he has been duly authorized under charter documents of NetObjects or Distributor, as may be applicable, and applicable law to execute this Agreement on behalf of such party. (k) COUNTERPARTS; FACSIMILE. This Agreement may be executed in multiple counterparts and by facsimile. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective on the date specified on the first page hereof. NETOBJECTS INC. MITSUBISHI CORPORATION Signature: /s/ Samir Arora Signature: /s/ Mitsuhiko Kato ------------------------ ---------------------------- Printed Name: Samir Arora Printed Name: Mitsuhiko Kato -------------------- ------------------------ Title: Chairman & Chief Executive Title: General Manager Information Officer Systems & Services Div. B ---------------------------- ------------------------------- 19 EX-10.16 45 EXHIBIT 10.16 STANDARD INBOUND LICENSE AGREEMENT (Distribution of Third Party Products) 1. PREAMBLE. This Standard Inbound License Agreement ("Agreement") is agreed to by the entity identified in the table below ("Company") and Novell, Inc., a Delaware corporation with principal offices at 122 East 1700 South, Provo, Utah 84606 ("Novell").
--------------------------------------------------------------- COMPANY NAME NetObjects, Inc. --------------------------------------------------------------- ADDRESS NetObjects, Inc. 602 Galveston Dr. Redwood City, CA 94063 --------------------------------------------------------------- PHONE 650.482.3200 --------------------------------------------------------------- JURISDICTION OF Delaware corporation FORMATION AND C corporation BUSINESS FORM --------------------------------------------------------------- FAX 650.582.0288 --------------------------------------------------------------- URL www.netobjects.com ---------------------------------------------------------------
2. PURPOSE. Company develops and markets a NetObjects Fusion software product that enables users to create Web sites. Novell desires to make Company's NetObjects Fusion solution available to its customers by distributing it with Novell's NetWare for Small Business product offering. Company desires to gain additional market recognition by having Company's NetObjects Fusion product distributed by Novell. This Agreement sets forth the terms and conditions under which Company will license the Licensed Work defined below to Novell, including obligations of Company to meet certain technical requirements to ensure the suitability of the Licensed Work for operation with Novell products. 3. DEFINITIONS. The following terms shall have the definitions stated below: a. BINARY CODE OR CODE - shall mean code that loads and executes without further processing by a software compiler or linker or that results when source code is processed by a software compiler. 1 b. CHANGE OF CONTROL - shall mean when, subsequent to the Effective Date, (1) any person or group (within the meaning of Rule 13d-5 under the Securities Exchange Act of 1934 as in effect on the date hereof) shall come to own, directly or indirectly, beneficially or of record, voting securities representing more than 50% of the total voting power of one of the parties, (2) or one of the parties becomes a Subsidiary of some third-party. Novell acknowledges that Company is a majority-owned subsidiary of IBM. c. CODE ERROR - a program function that is described in user Documentation or the Agreement but is omitted from the Code, or a program function or user Interface that does not operate or that gives incorrect results when measured against its design specifications. d. COMPARABLE PRODUCT - shall mean Company product that: (1) are marketed under the same product name as the Licensed Works: and/or (2) have functionality substantially similar to that of the Licensed Works but are written for platforms other than those of Novell. e. DOCUMENTATION - shall mean user manuals and other written Materials that relate to, or are made available to facilitate, end use of particular Code. f. DOCUMENTATION ERROR - a failure of the Documentation to describe accurately a program function contained in the Agreement; or, a failure of the Documentation to meet the requirements of the Agreement; or, a failure of the Documentation to enable reasonably competent users to correctly operate the associated Code. g. EFFECTIVE DATE - shall mean September 30, 1998. h. ERROR - shall mean a Code Error and/or a Documentation Error. i. FCS - shall mean the date that Novell makes the NetWare for Small Business 4.2 product Generally Available. j. GENERAL AVAILABILITY and GENERALLY AVAILABLE - shall mean, with respect to a particular item, the date that the item is made available to members of the general public. k. HARMFUL CODE - shall mean any Code constructed with the ability to damage, interfere with, or adversely affect computer programs, data files, or hardware without the consent or intent of the computer user. This definition is intended to mean Code in the 2 nature of self-replacing and self-propagating programming instructions commonly called "viruses," "trojan horses" and "worms." l. INITIAL TERM - shall have the meaning set forth in Section 13. m. LICENSED TRADEMARKS - shall mean the word marks listed on Exhibit B, their associated design marks, and all other trademarks and trade dress used by Company to identify and/or market the Licensed Works and/or Comparable Products. n. LICENSED WORKS - shall mean the materials identified as Licensed Works on Exhibit A and associated Documentation. o. NWSB - shall mean any versions and releases of Novell's NetWare for Small Business product or any other Novell product offering, including without limitation ports to other platforms, translations, and/or localizations, whether such versions and releases are created, marketed, distributed, and/or sold by Novell or third parties. p. NEW VERSION - shall mean a new version or release of a product that is designated by Novell as a change to the left of the decimal point and/or in the tenths digit [(x).(x)x] of the version number. E.g. Version 5.2 or 6.0 would be considered a New Version of the 5.1 version of a product, but the 5.11 version would not be considered a New Version of the 5.1 version of a product. q. SUBSIDIARY - shall mean a corporation, company, or other entity (1) fifty percent (50%) or more of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (2) which does not have outstanding shares or securities, as may be the case in a partnership, joint venture or unincorporated association, but at least fifty percent (50%) of whose ownership interest representing the right to make the decisions for such corporation, company or other entity is, now or hereafter, owned or controlled, directly or indirectly, by a party hereto. However, such corporation, company, or other entity shall be deemed to be a Subsidiary only so long as such ownership or control exists. 4. PROJECT MANAGERS. Each party's Project Manager (named in Exhibit D) shall be responsible for managing that party's performance under the Agreement and for all necessary coordination with the other party's Project Manager. Each party's Project Manager will provide periodic progress reports to the other party's Project Manager. In the 3 event of disputes regarding this Agreement, the Project Managers have the primary responsibility to resolve such disputes, up to and including the dispute resolution procedures set forth in Section 14. 