<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-28088
STYLECLICK.COM INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
California 95-4145930
- --------------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3861 Sepulveda Blvd., Culver City 90230
- --------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
(310) 751-2100
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of outstanding shares of the registrant's common stock, as of August
11, 1999, was 7,404,515.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Styleclick.com Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited) (Note 1)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,462,744 $ 6,343,599
Accounts receivable, net of 841,642 752,487
allowance for doubtful account of
$280,000 at June 30, 1999 and
$132,500 at December 31, 1998
Prepaid expenses and other current assets 7,754,136 397,101
------------ ------------
Total current assets 17,058,522 7,493,187
Capitalized computer software development costs, 2,718,878 3,014,043
net of accumulated amortization of
$6,882,814 at June 30, 1999 and $6,039,105
at December 31, 1998 (Note 2)
Furniture and equipment, net of accumulated 2,690,912 2,459,656
depreciation of $1,430,657 at June 30, 1999
and $1,069,832 at December 31, 1998
Other assets 85,993 83,055
------------ ------------
Total assets $22,554,305 $13,049,941
============ ============
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 1,110,150 503,198
Deferred income 502,522 237,052
------------ ------------
Total current liabilities 1,612,672 740,250
------------ ------------
Commitments (Note 3)
Stockholders' equity:
Common stock; No par value; authorized 40,523,747 26,575,627
15,000,000 shares; Issued and outstanding
7,401,515 shares at June 30, 1999 and
6,143,374 at December 31, 1998 (Note 4)
Accumulated deficit (19,582,114) (14,265,936)
------------ ------------
Total stockholders' equity 20,941,633 12,309,691
------------ ------------
Total liabilities and $22,554,305 $13,049,941
stockholders' equity ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
Styleclick.com Inc.
Condensed Statements Of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 574,920 $3,630,487 $ 4,364,796 $ 4,594,740
------------ ----------- ------------ ------------
Cost of sales 203,863 9,553 322,874 17,499
Selling, general and 2,910,227 1,822,523 5,330,286 3,367,995
administrative
Research and development 1,680,979 1,259,851 3,342,065 2,475,145
Amortization of capitalized
software development costs 220,538 564,215 843,709 808,742
------------ ----------- ------------ ------------
Total expenses 5,015,607 3,656,142 9,838,934 6,669,381
------------ ----------- ------------ ------------
Loss from operations (4,440,687) (25,655) (5,474,138) (2,074,641)
Investment income 109,849 129,394 157,962 252,277
------------ ----------- ------------ ------------
Net income (loss) $(4,330,838) $ 103,739 $(5,316,176) $(1,822,364)
============ =========== ============ ============
Basic income (loss) per
share (Note 5) $ (0.59) $ 0.02 $ (0.79) $ (0.30)
============ =========== ============ ============
Diluted income (loss) per
share (Note 5) $ (0.59) $ 0.02 $ (0.79) $ (0.30)
============ =========== ============ ============
Weighted average common
shares outstanding 7,279,515 6,076,361 6,721,111 6,062,798
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Styleclick.com Inc.
Condensed Statements Of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,316,176) $ (1,822,364)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 360,825 171,735
Amortization of capitalized 843,709 808,742
software development costs
Provision for loss an accounts 30,000 412,075
receivable
Issuance of common stock warrants 218,030 5,000
for services rendered
(Increase) decrease in:
Accounts receivable (119,155) (1,326,443)
Inventories 375 3,563
Prepaid expenses and other (1,611,765) 380,894
current assets
Other assets (2,943) (3,000)
Increase (decrease) in:
Accounts payable and accrued expenses 606,952 388,068
Deferred income 265,471 256,270
-------------- --------------
Net cash used in operating activities (4,724,677) (725,460)
-------------- --------------
Cash flows from investing activities:
Purchase of furniture and equipment (592,081) (827,047)
Capitalized computer software (548,543) (475,624)
development cost
-------------- --------------
Net cash used in investing activities (1,140,624) (1,302,671)
-------------- --------------
Cash flows from financing activities:
Proceeds from issuance of common stock 7,984,446 465,963
-------------- --------------
Net cash provided by financing activities 7,984,446 465,963
-------------- --------------
Net increase (decrease) in cash 2,119,145 (1,562,168)
Cash and cash equivalents, beginning of period 6,343,599 12,419,992
-------------- --------------
Cash and cash equivalents, end of period $ 8,462,744 $ 10,857,824
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Supplemental Cash Flow Information
<S> <C> <C>
Interest paid $ 0 $ 0
============== ==============
Income taxes paid $ 1,070 $ 13,263
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Styleclick.com Inc.
Condensed Statements Of Operations
(Continued)
During the first six months of 1999, the Company recorded an increase in prepaid
expenses and common stock of $5,963,674 due to the issuance of 455,218 shares of
the Company's common stock and warrants to purchase a total of 538,674 shares of
the Company's common stock to a project co-developer and the issuance of
warrants to purchase a total of 401,667 shares of common stock in consideration
of business promotion services provided (or to be provided) to the Company.