5. LICENSE GRANTS TO NOVELL a. LICENSED WORKS. The Licensed Works source code is not licensed to Novell under this Agreement. All licenses are limited to Binary code only. Company grants to Novell the following non-exclusive, worldwide and irrevocable license in the Licensed Works: i. To use, reproduce, and distribute the Licensed Works internally within Novell, subject to the limitations of Section 8. ii. To distribute externally, either directly or indirectly, copies of those portions of the Licensed Works that are not Code (e.g. Documentation). iii. To distribute externally by sale, lease, rental or otherwise transfer possession to end-users, either directly or indirectly, copies in Binary Code form only of the Licensed Works. Subject to the bundling requirements herein, distribution of the Licensed Works as permitted above may be in combination with other works. b. SUBLICENSING. Novell shall have the right to sublicense, directly or indirectly, the rights granted in Section 5.a(ii) and 5.a(iii) to third parties ("Sublicensees") through multiple tiers, subject to the limitations set forth in this Agreement. c. INTELLECTUAL PROPERTY LICENSE. Each copyright license shall also automatically include a grant by Company to Novell of a worldwide, non-exclusive license under all of Company's inventions, discoveries, patents, copyrights, trade secrets, inventor's certificates, utility models (and similar forms of legal protection of any country) and other proprietary rights, including those of third parties under which Company has the right to grant licenses, necessary to exercise the rights granted under this Agreement, regardless of when such proprietary rights were first conceived, reduced to practice, created, or perfected. Such license shall be limited in scope to the minimum extent that is consistent with the grant of the copyright license. Such patent license is also 4 extended, at the minimum scope necessary to be consistent with the grant of the copyright license to licensees and sublicensees of the copyright license. d. BUNDLING REQUIREMENT. Distribution of the Licensed Works shall be solely as bundled with NWSB, except that Novell shall be free to distribute updates, upgrades (that are made Generally Available to customers free of charge), replacement copies, Error Corrections, and fixes on a stand-alone basis, including electronic distribution. e. Upon request, Novell shall provide Company with a list of countries in which it intends to distribute the Licensed Works. 6. OWNERSHIP. Company shall retain all rights in and title to the Licensed Works. 7. TRADEMARK LICENSE AND PRODUCT NAME. a. LICENSE GRANT. Company grants Novell and its distributors, a worldwide, non-exclusive, non-transferable and royalty-free license to use the Licensed Trademarks on the Licensed Works and in connection with the distribution and marketing of Licensed Works. Novell shall have the right to use the Licensed Trademarks in proximity to trademarks relating to Novell and third party products distributed or marketed in conjunction with the Licensed Works. Novell shall have the right to seek and obtain copyright protection, including registrations, on packaging and marketing materials which may display the Licensed Trademarks; notwithstanding the foregoing, in no event shall this right be construed as transferring any interest of Company in the Licensed Trademarks to Novell. b. PROTECTION AND DEFENSE OF THE LICENSED TRADEMARKS. Novell and Company will at all times use their commercially reasonable efforts to preserve the value and validity of the Licensed Trademarks. Company shall notify Novell of all claims that the Licensed Trademarks conflict with the rights of third parties. Company hereby expressly represents, to the best of its knowledge (without further research or due diligence), that the existing Licensed Trademarks are valid and are the exclusive property of Company within those jurisdictions in which Company has registered or applied to register the Licensed Trademarks. Nothing in this Agreement shall be construed to give Novell any right, title, interest or responsibility in or for any Licensed Trademarks, except as expressly provided herein. Any trademark rights accruing through the use of the Licensed Trademarks by Novell shall accrue to the benefit of Company alone; in the event Novell uses Novell or third party 5 marks in proximity to the License Trademarks, the good will accruing from the use of such marks shall inure to the benefit of Novell and/or its licensors. Novell shall cooperate with Company in registering Novell as a registered user of the Licensed Trademarks whenever, in Company's judgment, such registration is appropriate. c. NEW NAME. In the event Novell has a reasonable and objectively substantial business concern that Novell will not be able to freely market and distribute the Licensed Works due to a conflict with third parties over the use of the Licensed Marks, Novell shall notify Company and Company shall resolve the conflict or provide a replacement trademark within two weeks of Novell's notice. The replacement trademark shall be deemed a "Licensed Trademark." If Company cannot resolve the conflict or provide a suitable replacement trademark in such time period, Novell shall be free to market and distribute the Licensed Works under a name comprised of a Novell trademark followed by a generic name. If Company later provides a suitable replacement name, Novell will discontinue use of the generic name and will use the new replacement name, Novell will discontinue use of the generic name and will use the new replacement trademark as soon as it is able to do so without incurring additional costs or disruption of distribution. In the event that there is a dispute between the parties as to whether the replacement trademark or generic name should be used only in a particular jurisdiction versus worldwide, then each party shall escalate the dispute to the senior vice president level and the respective senior vice president level and the respective senior vice presidents shall promptly meet and resolve the dispute. d. USAGE. Novell agrees not to use NETOBJECTS product names as possessives and, subject to Section 7.c, to always include NetObjects in the product name of the Licensed Works (i.e. NetObjects Fusion, not simply Fusion). In addition, Novell agrees to attribute the Licensed Marks in an industry acceptable manner. 8. CONSIDERATION. Unless otherwise stated in this Agreement, each party shall bear its respective costs in performing hereunder. a. LICENSE FEES AND OTHER PAYMENT SCHEDULE. The parties shall pay license fees and other payments set forth in Exhibit G. b. NO LICENSE FEES FOR CERTAIN USES. No royalty or other charge shall be payable by Novell for any copies of Licensed Works that are returned and/or unused copies (e.g., payments previously made on returned copies may be taken as a credit against payments owed 6 for further copies), or that are used, executed, reproduced, displayed, performed and/or distributed: i. For internal development, maintenance or support activities pertaining to the License Works. (Internal use by Novell for other purposes shall be royalty-bearing as set forth in Exhibit G), or ii. For sales demonstrations or customer evaluation, testing, maintenance or support activities, or iii. Provided free of charge (bundled with NWSB) to non-profit organizations or educational institutions such as universities, for uses not related to the internal administration and operation of such institution, or iv. For training or educational purposes that are directly related to the sale and licensing of the Licensed Works, or v. As back-up, archival, or escrow copies for customers, or vi. For use by resellers (to the extent Novell authorizes royalty free use of Novell products by resellers under its standard reseller programs and only if bundled with NWSB in a free-of-charge bundle; provided that program and subscription fees for reseller programs shall not be considered a "charge" for purposes of this subsection vi), or vii. For promotional purposes and only if bundled with NWSB in a free-of-charge bundle. The term "promotional purposes" shall not be construed to include providing the Licensed Works to a customer or third party in connection with a revenue-generating transaction (e.g. Selling copies of a Novell product and offering promotional copies of the Licensed Work in connection with the sale of the Novell product.) c. PRICING CHANGE. If Company or its licensees make the Licensed Works (other than updates, error corrections, and fixes) Generally Available free of charge, all licenses to Novell under this Agreement shall immediately convert to royalty-free licenses and Novell's obligation to pay royalties for copies sold after such time shall also terminate. d. INVOICES AND LICENSE REPORTS. Within forty-five (45) days after end of each Novell fiscal quarter, Novell will provide Company with 7 payment and a license report indicating all royalties payable for that quarter and the basis for calculation of such royalties in a form reasonably determined by Novell. If no license activity occurred during the quarter, Novell will submit a report indicating no activity. Novell will send all license reports and payments to Company at the Company accounting address designated in Exhibit D, which address may be changed by providing written notice to Novell. e. TAX CONSEQUENCES. All license fees are exclusive of all applicable taxes. The party making payment ("Payer") shall be responsible for all sales, use, excise, value added and/or equivalent taxes arising out of the payment and shall either include such taxes with the payment or shall provide the other party, in advance, with a valid exemption certificate or other documentation to successfully claim exemption from the tax. Payer shall not be responsible for: (a) taxes based upon the other party's net income, capital, or gross receipts, or (b) any withholding taxes imposed if such withholding tax is allowed as a credit against U.S. income taxes of Payer such as a withholding tax on a royalty payment where such withholding is required by law. In the event Payer is required to withhold taxes, Payer agrees to furnish to the other party all required receipts and documentation substantiating such payment. If Novell is required by law to remit any tax or duty on behalf, or for the account, of other party agrees to reimburse Novell within thirty (30) days after Novell notifies other party in writing of such remittance. f. AUDIT. The parties will maintain complete and accurate accounting records, in accordance with generally accepted accounting practices, to support and document amounts due and will retain such records for three (3) years after payment is made. A party will, upon written request of the other party, provide audit access to such records to a mutually acceptable independent accounting firm that is chosen and compensated by the other party. Such access will be granted only during normal business hours and no more frequently than once in each calendar year. The audit will not interfere with the audited party's normal business activity. The accounting firm will be required to hold all information received during the audit in confidence and will be authorized to report to the other party only the amount of payments actually due under the Agreement for the period examined. The costs for such audit shall be paid for (i) by Company if the Discrepancy is less than 5%; (ii) equally by both Company and Novell if the Discrepancy is 5-10%; or (iii) by Novell if the Discrepancy is more than 10%. "Discrepancy" for the purposes of this provision shall mean the 8 difference between what was reported or paid to Company and the actual royalty due to Company. 9. DELIVERY AND ACCEPTANCE. Company shall deliver the Licensed Works at each milestone in accordance with the schedule of Milestones in Exhibit C. The Licensed Works and Documentation shall be on a CD in a form designated by Novell. The Licensed Works must meet the Product Requirements as defined in Exhibit C. 10. DEVELOPMENT REQUIREMENTS. Company shall develop the Licensed Works in compliance with this Section. a. PRODUCT REQUIREMENTS. The Licensed Works shall meet the Product Requirements in Exhibit C and the Localization Requirements in Exhibit F. b. UPDATE. Within thirty (30) days of General Availability of Code implementing enhancements or new features in a Comparable Product. Company shall deliver Code to Novell that implements the same enhancements and new features in the Licensed Works. c. HARMFUL CODE. Company agrees to implement reasonable procedures adequate to prevent any Code provided to Novell hereunder from being contaminated with Harmful Code. If Company learns or suspects that any Code provided to Novell under this Agreement contains any Harmful Code, Company will immediately notify Novell and make reasonable efforts to remove the Harmful Code. The remedies provided by this section are in addition to any other remedies Novell may have. 11. ENGINEERING AND END USER SUPPORT. a. ENGINEERING SUPPORT. These engineering support obligations are independent of the maintenance and end user support obligations of Section 11.b, and do not modify the obligations of that Section in any way. i. Engineering Support. The Engineering Managers in Exhibit D shall be the sole points of communication on all engineering support issues. b. MAINTENANCE AND END USER SUPPORT. i. Company shall provide maintenance and support for the Licensed Works according to the terms and conditions of Exhibit E hereto. 9 ii. Within thirty (30) days of General Availability of Code correcting an Error in a Comparable Product, Company shall deliver Code to Novell that corrects the same Error in the Licensed Works. This requirement shall not be construed as modifying or limiting Company's obligations under Exhibit E. 12. PRODUCT PACKAGING & END USER LICENSE. Novell will determine the packaging for the Licensed Works at its sole discretion. Company will embed the following in the master copy of the Licensed Works provided to Novell: (i) Company's standard terms and conditions under which the end user will license or evaluate the Licensed Work (with Company as the licensor) in electronic form (the "EULA"), and (ii) the end user Documentation in electronic form. Novell will reproduce the Licensed Works without modification as delivered to Novell, including the EULA. Novell will have no obligation to insert or include any additional license agreement other than the hard copy EULA, any brochure, or other materials with the Licensed Work. Company shall be responsible for producing and delivering all hard copy EULAs to the shipping address designated by Novell. The form (excluding content) of the EULA is subject to Novell's reasonable approval. Company shall bear all production and insertion costs related to including the EULA in NWSB. 13. TERM AND TERMINATION. This Agreement shall be effective upon the Effective Date and shall remain in force for a period of one (1) year from FCS (the "Initial Term"), unless otherwise terminated as provided in this Section 13. After the Initial Term, this Agreement shall automatically renew for consecutive one (1) year periods, unless terminated as provided in this Section 13. a. TERMINATION WITHOUT CAUSE. After the Initial Term, Novell may terminate this Agreement without cause upon not less than 90 days written notice to Company. After the first renewal year (i.e. Initial Term plus one year), Company may terminate this Agreement without cause upon not less than 90 days written notice to Novell. b. TERMINATION FOR CAUSE. Either party may terminate this Agreement for the substantial breach by the other party of a material term. The terminating party shall first give the other party written notice of the alleged breach and a reasonable period of at least thirty (30) days in which to cure the alleged breach. If a cure is not achieved during the cure period, then the parties shall enter into the dispute resolution procedures specified in Section 14. In the event of unsuccessful completion of such dispute resolution procedures, the parties shall submit to mandatory mediation with a mutually agreed upon mediator, such mediation to be completed within thirty (30) 10 days and to be held in Salt Lake City, Utah. Termination of the Agreement shall occur upon the expiration of the cure period and the subsequent unsuccessful completion of the dispute resolution procedures specified in Section 14 and mandatory mediation as required by this Section. Neither party shall be precluded from seeking temporary equitable remedies. c. EFFECT OF TERMINATION. Upon termination, the licenses granted to Novell pursuant to this Agreement shall terminate with respect only to any New Version of NWSB that is made Generally Available after the effective date of termination. Except as stated in this Section 13.c, termination of this Agreement shall not affect any licenses granted to Novell, provided that all licenses shall terminate upon Novell's discontinuance of all versions of NWSB released prior to such New Version. 