$218,405 of the $5,963,674 increase in prepaid expenses were expensed during the
first six months of 1999.
4
<PAGE>
Styleclick.com Inc.
Notes to Condensed Financial Statements
Note 1: BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Styleclick.com Inc.
("Styleclick" or the "Company"), formerly known as Modacad, Inc., have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. These adjustments
consisted of normal recurring accruals with the exception of a $249,808
write-off of capitalized software development cost in connection with the sale
of a product line in the first quarter of 1999. Operating results for the first
six months of 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999.
The balance sheet at December 31, 1998 was derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-KSB for the year ended
December 31, 1998, as amended.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Adoption of Statement of Position 98-1
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The SOP, which has been adopted prospectively as of
January 1, 1999, requires the capitalization of certain costs incurred in
connection with developing or obtaining internal use software. During the first
six months of 1999, the Company capitalized $548,543 of internal use software
development costs.
5
<PAGE>
Styleclick.com Inc.
Notes to Condensed Financial Statements
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
The Company recognizes revenues generated from vendor participation in the
Company's CD-ROM applications ("CD-ROM participation fees") and the Company's
on-line shopping Internet web-sites ("project participation fees") over the
terms of the corresponding contracts in a manner that matches revenue with the
related cost incurred to set up and manage vendor web-site content. Revenue
generated from services provided to customers in the development and maintenance
of their Internet web-sites ("web-site development and maintenance fees") is
recognized over the terms of the corresponding contracts in a manner that
matches revenue with the related cost incurred to develop and maintain the
web-sites. Revenue generated from advertising on the Company's on-line shopping
web-sites ("on-line advertising revenue") is recognized over the terms of the
corresponding contracts on a straight-line basis. Revenue generated from the
Company's fulfillment services provided to the Company's on-line shopping
Internet web-site participant vendors ("transactional revenue") is recognized
based on a percentage of gross revenues from the related transactions upon
notification of shipment of the vendors' products by the Company's fulfillment
warehouse. Revenue generated from referral of vendors' products to Internet
consumers through the Company's on-line shopping Internet web-sites ("product
referral fees") are recognized based on a percentage of gross revenues from the
related transactions according to the Company's on-line transactional tracking
reports.
The Company recognizes revenues related to software licenses and software
maintenance in accordance with the AICPA SOP 97-2, "Software Revenue
Recognition." Product revenue is recorded at the time of shipment, net of
estimated allowances and returns. Revenue generated from Post Contract Customer
Support is recognized on a straight-line basis over the term of the
corresponding contract, which is generally twelve months.
Comprehensive Income
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income," establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined includes
all changes in equity (net assets) during a period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net income, include foreign currency translation adjustments and unrealized
gains and losses on available-for-sale securities. Comprehensive income is not
presented in the Company's financial statements since the Company did not have
any of the items of comprehensive income in any period presented.
Note 3: COMMITMENTS
Employment Agreements
In 1998, the Company entered into two new employment agreements, expiring on
December 31, 2005, with two key officers of the Company. Under the agreements,
these officers receive aggregate annual salaries of $400,000 and monthly
aggregate automobile allowances of $1,200. In addition, these officers received
aggregate signing bonuses of $200,000. Further, the Company shall pay an annual
performance bonus to each officer for each calendar year of the employment term
in an amount determined by the Compensation Committee of the Board.
6
<PAGE>
Styleclick.com Inc.
Notes to Condensed Financial Statements
Note 3: COMMITMENTS (Continued)
In connection with the employment agreements, the same key officers were granted
five-year options to purchase up to an aggregate of 400,000 shares of the
Company's common stock. Such options vest and become exercisable as follows: if
the closing sale price of the Company's common stock is greater than $10 per
share for a period of 20 consecutive trading days in any fiscal year during the
term of the employee agreements, options to purchase 50 shares of common stock
for each $1,000 of net income (before deductions for taxes and executive
bonuses) of the Company in such calendar year vest and become exercisable at an
exercise price equal to the market value per share on the grant date. The
exercise price for such options is $15.875 per share, which is not less than the
fair market value on the date of grant. As of June 30, 1999, no granted shares
were vested.
Line of Credit
In October 1998, the Company entered into a line of credit agreement with a
bank, expiring in September 1999, which provides for borrowings of up to
$1,000,000. Borrowings under the agreement are secured by the Company's accounts
receivable and bear interest at the bank's prime rate (7.75% at June 30, 1999).
Terms of the agreement require the Company to maintain certain minimum financial
ratios. The Company is in compliance with those financial ratios. As of June 30,
1999, no amounts have been drawn against the line of credit.