14. DISPUTE RESOLUTION PROCEDURES. The parties agree to negotiate in good faith to resolve all contract disputes arising out of or related to this Agreement in accordance with this Section 14. Primary responsibility for instigating resolution of any contract dispute arising out of or related to this Agreement shall reside in the parties' Project Managers or their designees; the parties do not hereby give their Project Mangers authority to bind the parties, but agree that binding resolutions can only be entered by duly authorized representatives, and that this Agreement does not appoint the Project Mangers as such. The party instigating dispute resolution procedures shall be referred to below as the "Complaining Party," and the other party shall be referred to below as the "Responding Party." Any physical meetings between the parties shall be held at the offices of the Responding Party, or another mutually agreed upon location, all travel and expenses to be born by the Complaining Party. The "Dispute Resolution Period" shall commence on expiration of the cure period. a. During the first ten (10) days of the Dispute Resolution Period, the Project Manager of the Complaining Party shall initiate one (1) or more meetings (by teleconference or other mutually agreeable arrangement) with the Project Manager of the Responding Party at which the parties shall attempt to reach a mutually agreeable resolution of the contract dispute. In the event the Project Manager of the Complaining Party fails to initiate discussions, the dispute shall be deemed resolved without prejudice. In the event the Project Manager of the Complaining Party fails to initiate discussions, the dispute shall be deemed resolved without prejudice. In the event the Project Manger of the Responding party 11 refuses to be reasonably available for such efforts, the dispute resolution procedures shall be deemed unsuccessfully completed. b. During the second ten (10) days of the Dispute Resolution Period, the Project Manager of the Complaining Party shall initiate one (1) or more meetings (by teleconference or other mutually agreeable arrangement) between representatives at the next level of management above that of the Project Mangers of Company and Novell at which the parties shall attempt to reach a mutually agreeable resolution of the contract dispute. In the event the project Manager of the Complaining Party fails to initiate such meetings or the Complaining Party representative fails to participate, the dispute shall be deemed resolved without prejudice. In the event the Responding Party fails to identify its representative or to make its representative reasonably available for such meetings, the dispute resolution procedures shall be deemed unsuccessfully completed. c. During the third ten (10) days of the Dispute Resolution Period, if negotiations have failed to resolve any such contract dispute to the satisfaction of both parties, then each party shall nominate one officer of a rank that is the next level of management above its representative designated in Section 14.b. The Project Manager of the Complaining Party shall initiate the meeting between the meeting between these representatives. These representatives shall attempt in good faith to resolve the contract dispute. In the event the Project Manager of the Complaining Party fails to initiate such meetings or the Responding Party representative fails to participate, the dispute shall be deemed resolved without prejudice. In the event the Responding Party fails to identify its representative or to make its representative reasonably available for such meetings, the dispute resolution procedures shall be deemed unsuccessfully completed. 15. GENERAL TERMS. a. ASSIGNMENT. Neither party shall transfer or assign any right or obligation set forth in this Agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld. b. CHANGE OF CONTROL OR ACQUISITION. If a Change of Control to Company occurs, Novell shall have the right upon written notice to terminate this Agreement immediately and have returned any or all Confidential Information then in the possession of Company. 12 c. CHANGES. This Agreement may be modified only by a writing that is executed by authorized representatives of both parties. d. CONFIDENTIALITY AND INFORMATION EXCHANGE. It is the intention of Company and Novell to transfer and/or exchange information, including confidential information, as may be necessary. Such information may be disclosed in oral, visual, or written form (including magnetic, optical, or other media). i. The party receiving confidential information under the Agreement ("Recipient") shall make use of the confidential information only for the purposes of the Agreement. Nothing in this Agreement shall be construed to limit either party's right to independently develop or acquire products without use of the other party's confidential information. Further, either party shall be free to use the residuals resulting from access to or work with the other party's confidential information, provided that such party otherwise complies with the non-disclosure provisions hereof. The term "residuals" means general information in non-tangible form which may be retained by persons who have had access to the confidential information. The foregoing residuals rights shall not be deemed to grant either party a license, by implication, estoppel or otherwise, under the other party's patents or copyrights. ii. The Recipient shall protect the disclosed confidential information by using the same degree of care, but no less than a reasonable degree of care, to prevent the unauthorized use, dissemination, or publication of the confidential information as the Recipient uses to protect its own confidential information of a like nature. iii. The Recipient's duty to hold confidential information in confidence expires five (5) years, or in the case of source code fifteen (15) years, after its receipt. The expiration of the duty of confidentiality shall not modify other restrictions on the Recipient including, or example, any restrictions on distribution of source code arising out of a granted copyright license. iv. The Recipient's obligations shall only extend to confidential information that is marked as confidential at the time of disclosure or that is unmarked (e.g., orally disclosed) but is treated as confidential at the time of disclosure. 13 v. This Agreement imposes no obligation upon Recipient with respect to information that: (a) was in Recipient's possession before receipt from the disclosing party ("Discloser"); (b) is or becomes a matter of public knowledge through no fault of Recipient; (c) is rightfully received by the Recipient from a third party without a duty of confidentiality; on the third party; (e) is independently developed by the Recipient without thereby violating the Discloser's patent or copyright; (f) is disclosed under operation of law after all reasonable means have been afforded to the Discloser to protect the information; or, (g) is disclosed by the Recipient with Discloser's prior written approval. e. CONSTRUCTION. The headings in this Agreement are provided for reference only and shall not be used as a guide to interpretation. When used in this Agreement, the singular includes the plural and the plural includes the singular, and gender related pronouns include the feminine, masculine and neuter. f. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and understanding between the parties as to its specific subject matter and merges all prior discussions between them with regard to such specific subject matter. Neither of the parties shall be bound by any conditions, definitions, warranties, understandings, agreements, or representations, whether written or oral, with respect to such specific subject matter other than as expressly provided in the Agreement or as duly set forth on or subsequent to its effective date, in a written document that is signed by a duly authorized representative of each party. However, the parties acknowledge that they do not intend, at the present time, to merge any independent written agreements existing between them and executed prior to the execution of this Agreement, and such independent agreements shall not be considered merged into this Agreement except as specifically set forth in this Agreement. g. EXPORT OF TECHNICAL DATA. Each Party agrees to comply with U.S. export laws and regulations when exporting any materials or any items licensed or developed under this Agreement or any portion thereof, or any system containing such materials or items or portion thereof, or any technical data or other Confidential Information, or any direct product of any of the foregoing (collectively, "Program") from the U.S. or re-exporting (as defined in Section 734.2(b) of the Export Administration Regulations, as amended ("Regulations")) a Program from one foreign country to another. It is the exporting party's responsibility to comply with the U.S. Government 14 requirements as they may be amended from time to time. Without limiting the generality of the foregoing: (i) regardless of any disclosure made by the exporting party to the other party of an ultimate designation of a Program, the exporting party shall not export or transfer, whether directly or indirectly, a Program, to anyone outside the U.S. (including further export if the exporting party took delivery of the Program outside the U.S.) without first complying strictly and fully with all export controls that may be imposed on the Program by the U.S. Government or any country or organization of nations within whose jurisdiction the exporting party operates or does business; and (ii) absent any required prior authorization from the Bureau of Export Administration, U.S. Department of Commerce, 14th and Constitution Avenue, Washington DC 20230, the exporting party will not export or re-export the Program to any country in Country Groups D:1 or E:2 as defined in the supplement No. 1 to Section 740 of the Regulations, or such other countries as come under restriction (including embargo) by action of the U.S. Government, or to nationals from or residing in the foregoing countries, without first obtaining permission from the appropriate U.S. Government authorities. Each party will reasonably cooperate with the other party in obtaining export licenses or approvals. h. WAIVER. No waiver of any provision of this Agreement shall be effective unless it is set forth in a writing that refers to the provisions so waived and is executed by an authorized representative of the party waiving its rights. No failure or delay by either party in exercising any right, power or remedy will operate as a waiver of any such right, power or remedy. i. FORCE MAJEURE. Neither party shall be liable in damages or have the right to cancel or terminate this Agreement for any delay or default in performance if such delay or default is caused by unforeseen conditions or conditions beyond the control of the delaying or defaulting party, including but not limited to acts of God, government restrictions, continuing domestic or international problems such as wars or insurrections, strikes, fires, floods, work stoppages and embargoes. Either party shall have the right to terminate this Agreement upon sixty (60) days prior written notice if the delay or default of the other party due to any of the above-mentioned causes continues for a period of six (6) months. Each party shall give the other party prompt written notice of any such condition likely to cause any delay or default. 15 j. FREEDOM OF ACTION. This Agreement shall not prevent either party from (i) entering into any agreement similar to this Agreement with any corporation or other entity in any industry or any non-profit body such as a university or a government, (ii) developing, manufacturing and/or selling any product or service that can compete with the other party's products or services in the marketplace, or (iii) developing for its products features that are the same as or similar to features of products of the other party. The foregoing shall not be deemed to grant either party any license, by implication, estoppel or otherwise, under the other party's patents, copyrights, trade secrets or other intellectual property rights. k. INTELLECTUAL PROPERTY INDEMNITY. i. Company shall defend or settle any claim made or suit or proceeding brought against Novell and its subsidiaries or affiliates under its control, and their directors, officers, employees, and agents, against any and all losses, judgments, awards, and costs (including reasonable legal fees and expenses) arising out of or related to any claim that the Licensed Trademarks or Licensed Works infringe or violate the copyright, trademark, trade name, trade secret, or patent rights of any third party. Company will defend at its sole expense all suits or proceedings arising out of the claims described above, provided that Novell gives Company prompt notice and control of any claim of which it learns. No settlement that prevents Novell from continuing to use Licensed Works will be made without Novell's prior written consent unless Company procures for Novell the right to continue using the Licensed Works, or replaces or modifies the Licensed Works so that it becomes non-infringing. Novell will have the right to participate in the defense of any claim involving the use of Licensed Works, provided that Company will not be responsible for indemnifying Novell for the cost of Novell's attorney's fees should Novell elect to participate in such defense. ii. Company shall have no liability for any claim based upon combination of Licensed Works with non-Company software or hardware if such infringement would have been avoided but for such. The foregoing limitation with respect to hardware shall not apply if the Licensed Works are merely being executed on industry standard hardware and software in accordance with the manner in which Company intends its Licensed Works to be operated. Company shall have no 16 liability for any claim based upon a modified version of the Licensed Work where the alleged infringement would not have occurred but for the modifications to the Licensed Works not performed by Company or its agent. iii. If the Licensed Works, in whole or in part, are or in Company's option may become, the subject of any claim, suit or proceeding for infringement of, or it is judicially determined that the Licensed Works, in whole or in part, infringe any third party's intellectual property right, or if the Licensed Work's use is enjoined, then Company may, at its option and expense, and using reasonable efforts to act as soon as possible: (1) procure for Novell the right to continue use of the Licensed Works; (2) replace or modify the Licensed Works so as not to infringe such third party's intellectual property right while conforming, as closely as possible, to the specifications agreed upon by the parties, (3) if the parties mutually agree, Novell may undertake to replace or modify the Licensed Works so as not to infringe such third party's intellectual property right and such work shall be reimbursed by Company at a mutually agreeable fee structure. iv. This Section 15.k shall represent the entire and exclusive obligation of Company to Novell regarding any claim that the Licensed Works infringe the intellectual property rights of a third party. l. INDEPENDENT CONTRACTORS. Each party is and shall remain an independent contractor with respect to all performance under this Agreement. No employee of either party shall be considered an employee or agent of the other party for any purpose. Each party assumes sole responsibility for the supervision, daily direction and control, payment of salary (including withholding of income taxes and social security), worker's compensation, disability benefits and the like of its employees. Nothing in this Agreement shall be construed to prevent either party from delegating performance under this Agreement to independent contractors who have entered into written agreements consistent with and at least as restrictive as the provisions contained in this Agreement. However, the contracting party shall remain primarily responsible for the performance of its subcontractors and their compliance with such provisions, and hereby waives any defense alleging that it has no liability as a result of a claim of breach by any such permitted subcontractors. 17 m. LAWS. The validity, construction, and performance of this Agreement will be governed by the substantive laws of the State of Utah without regard to any choice of law provisions. The parties agree that any dispute relating to this Agreement shall be subject to any court of competent jurisdiction after satisfaction of any condition precedent stated in this Agreement. The prevailing party in any action to enforce the terms of this Agreement entered into hereunder shall be entitled to recover its costs and expenses, including reasonable attorney's fees, incurred in connection therewith, in addition to any other relief to which such party is entitled. Each party shall, at its own expense, comply with any governmental law, statute, ordinance, administrative order, rule or regulation relating to its duties, obligations or performance under this Agreement. n. LIMITATION OF LIABILITIES. THE REMEDIES PROVIDES IN THIS AGREEMENT ARE THE SOLE AND EXCLUSIVE REMEDIES OF THE PARTIES. NEITHER PARTY SHALL IN ANY EVENT BE LIABLE TO THE OTHER, OR TO ANY LICENSEE, SUBLICENSEE, OR CUSTOMER OF THE OTHER UNDER THIS AGREEMENT FOR LOSS OF PROFITS, LOSS OF BUSINESS, LOSS OF USE OR OF DATA, OR FOR INTERRUPTION OF BUSINESS. NEITHER PARTY SHALL IN ANY EVENT BE LIABLE FOR INDIRECT, SPECIAL, RELIANCE, INCIDENTAL, COVER, OR CONSEQUENTIAL LOSS OR DAMAGE OF ANY KIND ARISING UNDER THIS AGREEMENT, WHETHER IN A CONTRACT, TORT OR OTHER ACTION FOR OR ARISING OUT OF ALLEGED BREACH OF WARRANTY, ALLEGED BREACH OF CONTRACT, DELAY, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE. Except as to the obligations set forth in Section 15.k, in no event shall either party be liable under this Agreement to the other, its successors and assigns for any damages exceeding total payments paid or due by both parties under this Agreement. o. NOTICES. All notices to a party under this Agreement shall be delivered to that party's Project Manager at the address stated in Exhibit D. All notices required or permitted to be given under this Agreement shall be in writing. A notice shall be validly given upon the earlier of confirmed receipt by the recipient or fourteen (14) days after deposit, postage prepaid, with the US Postal Service as first class mail. Notices may be delivered by telefax, overnight service or courier and shall be validly given upon confirmed receipt. 