E-Commerce Marketing Agreement
In June 1999, the Company entered into a two-year interactive marketing
agreement with an Internet Portal company ("Portal"). Under the agreement, the
Portal will promote the Company's E-commerce Internet web-site in several areas
of the Portal's Internet web-sites. In consideration of such promotion, in June
1999 the Company issued to the Portal warrants, expiring in December 2001, to
purchase 100,000 shares of the Company's common stock at an exercise price of
$12.34 per share. Additionally, the Company will provide payments to the Portal
totaling up to $7.5 million in cash according to the payment schedule through
January 2001stated on the agreement. As of June 30, 1999, the Company had paid
$1.5 million in cash to the Portal under this agreement.
7
<PAGE>
Styleclick.com Inc.
Notes to Condensed Financial Statements
Note 4: STOCKHOLDERS' EQUITY
Common Stock and Warrants
In November 1997, the Company issued to its project co-developer
("Co-developer") for services provided to the Company warrants, expiring in
November 2002, to purchase 126,316 shares of common stock at an exercise price
of $19.00 per share. Under the Project Development Agreement with the
Co-developer, the Company had an obligation to the Co-developer for certain
royalty payments in the form of cash and common stock purchase warrants in
consideration of the Co-developer's contribution to the project development. In
April 1999, the Company entered into a Stock and Warrant Purchase and Investor
Rights Agreement ("Purchase Agreement") with this Co-developer. Under the
Purchase Agreement, the Company issued to the Co-developer 455,218 shares of
common stock, warrants, expiring in April 2000, to purchase 189,674 shares of
common stock at an exercise price of $13.18 per share, warrants, expiring in
July 2000, to purchase 189,674 shares of common stock at an exercise price of
$13.18 per share and warrants, expiring in April 2004, to purchase 159,326
shares of common stock at an exercise price of $10.98 per share. The exercise of
such warrants was subject to shareholder approval at the Company's 1999 Annual
Meeting of Shareholders. In return, the Company's royalty obligation stated in
the Project Development Agreement with the Co-developer was terminated.
Concurrently with the Purchase Agreement, the Company entered into a Securities
Purchase Agreement with each of four investors. Under such agreement, the
investors purchased an aggregate of 776,827 shares of the Company's common
stock, warrants, expiring in April 2000, to purchase 323,677 shares of common
stock at an exercise price of $13.18 per share, warrants, expiring in July 2000,
to purchase 323,677 shares of common stock at an exercise price of $13.18 per
share and warrants, expiring in April 2004, to purchase 271,889 shares of common
stock at an exercise price of $13.73 per share. The exercise of such warrants
was subject to shareholder approval at the Company's 1999 Annual Meeting of
Shareholders. As a result of this offering, the Company received approximately
$7,800,000 in net proceeds after paying costs associated with the offering. Upon
completion of these transactions, the Company issued to two placement agents in
consideration of services rendered to the Company in connection with the sale of
the Company' s common stock and warrants to these investors warrants, expiring
in April 2004, to purchase 15,536 shares of common stock at an exercise price of
$10.98 per share. The exercise of such warrants was subject to shareholder
approval at the Company's 1999 Annual Meeting of Shareholders.
Warrants
In connection with the Company's IPO in March 1996, the Company issued to the
principal underwriter in the IPO, for $1,400, unit purchase warrants to purchase
140,000 units, at a per unit exercise price of $6.00, each unit consisting of
one share of common stock and one redeemable warrant exercisable to purchase one
share of common stock at an exercise price of $9.10 per share. Such unit
purchase warrants are exercisable for a four-year period, which began March 27,
1997. As of June 30, 1999, the underwriter (or assignees of the underwriter)
exercised a portion of the unit purchase warrants to purchase an aggregate of
114,700 shares of the Company's common stock and 114,700 redeemable common stock
purchase warrants. Additionally, 30,800 of 114,700 redeemable common stock
purchase warrants were further exercised to purchase 30,800 shares of the
Company's common stock.
8
<PAGE>
Styleclick.com Inc.
Notes to Condensed Financial Statements
Note 4: STOCKHOLDERS' EQUITY (Continued)
In December 1996, the Company issued to an outside consultant for services
provided to the Company warrants, expiring in December 1999, to purchase 250,000
shares of common stock at an exercise price of $5.00 per share. As of June 30,
1999, these warrants had not been exercised.
In July 1997, the Company issued to a financial advisor for services provided to
the Company warrants, expiring in July 2002, to purchase 100,000 shares of
common stock at an exercise price of $14.38 per share. As of June 30, 1999,
these warrants had not been exercised.