18 p. REPRESENTATIONS AND WARRANTIES. i. Ownership. Company warrants to Novell that Company has a valid right to modify, distribute, and sublicense the Licensed Works. Company further warrants that, to the best of its knowledge (without further research or due diligence), the Licensed Works do not infringe any person's patent, copyright, trademark, trade name or trade secret rights, that Company has the right to grant to Novell all rights to Licensed Works granted herein without violating any rights of any third party, and that to Company's knowledge there is currently no actual or threatened suit by any third party based on an alleged violation of these rights by Company. ii. Performance. Company warrants to Novell (and not to End Users), for a period of 90 days from the date of their respective initial delivery, that the initial delivery of the Licensed Works and each upgrade commencing on the last Milestone in Exhibit C will perform without Error. Novell's sole and exclusive remedy for breach of the foregoing warranty shall be for Company to use commercially reasonable efforts to fix non-conformities promptly and redeliver a corrected copy to Novell. Company further warrants to Novell, for a period of 90 days from the date of their respective initial delivery, that all media containing Licensed Works and related materials delivered to Novell will be free from physical defects in materials and workmanship. Novell's sole and exclusive remedy for breach of the foregoing warranty shall be for Company to ____ the Licensed Works. iii. Year 2000. Upon execution of this Agreement, Company will inform Novell in writing of its year 2000 policies and of the level of compliance of the Licensed Works with the Year 2000 warranty below. Company warrants the Licensed Works are Year 2000 compliant in that (i) they accurately process, address, store, and calculate date data from, into, and beyond the years 1999, 2000 and 2001, including leap year calculations, and (ii) all of their date-related functionality and data fields identify century and millennium, and (iii) they are able accurately to perform calculations that involve a four-digit year field. This warranty begins when Novell accepts the Licensed Works as meeting the relevant Product Requirements and ends the first date after January 1, 2001, that the Licensed Works operate without a breach 19 of this warranty for a consecutive six month period. If Company breaches this warranty, in addition to any other remedies available to Novell and at no additional cost to Novell, Company will promptly assign senior engineering staff to work full-time remedying the breach until the Licensed Works comply with this warranty. This warranty shall survive termination of this Agreement. iv. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTIES OR REPRESENTATIVE OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO DELIVERABLES, LICENSED WORKS, MATERIALS, INVENTIONS, INFORMATION OR ANY OTHER WORK OR OTHERWISE UNDER THIS AGREEMENT, AND EACH PARTY HEREBY EXPRESSLY DISCLAIMS ALL SUCH WARRANTIES, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, TITLE, NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE. q. SEVERABILITY. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid, illegal or unenforceable, the remaining provisions shall remain in full force and effect and shall be interpreted, to the extent possible, to achieve the purpose of this Agreement as originally expressed. The parties further agree to substitute for the invalid provision a valid provision which most closely approximates the intent and economic effect of the invalid provision. r. SUBSIDIARIES. All rights and licenses granted to Novell in this Agreement shall apply to Novell's Subsidiaries. Company agrees that it may not seek to enforce any obligation of Novell (or its Subsidiaries) through a legal action brought against a Subsidiary except to the extent that such action seeks injunctive relief against that particular Subsidiary. Novell hereby guarantees the performance of its Subsidiaries under this Agreement, and shall be jointly and severally liable for its Subsidies' acts and omissions. s. SURVIVAL OF TERMS. In the event of a termination of this Agreement, all obligations of confidentiality (including those specified in Section 15.d), the terms of Section 15.k (Intellectual Property Indemnity), Section 15.n (Limitation Of Liabilities), and Section 15.p (Representations And Warranties), and other provisions which by 20 their nature survive termination, shall continue in effect in accordance with their terms. t. VOLUME OBLIGATIONS. Except as explicitly stated in this Agreement, neither party shall have an obligation (i) to offer any product or service to any third party by way of sale, license or otherwise, or (ii) to use any minimum level of effort in the promotion, marketing, licensing or sales of any products or services, including products or services to the other party, or (iii) to purchase or license any minimum amount of products or services from the other party. u. RESERVATION OF RIGHTS. Except as explicitly stated in this Agreement, neither party grants any rights, in whole or in part, other than as expressly granted therein. Each party reserves to itself all rights not explicitly granted to the other in this Agreement. 16. SIGNATURES. IN WITNESS WHEREOF, each party has executed this Agreement by signature of its authorized representative, and this Agreement shall become effective as of the Effective Date. NOVELL, INC. NETOBJECTS, INC. Signature: /s/ Christopher Stone Signature:/s/ Michael J. Shannahan ---------------------- ------------------------ Name: Christopher Stone Name: Michael J. Shannahan --------------------------- ----------------------------- Title: SVP Title: VP & CFO -------------------------- ---------------------------- Date: 10/16/98 Date: 10/16/98 --------------------------- ----------------------------- 21 EXHIBIT G LICENSE FEES ANY PAYMENT SCHEDULE 1. PER COPY ROYALTY. Subject to the terms of this Agreement and specifically Section 8.b, Novell shall pay Company $[***].00 per each NWSB sold that includes the Licensed Work (referred to as a "Copy for purposes of this Exhibit G). INTERNAL USE BY NOVELL. For Novell's internal use of the Licensed Work for purposes other than the royalty-free purposes specified in Section 8.b, Novell shall pay Company $[***].00 for each copy of the Licensed Works. 2. MINIMUM ROYALTY. Novell agrees to pay Company a minimum royalty of [***] Dollars ([***]) during the Initial Term of the Agreement ("Minimum Royalty"). The Minimum Royalty will be paid quarterly in four (4) equal installments of $[***], beginning with the first full quarter after FCS. No Minimum Royalty shall be owed during any renewal terms. No Minimum Royalty shall be owed during the Initial Term if Novell is not reasonably able to distribute or continue distribution of the Licensed Work due to (i) Company's material breach of this Agreement, or (ii) an allegation or claim that the Licensed Work violates the intellectual or other proprietary rights of a third party. If there is a dispute regarding whether (i) Novell is reasonably able to distribute or continue distribution, or (ii) whether the interference with distribution is material, then the Project Managers shall have the primary responsibility to resolve such dispute, up to and including the dispute resolution procedures set forth in Section 14. 3. QUARTERLY RECONCILIATION OF MINIMUM ROYALTY. Novell shall be entitled to accumulate the quarterly royalty payments and offset them against future quarterly Minimum Royalty amounts. (e.g. If actual royalties due to Company in Q1 are $[***] and in Q2 are $[***], then Novell would not be required to pay the $[***] Minimum Royalty installment for Q2.) 