In June 1998, the Company issued to an outside promotion agency for services
provided to the Company warrants, expiring in May 2003, to purchase 50,000
shares of common stock at an exercise price of $17.75 per share. In December
1998, the Company issued to the same agency for services provided to the Company
additional warrants, expiring in November 2003, to purchase 8,333 shares of
common stock at an exercise price of $20.00 per share. During the six months
ended June 30, 1999, the Company issued to the same agency for services provided
to the Company warrants, expiring in December 2003, to purchase 8,333 shares of
common stock at an exercise price of $16.68 per share, warrants, expiring in
January 2004, to purchase 8,333 shares of common stock at an exercise price of
$20.00 per share, warrants, expiring in February 2004, to purchase 8,333 shares
of common stock at an exercise price of $16.00 per share, warrants, expiring in
March 2004, to purchase 8,333 shares of common stock at an exercise price of
$11.56 per share and warrants, expiring in April 2004, to purchase 8,335 shares
of common stock at an exercise price of $11.88 per share. As of June 30, 1999,
these warrants had not been exercised.
In March 1999, the Company issued warrants, expiring in March 2004, to purchase
250,000 shares of common stock at an exercise price of $16.80 per share in
consideration of business promotion services to be provided to the Company. As
of June 30, 1999, these warrants had not been exercised.
In June 1999, the Company issued to an Internet portal company in connection
with a two-year E-commerce marketing agreement warrants, expiring in December
2001, to purchase up to 100,000 shares of common stock at an exercise price of
$12.34 per share. As of June 30, 1999, these warrants had not been exercised.
In May 1996, the Company granted to one of its non-employee directors for
services provided to the Company warrants, expiring in May 2001, to purchase
2,000 shares of common stock at an exercise price of $4.25 per share. In October
1998, in consideration for services provided to the Company, the Company
repriced to $9.50 a five-year warrant, expiring July 2002, to purchase 8,000
shares of common stock that was granted to a non-employee director in July 1997
and two ten-year warrants, expiring October 2007, to purchase a total of 4,000
shares that were granted to two non-employee directors in October 1997. In
October 1998, the Company granted to three non-employee directors in
consideration of services rendered to the Company ten-year warrants, expiring
October 2008, to purchase a total of 18,000 shares of common stock at an
exercise price of $9.50 per share.
9
<PAGE>
Styleclick.com Inc.
Notes to Condensed Financial Statements
Note 4: STOCKHOLDERS' EQUITY (Continued)
Stock Option Plan
In 1995, the Company adopted the 1995 Stock Option Plan (the "Plan") which
expires in 2006. In June 1997, the Plan was amended, upon receipt of shareholder
approval, to increase the number of shares of common stock authorized for
issuance pursuant to the exercise of stock options granted under the Plan from
300,000 to 750,000 shares. In June 1998, the Plan was further amended, upon
receipt of shareholder approval, to increase the number of shares of common
stock authorized for issuance pursuant to the exercise of stock options granted
under the Plan from 750,000 to 1,650,000 shares. In May 1999, the Plan was
further amended, contingent upon receipt of shareholder approval, to increase
the number of shares of common stock authorized for issuance pursuant to the
exercise of stock options granted under the Plan from 1,650,000 to 2,500,000
shares. As of June 30, 1999, 146,500 shares had been issued upon the exercise of
options granted under the Plan; 1,692,954 shares were issuable upon the exercise
of outstanding options with exercise prices ranging from $4.69 to $20.06 per
share and no shares remained available for additional option grants under the
Plan.
Note 5: NET INCOME (LOSS) PER SHARE
Basic and diluted net income (loss) per common share are presented in conformity
with Statement of Financial Accounting Standard No. 128, "Earnings per Share"
("FAS 128"), for all periods presented. In accordance with FAS 128, basic net
income per share, basic net loss per share and diluted net loss per share are
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding. Diluted net income per
share is computed similarly to basic net income per share except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been issued and
if the additional common shares were dilutive.
Note 6: SUBSEQUENT EVENTS
During its annual meeting held in July 1999, the Company's shareholders approved
all of the resolutions proposed by the Company's Board of Directors including
changing the legal name of the Company to Styleclick.com Inc.; amending the
Company's stock option plan to increase the number of shares authorized for
issuance under the Plan from 1,650,000 to 2,500,000; approving the issuance of
up to 538,674 shares of the Company's common stock issuable to its Co-developer
upon exercise of warrants purchased by the Co-developer pursuant to the Stock
and Warrant Purchase and Investor Rights Agreement the Company entered into with
the Co-developer in April 1999; approving the issuance of up to 919,243 shares
of the Company's common stock issuable to four investors upon exercise of
warrants purchased by the investors pursuant to the Securities Purchase
Agreement the Company entered into with each of the four investors in April 1999
and approving the issuance of up to 33,921 shares of the Company's common stock
issuable to the placement agents in consideration of services rendered to the
Company in connection with the sale of the Company's common stock and warrants
to such investors.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this Form 10-Q.
General
The Company is in the business of developing, marketing, and supporting
electronic commerce ("E-commerce") Internet web-sites, Internet enabled
applications and business and consumer software products based on its
proprietary technology for content management, including modeling and rendering
technology. The Company has three principal product groups: E-commerce Internet
web-sites, consumer software including Internet enabled software applications
("consumer CD-ROM products") and business-to-business applications including CAD
and electronic merchandising products ("business-to-business products").
Since 1998, the Company has divested many of its products in the
business-to-business and consumer software and has focused its primary business
from the business-to-business marketplace to the emerging consumer Internet
electronic commerce market. The Company is focusing its technology to build and
deploy E-commerce Internet sites, such as comparative search and shopping
solutions aimed at facilitating businesses' use of electronic commerce to reach
consumers in the apparel, footwear, accessories, cosmetics and home furnishing
industries.
Revenues generated from the Company's E-commerce Internet web-sites include
revenues received in connection with (i) services provided to customers in the
development and maintenance of their Internet web-sites ("web-site development
and maintenance fees"), (ii) vendors' participation in the Company's on-line
shopping Internet web-sites ("project participation fees"), (iii) advertising on
the Company's on-line shopping web-sites ("on-line advertising revenue"), (iv)
the Company's fulfillment services provided to the Company's on-line shopping
Internet web-site participant vendors ("transactional revenue") and (v) referral
of vendors' products to Internet consumers through the Company's on-line
shopping Internet web-sites ("product referral fees"). Revenues from project
participation fees, web-site development and maintenance fees and on-line
advertising revenue are recognized over the terms of the corresponding
contracts. Transactional revenue and product referral fees are recognized based
on a percentage of gross revenues from the related transactions. Transactional
revenue is recorded upon notification of shipment of the vendors' products by
the Company's fulfillment warehouse. Product referral fees are recorded based
upon the Company's on-line transactional tracking reports.
Revenues generated from the Company's consumer CD-ROM products include revenues
received in connection with: (i) sales of the Company's developed consumer
CD-ROM products and (ii) vendors' participation in the Company's developed
CD-ROM applications ("CD-ROM participation fees"). Sales of the products are
recognized at the time of shipment. Revenues from CD-ROM participation fees are
recognized over the terms of the corresponding contracts.
Revenues generated from the Company's business-to-business products include
revenues received in connection with: (i) sales and licenses of the Company's
developed business-to-business products and (ii) software maintenance revenues.
Sales and licenses of the products are recognized at the time of shipment.
Revenue generated from software maintenance is recognized on a straight-line
basis over the term of the corresponding contract, which is generally twelve
months.
11
<PAGE>
Results of Operations
Comparison of Three Months Ended June 30, 1999 and 1998
The following table sets forth selected items from the Company's statements of
operations for the periods ended June 30, 1999 and June 30, 1998 (in thousands)
and the percentages that such items bear to net sales:
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------------------------
1999 1998
------------------------- -------------------------
<S> <C> <C> <C> <C>
Net sales $ 575 100.0 % $ 3,631 100.0 %
Cost of sales 204 35.4 10 0.3
Selling, general and 2,910 506.1 1,823 50.2
administrative
Research and development 1,681 292.4 1,259 34.7
Amortization of software 221 38.4 564 15.5
development costs
---------- ------------ ----------- -----------
Total expenses 5,016 872.3 3,656 100.7
---------- ------------ ----------- -----------
Loss from operations (4,441) (772.3) (25) (0.7)
Investment income 110 19.1 129 3.6
---------- ------------ ----------- -----------
Net income (loss) $ (4,331) (753.2)% $ 104 2.9 %
========== ============ =========== ===========
</TABLE>
Net Sales
Net sales decreased $3,056,000, or 84%, to $575,000 in the second quarter of
1999 from $3,631,000 in the second quarter of 1998 due to a decrease of $509,000
in sales of the Company's business-to-business products (electronic
merchandising and CAD products), a decrease of $2,780,000 in revenues from the
Company's consumer CD-ROM products, a decrease of $1,000 in revenues from
training services and a decrease of $41,000 in maintenance fees. These decreases
were offset by an increase of $150,000 in revenue generated from the Company's
E-commerce Internet web-sites and an increase of $125,000 in revenue from
consulting services.
Revenues generated from the Company's E-commerce Internet web-sites were
$150,000 in the second quarter of 1999 as compared to no such revenue generated
in the second quarter of 1998. The $150,000 in revenues primarily consisted of
revenues generated from web-site development and maintenance fees, project
participation fees and on-line advertising revenue. During the first six months
of 1999, the Company, as part of its strategy to develop its E-commerce business
model, began entering into revenue sharing and/or product referral agreements
with its project participants. Under these agreements, the Company will receive
transactional revenues (shared with its project participants) and product
referral fees (from its project participants) during the terms of such
agreements. Since the Company's on-line shopping Internet web-site was launched
at the end of the first quarter of 1999, the Company had not generated
significant transactional revenues and product referral fees during the second
quarter of 1999.