4. NATURE OF DISTRIBUTION. This Agreement only grants to Novell a license to distribute the Licensed Works, and does not transfer any right, title or interest to any such Licensed Works to Novell's customers. Novell will have the right to sell Licensed Works to customers only to the extent that such products consist of non-software items. Use of the terms "sell," "license," "purchase," "license fees" and "price" and similar terms will be interpreted in accordance with the foregoing. *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. EX-10.17 46 EXHIBIT 10.17 EXHIBIT 10.17 BUILD-IT LICENSE AGREEMENT BETWEEN IBM AND NETOBJECTS 1. Ownership and License. The software product formerly marketed by Wallop Software, Inc. as "Build-IT version 2.7 for the Enterprise" ("Software") is owned by International Business Machines Corporation ("IBM") and is copyrighted and licensed, not sold. IBM grants NetObjects, Incorporated ("you") a world-wide, non-exclusive, non-transferable, copyright license to: 1) reproduce and create derivative works from the object code and source code versions of the Software; and 2) distribute the Software and derivative works thereof, in object code only, and only when you provide some "value-add" with the Software or derivative work thereof ("Bundle"). Examples of value-add would be other software or hardware products. No license to any other IBM intellectual property is granted hereunder. IBM wishes to continually improve upon the Software. You agree to provide to IBM a copy of any modifications to the Software that you develop or otherwise receive ("Software Modifications") by sending a copy of all such Software Modifications, in source code and object code form, to IBM. You hereby grant to IBM and its subsidiaries a world-wide, non-exclusive, non-transferable, royalty-free license to execute, reproduce, create derivative works from and distribute the Software Modifications and derivative works thereof. 2. Termination IBM may request, upon one hundred twenty (120) days written notice that you discontinue further distribution of the Software and that you delete or destroy all copies of the Software you possess except: a) for one copy that may be kept in your archives for reference purposes; and b) you may distribute any inventory of Bundles on hand at the time of such termination, provided you make available to IBM an accounting of such inventory promptly upon termination; and c) you may continue to distribute Bundles for a period of up to three (3) months after termination to fill any orders received in the normal course of business by you prior to the effective date of termination. Any licenses to the Software that you granted to your customers prior to such termination will continue to be in effect following such termination. 3. Warranty Disclaimer and Limitation of Liability IBM represents and warrants that it has the right to grant the licenses granted to you hereunder. IBM licenses the Software to you on an "AS IS" basis, without warranty of any kind. Except as provided above in this Section 3, IBM HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OR CONDITIONS, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IBM WILL NOT BE LIABLE FOR ANY DIRECT DAMAGES OR FOR ANY SPECIAL, INCIDENTAL, OR INDIRECT DAMAGES OR FOR ANY ECONOMIC CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS OR SAVINGS), EVEN IF IBM HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IBM will not be liable for the loss of, or damage to, your records or data, the records or data of any third party, or any damages claimed by you based on a third party claim. You agree to distribute the Software and any derivative works thereof under a license agreement that: 1) is sufficient to notify all licensees of the Software and any derivatives thereof that IBM and its subsidiaries assume no liability for any claim that may arise regarding the Software or any derivative works thereof; and 2) that disclaims all warranties, both express and implied, from IBM regarding the Software and any derivative works thereof. 4. Payment For each Bundle distributed by you, you will pay to IBM [***] ([***]%) of the gross revenue you receive for the Bundle, net of discounts and returns ("Net Revenue"), provided that for each copy of the Software that is distributed by you, you will pay to IBM a minimum of [***] dollars ($[***]) and a maximum of [***] dollars (i.e., if [***]% of the Net Revenue is less than [***] dollars ($[***]), you will pay to IBM a royalty of [***] dollars ($[***]), and if [***]% of the Net Revenue is more than [***] dollars ($[***]), you will pay to IBM a royalty of [***] dollars ($[***])). You shall provide to IBM, within forty-five (45) days after the conclusion of each calendar quarter, a quarterly accounting, and payment based on such accounting, of all royalties accruing to IBM for all copies of Software distributed externally or installed internally during such calendar quarter by you or your distributors. 5. General All confidential information shall be exchanged under the terms of the Agreement for the Exchange of Confidential Information between the parties, dated April 30, 1996. This Agreement is governed by the laws of the State of New York. You and IBM each waive its rights to a jury trial in any resulting litigation. Neither party may assign this agreement without the prior written consent of the other. This Agreement does not grant You or your licensees the right to use any IBM trademark or name. This Agreement is the only understanding and agreement we have regarding your use of the Software. It supersedes all other communications, understandings or agreements we may have had prior to this Agreement. Any reproduction of this Agreement made by reliable means (for example, photocopy or facsimile) is an original. ACCEPTED AND AGREED TO: NETOBJECTS, INC. INTERNATIONAL BUSINESS MACHINES CORPORATION BY: /s/ E. Cicogna BY: /s/ R.G. Anderegg ---------------------------------- ------------------------------- NAME: E. Cicogna NAME: R.G. Anderegg --------------------------------- ----------------------------- TITLE: VP Finance TITLE: Asst. General Counsel --------------------------------- ----------------------------- DATE: Feb. 2, 1999 DATE: Feb. 2, 1999 --------------------------------- ----------------------------- ***Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. EX-10.18 47 EXHIBIT 10.18 EXHIBIT 10.18 TRADEMARK LICENSE AGREEMENT THIS TRADEMARK LICENSE AGREEMENT (the "Agreement") is entered into by and among International Business Machines Corporation, a New York corporation ("IBM"), and NetObjects, Inc., a Delaware corporation ("NetObjects"). WHEREAS, IBM deems it to be in its self interest to obtain a license to use the "NetObjects" trademark to rebrand IBM's "TopPage" software product, and any subsequent versions, enhancements and derivative works thereof (the "Product"), as "NetObjects TopPage"; and WHEREAS, NetObjects deems it to be in its self interest to grant such a license to IBM in order to enhance the goodwill and recognition of its "NetObjects" trademark. NOW, THEREFORE, in consideration of the mutual promises and agreements set forth below, IBM and NetObjects agree as follows: NetObjects hereby grants IBM a non-exclusive, sub-licensable, worldwide license to use the "NetObjects" trademark and associated artwork attached hereto as Exhibit 1 (the "Trademark") as part of a new "NetObjects TopPage" trademark (the "New Trademark"), and to use the New Trademark in conjunction with the Product including, without limitation, to name and to market the Product using the New Trademark. NetObjects warrants that it has all requisite rights in the Trademark to make the forgoing license grant to IBM. IBM may sublicense its rights under this Agreement so long as IBM enters into a written agreement with each sublicensee that is at least as protective of NetObjects' intellectual property and other rights as is this Agreement and provides payment obligations at least equivalent to those set forth in this Agreement. In consideration for the forgoing license grant, for each authorized copy of the Product branded with the New Trademark ("Rebranded Product") licensed to an end user by IBM on a stand-alone basis (i.e., without any other software, hardware or services), IBM will pay NetObjects a royalty of [***] ($[***]). IBM has no royalty obligation for copies of the Rebranded Product used by IBM, its subsidiaries or their contractors: internally; for development, maintenance or support activities, marketing demonstrations, customer testing or trial periods (including early support, prerelease, or other similar programs); for training or education; or for backup and archival purposes. In addition, IBM has no royalty obligation: for copies of the Rebranded Product used by a licensed end user at home or on travel when such Product is stored on both the user's primary machine as well as another machine, provided that the end user is not authorized to actively use the Product on both machines at the same time; for copies of Rebranded Product licensed or distributed by or through NetObjects; for copies of Rebranded Product not licensed for full productive use ("Limited Functionality Copies") so long as such Limited Functionality Copies have limited time of use or limited functionality; for copies of the Rebranded Product that become available *** Portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406. generally to third parties without a payment obligation; for documentation provided with, contained in, or derived from the Rebranded Product; for copies of the Rebranded Product sold in combination with other software or hardware products, or services; for copies of the Rebranded Product which contain error corrections or enhancements to earlier versions of Rebranded Product ("Error Correction Copies") so long as such Error Correction Copies are made available only to previous purchasers of Rebranded Product; for copies of the Rebranded Product distributed with for warranty replacement copies of the Rebranded Product; for transfer of copies of Rebranded Product to, or possession of such copies by, IBM or its subsidiaries from a customer under an outsourcing arrangement; for any pictorial, graphic, and audiovisual works (such as icons, screens, sounds, and characters) generated by execution of the Rebranded Product; and for any programming interfaces, languages or protocols implemented in Rebranded Product to enable interaction with other computer programs. Royalties, if any, shall be paid quarterly, and payment shall be made by the last day of the second calendar month following each royalty payment quarter. IBM and NetObjects acknowledge that they are negotiating a separate agreement (the "IBM Software License Agreement") whereby, in exchange for a mutually-agreeable royalty payment to IBM, NetObjects will acquire non-exclusive rights to distribute Rebranded Product. The Parties agree to use commercially reasonable efforts to negotiate and execute the IBM Software License Agreement by March 31, 1999. The Parties propose that relevant terms of the IBM Software License Agreement may include terms related to or in accordance with the following: IBM and NetObjects will both have the rights to distribute the Rebranded Product in different geographic regions; NetObjects will pay IBM a royalty for licensing the Rebranded Product; and technical support duties of the Parties. Although each party may exchange written or oral proposals (including, but not limited to the proposal included in this paragraph), term sheets, draft agreements or other materials, neither party will have any obligations or liability to the other unless and until their authorized representatives sign the IBM Software License Agreement. Exchanged terms are non-binding to the extent they are not included in the IBM Software License Agreement. Either company can end these discussions at any time, for any reason, and without liability to the other. Each company remains free to negotiate or enter into similar relationships with others. Each of the parties agree to pay all costs it incurs in connection with the negotiation of the IBM Software License Agreement. Neither party is authorized to make any commitments or statements on behalf of the other. Information disclosed during the course of negotiations shall be considered confidential under, and shall be disclosed under the terms of a the Agreement for the Exchange of Confidential Information between the parties, dated April 30, 1996. The term of this Agreement will be six (6) months from the date the last party executes it or until the IBM Software License Agreement is executed, whichever may occur first, and will be automatically renewable for an additional one (1) year term unless notice of termination is provided at least thirty (30) days prior to such renewal date. Upon any termination or expiration of this Agreement, IBM will be allowed to continue use of the New Trademark, under the terms of this Agreement, until IBM makes generally available to the public the next release of the Product. Page 2 Each party shall have the right to terminate this Agreement in the event of a material breach by the other party of its obligations hereunder. Such termination shall be made by written notice to the breaching party specifically identifying the breach on which termination is based and shall become effective sixty (60) days after giving such notice, unless the breaching party shall have corrected the breach during the sixty (60) day period. Correction of the breach described in such notice shall render the notice void. In the event of any termination or expiration of this Agreement, all rights and licenses granted to IBM herein shall terminate except that: a) the termination shall not affect any rights or licenses exercised or granted by IBM prior to termination under this Section; , and b) the rights and licenses granted to IBM in this Agreement (and associated royalty obligations) will continue to permit IBM to provide error corrections and enhancements to the Rebranded Product, and to fill orders received before termination or expiration, and to fill new orders to distribute existing inventory, and to continue distributing the versions and releases of the Rebranded Product that had already been announced prior to any termination or expiration of this Agreement. For example, if this Agreement terminates or expires (i.e., the term ends) on 4/1/99, and prior to 4/1/99, IBM had already announced the following versions and releases of the Rebranded Products: 1.1, 1.2, 2.1, 2.2, then IBM may continue to distribute those same versions and releases of the Rebranded Products and will pay the applicable royalty to NetObjects, but any future versions and releases of that same product (e.g., 2.3, 3.0) cannot carry the Trademark under the terms of this Agreement. This Agreement represents the entire agreement of the parties hereto with respect to the subject matter hereof, and may be amended only by a writing signed by both parties hereto. This Agreement shall be governed by the laws of the State of New York without regard to conflicts of law principles. Both parties waive the right to a jury in any resulting litigation. Any reproduction of this Agreement, by reliable means (e.g., photocopy or facsimile) shall be deemed an original. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Agreement on their behalf. INTERNATIONAL BUSINESS MACHINES CORPORATION NETOBJECTS, INC. By: /s/ Seita Iida By: /s/ E. Cicogna -------------------- -------------------- Name: S. Iida Name: E. Cicogna -------------------- -------------------- Its: ESBU Marketing Its: V.P. Finance -------------------- -------------------- Date: 1/19/99 Date: 1/19/99 -------------------- -------------------- Page 3 EX-16.1 48 EXHIBIT 16.1 EXHIBIT 16.1 February 5, 1999 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Ladies and Gentlemen: We have read paragraphs one through three included under the heading "Change in Auditors" included on page 74 of Form S-1 dated February 4, 1999, of NetObjects, Inc. We are in agreement with the statements contained in the first sentence of paragraph one and paragraphs two and three. We have no basis to agree or disagree with the statements made in the second and third sentences of paragraph one. Very Truly Yours, /s/ Ernst & Young LLP Ernst & Young LLP EX-21.1 49 EXHIBIT 21.1 EXHIBIT 21.1 Subsidiaries of the Registrant NetObjects Limited EX-23.2 50 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS The Board of Directors NetObjects, Inc.: We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the Prospectus. Our report dated December 21, 1998 contains an explanatory paragraph that states that the Company has suffered recurring losses from operations and has a net capital deficiency, which raise substantial doubt about its ability to continue as a going concern. The Consolidated Financial Statements and Financial Statement Schedules do not include any adjustments that might result from the outcome of this uncertainty. /s/ KPMG LLP Mountain View, California February 4, 1999 EX-27.1 51 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1998, AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR 3-MOS SEP-30-1999 SEP-30-1999 OCT-01-1997 OCT-01-1998 SEP-30-1998 DEC-31-1998 459 1288 0 0 4555 4863 (2263) (1789) 0 0 3505 5399 3520 4223 (1880) (2120) 5145 7502 33734 28789 0 0 0 0 109 113 20 21 (29054) (29311) 5145 7502 0 0 15270 5617 5093 2083 31147 7628 0 3792 0 0 1194 712 (22164) (8598) 60 2 (22224) (8600) 0 0 0 0 0 0 (22224) (8600) (12.39) (4.44) (12.39) (4.44)
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