Revenues generated from consumer CD-ROM products decreased $2,780,000, or 94%,
to $170,000 in the second quarter of 1999 from $2,950,000 in the second quarter
of 1998 primarily due to $1,980,000 of revenue generated during the second
quarter of 1998 from the one-time license of the Company's 3-D Home Interiors
product to its publisher and $500,000 of revenue generated in connection with
the Company's developing CD-ROM applications in the second quarter of 1998. Such
revenues were not repeated in the second quarter of 1999 as the Company has
shifted its primary business focus to the emerging consumer Internet E-commerce
market. $300,000 of the decrease was due to lower CD-ROM participation revenues
generated from the Company's consumer CD-ROM applications in the second quarter
of 1999 as compared to the second quarter of 1998. The decrease in CD-ROM
participation revenues resulted from the Company's strategy to shift its
marketing focus to Internet E-commerce during the second quarter of 1999.
12
<PAGE>
Sales of business-to-business products decreased $509,000, or 87%, to $79,000 in
the second quarter of 1999 from $588,000 in the second quarter of 1998 primarily
due to the Company's exiting its business-to-business marketplace by selling two
of its business-to-business product lines in the first quarter of 1999 to one of
its major competitors in the business-to-business market. As a result of such
sales, the Company generated less sales from its business-to-business products
in the second quarter of 1999 as compared to the second quarter of 1998.
Consulting services increased $125,000 due to revenue generated from the
purchaser of two of the Company's business-to-business product lines in March
1999. No revenue was generated from consulting services in the second quarter of
1998.
Training services decreased $1,000, or 14%, to $6,000 in the second quarter of
1999 from $7,000 in the second quarter of 1998, and maintenance fees decreased
$41,000, or 48%, to $44,000 in the second quarter of 1999 from $85,000 in the
second quarter of 1998, primarily due to the Company's overall shift in its
primary business away from the business-to-business marketplace, as discussed
above, from which most training and maintenance fees were generated.
Cost of Sales
Cost of sales increased $194,000 to $204,000 in the second quarter of 1999 from
$10,000 in the second quarter of 1998 due primarily to a $158,000 non-cash
charge in royalty expense to Intel Corp. ("Intel"), the Company's project
co-developer, and a $4,000 license fee paid for Internet web-site development
during the second quarter of 1999. No such costs of sales were incurred in the
second quarter of 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1,087,000, or 60%, to
$2,910,000 in the second quarter of 1999 from $1,823,000 in the second quarter
of 1998 due to the following factors. Personnel costs increased $421,000, or
59%, to $1,131,000 in the second quarter of 1999 from $710,000 in the second
quarter of 1998. The increase in personnel costs resulted from the hiring of
additional personnel in late 1998 to support the Company's increased operating
activities and $200,000 of bonuses paid to the Company's executives in the
second quarter of 1999. Additionally, during the second quarter of 1999 certain
related costs including travel, marketing, telephone, office supplies expenses,
taxes and licenses, repair and maintenance and depreciation expense increased
$810,000, or 184%, to $1,250,000 in the second quarter of 1999 from $440,000 in
the second quarter of 1998. Of that increase, $751,000 was related to the
Company's increased marketing activities during the second quarter of 1999 to
support its new E-commerce products. Additionally, professional services
including accounting, legal and consulting services increased $264,000, or 130%,
to $467,000 in the second quarter of 1999 from $203,000 in the second quarter of
1998. The increase in professional services was primarily due to the Company's
increased requirements for these services in the second quarter of 1999 compared
to the second quarter of 1998, resulting from the Company's increased operating
activities. Finally, bad debt expense decreased $391,000, or 96%, to $15,000 in
the second quarter of 1999 from $406,000 in the second quarter of 1998. Such
decrease was primarily attributable to the additional bad debt reserve in the
amount of $402,000 recorded by the Company during the second quarter of 1998
upon the Company's review of certain specific accounts. No such additional
reserve was recorded in the second quarter of 1999.
13
<PAGE>
Research and Development
The Company incurred $1,957,000 of research and development expenditures during
the second quarter of 1999, of which $276,000 was capitalized and $1,681,000 was
expensed, compared to $1,481,000 for the second quarter of 1998, of which
$222,000 was capitalized and $1,259,000 was expensed. The 32% increase in
research and development expenditures from the second quarter of 1998 to the
second quarter of 1999 was primarily due to the hiring of additional personnel
in connection with the further development of the Company's Internet application
projects.
Amortization of Software Development Costs
The amortization of software development costs decreased $343,000, or 61%, to
$221,000 in the second quarter of 1999 from $564,000 in the second quarter of
1998 due primarily to a $341,000 write-off of the Company's 3-D Home Interiors
product development cost in connection with the sale of the product's license to
the Company's publisher in the second quarter of 1998. There was no
corresponding write-off in the second quarter of 1999.
Investment Income
Investment income decreased $19,000, or 15%, to $110,000 in the second quarter
of 1999 from $129,000 in the second quarter of 1998 due to the decrease in
income generated from a money market account in which the Company's funds are
maintained. The decrease resulted from a lower average cash balance maintained
in this account in the second quarter of 1999 as compared to the second quarter
of 1998.
Income Taxes
The Company recorded no provision for income taxes during the second quarters of
1999 and 1998 due to the utilization of net operating loss carryforwards.
14
<PAGE>
Comparison of Six Months Ended June 30, 1999 and 1998
The following table sets forth selected items from the Company's statements of
operations (in thousands) and the percentages that such items bear to net sales:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------
1999 1998
------------------------- -------------------------
<S> <C> <C> <C> <C>
Net sales $ 4,365 100.0 % $ 4,595 100.0 %
Cost of sales 323 7.4 17 0.4
Selling, general and 5,330 122.1 3,368 73.3
administrative
Research and development 3,342 76.6 2,475 53.9
Amortization of software 844 19.3 809 17.6
development costs ---------- ------------ ----------- -----------
Total expenses 9,839 225.4 6,669 145.2
---------- ------------ ----------- -----------
Loss from operations (5,474) (125.4) (2,074) (45.2)
Investment income 158 3.6 252 5.5
---------- ------------ ----------- -----------
Net loss $ (5,316) (121.8)% $(1,822) (39.7)%
========== ============ =========== ===========
</TABLE>
Net Sales
Net sales decreased $230,000, or 5%, to $4,365,000 in the first six months of
1999 from $4,595,000 in the first six months of 1998 due to a decrease of
$2,943,000 in revenues from the Company's consumer CD-ROM products, a decrease
of $7,000 in revenues from training services and a decrease of $59,000 in
maintenance fees. These decreases were offset by an increase of $2,320,000 in
sales of the Company's business-to-business products (electronic merchandising
and CAD products), an increase of $210,000 in revenue generated from the
Company's E-commerce Internet web-sites and an increase of $249,000 in revenue
from consulting services.
Revenues generated from the Company's E-commerce Internet web-sites were
$210,000 in the first six months of 1999 as compared to no such revenue
generated in the first six months of 1998. The $210,000 revenues primarily
consisted of revenues generated from web-site development and maintenance fees,
project participation fees and on-line advertising revenue. During the first six
months of 1999, the Company, as part of its strategy to develop its E-commerce
business model, began entering into revenue sharing and/or product referral
agreements with its project participants. Under these agreements, the Company
will receive transactional revenues (shared with its project participants) and
product referral fees (from its project participants) during the term of such
agreements. Since the Company's on-line shopping Internet web-site was launched
at the end of the first quarter of 1999, the Company had not generated
significant transactional revenues and product referral fees during the first
six months of 1999.
Revenues generated from consumer CD-ROM products decreased $2,943,000, or 83%,
to $599,000 in the first six months of 1999 from $3,542,000 in the first six
months of 1998 primarily due to $1,980,000 of revenue generated during the first
six months of 1998 from the one-time license of the Company's 3-D Home Interiors
product to its publisher and $500,000 of revenue generated in connection with
the Company's developing CD-ROM applications in the first six months of 1998.
Such revenues were not repeated in the first six months of 1999 as the Company
has shifted its primary business focus to the emerging consumer Internet
E-commerce market. $463,000 of the decrease was due to lower CD-ROM
participation revenues generated from the Company's consumer CD-ROM applications
in the first six months of 1999 as compared to the first six months of 1998. The
decrease in CD-ROM participation revenues resulted from the Company's strategy
to shift its marketing focus to Internet E-commerce during the first six months
of 1999.
15
<PAGE>
Sales of business-to-business products increased $2,320,000, or 260%, to
$3,214,000 in the first six months of 1999 from $894,000 in the first six months
of 1998 primarily due to the sale of two of the Company's business-to-business
product lines and the license of certain related technologies for an up-front
fee of $3,000,000 during the first six months of 1999. In March 1999, the
Company entered into an agreement with one of its major competitors. Under the
agreement, the Company sold two of its business-to-business product lines and
licensed its cataloging software to such buyer for an up-front fee of
$3,000,000, additional support fees of up to $1,000,000, and a contingent
payment of up to $1,000,000 depending on future sales over the next 24 months
generated from the product lines sold to the buyer. Except for support services,
the Company has no further obligations to this buyer (including further
development of the products sold or the software licensed, as all development
had been completed on such products and software). The sale of such product
lines is part of the overall shift in Styleclick's primary business focus from
the business-to-business marketplace to the emerging consumer Internet
electronic commerce market. As such, the revenues recognized from such sale did
not arise from, and are not necessarily representative of, Styleclick's ongoing
business. As a result of such sales, the Company generated less sales from its
business-to-business products in the second quarter of 1999 as compared to the
second quarter of 1998.
Consulting services increased $249,000 to $250,000 in the first six months of
1999 from $1,000 in the first six months of 1998 primarily due to $250,000 in
revenue generated from the purchaser of two of the Company's
business-to-business product lines in the first quarter of 1999. No such revenue
was generated in the first six months of 1998.
Training services decreased $7,000, or 25%, to $21,000 in the first six months
of 1999 from $28,000 in the first six months of 1998, and maintenance fees
decreased $59,000, or 41%, to $70,000 in the first six months of 1999 from
$129,000 in the first six months of 1998, primarily due to the Company's overall
shift in its primary business focus away from the business-to-business
marketplace, as discussed above, from which most training and maintenance fees
were generated.
Cost of Sales
Cost of sales increased $306,000 to $323,000 in the first six months of 1999
from $17,000 in the first six months of 1998 due primarily to $117,000 in cost
of sales incurred in connection with the $3,000,000 sale and license of certain
of the Company's business-to-business products in the first quarter of 1999, and
a $158,000 non-cash charge in royalty expense to Intel, the Company's project
co-developer and a $4,000 license fee paid for Internet web-site development in
the second quarter of 1999. No such costs of sales were incurred in the first
six months of 1998.
16
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1,962,000, or 58%, to
$5,330,000 in the first six months of 1999 from $3,368,000 in the first six
months of 1998 due to the following factors. Personnel costs increased $515,000,
or 33%, to $2,087,000 in the first six months of 1999 from $1,572,000 in the
first six months of 1998. The increase in personnel costs resulted from the
hiring of additional personnel in late 1998 to support the Company's increased
operating activities and $200,000 of bonuses paid to the Company's executives in
the second quarter of 1999. Additionally, certain related costs including
travel, marketing, telephone, office supplies expenses, taxes and licenses,
repair and maintenance and depreciation expense increased $1,323,000, or 142%,
to $2,256,000 in the first six months of 1999 from $933,000 in the first six
months of 1998. Of that increase, $1,256,000 was related to the Company's
increased marketing activities during the first six months of 1999 to support
its new E-commerce products. Additionally, professional services including
accounting, legal and consulting services increased $500,000, or 140%, to
$858,000 in the first six months of 1999 from $358,000 in the first six months
of 1998. The increase in professional services was primarily due to the
Company's increased requirements for these services in the first six months of
1999 compared to the first six months of 1998, resulting from the Company's
increased operating activities. Finally, bad debt expense decreased $382,000, or
93%, to $30,000 in the six months of 1999 from $412,000 in the first six months
of 1998. Such decrease was primarily attributable to the additional bad debt
reserve in the amount of $402,000 recorded by the Company during the first six
months of 1998 upon the Company's review of certain specific accounts. No such
additional reserve was recorded in the first six months of 1999.
Research and Development
The Company incurred $3,891,000 of research and development expenditures during
the first six months of 1999, of which $549,000 was capitalized and $3,342,000
was expensed, compared to $2,967,000 for the first six months of 1998, of which
$492,000 was capitalized and $1,355,000 was expensed. The 31% increase in
research and development expenditures from the first six months of 1998 to the
first six months of 1999 was primarily due to the hiring of additional personnel
in connection with the further development of the Company's Internet application
projects.
Amortization of Software Development Costs
The amortization of software development costs increased $35,000, or 4%, to
$844,000 in the first six months of 1999 from $809,000 in the first six months
of 1998 due primarily to a $250,000 write-off of the capitalized software cost
related to the product lines sold to one of the Company's major customers in the
first six months of 1999. The write-off was offset by a $341,000 write-off of
the Company's 3-D Home Interiors product development cost in connection with the
sale of the product's license to the Company's publisher in the second quarter
of 1998. The remaining $126,000 increase is due to higher capitalized project
costs being amortized in the first six months of 1999 as compared to the first
six months of 1998.
Investment Income
Investment income decreased $94,000, or 37%, to $158,000 in the first six months
of 1999 from $252,000 in the first six months of 1998 due to the decrease in
income generated from a money market account in which the Company's funds are
maintained. The decrease resulted from a lower average cash balance maintained
in this account in the first six months of 1999 as compared to the first six
months of 1998.
Income Taxes
The Company recorded no provision for income taxes during the first six months
of 1999 and 1998 due to the utilization of net operating loss carryforwards.
17
<PAGE>
Liquidity and Resources of Capital
The Company's cash balance increased $2,119,145, or 33%, to $8,462,744 at June
30, 1999 from $6,343,599 at December 31, 1998 primarily due to an increase of
$223,250 received by the Company in connection with stock options exercised by
the Company's employees during the first six months of 1999 and net proceeds of
$7,761,196 received by the Company in connection with the issuance of 776,827
shares of its common stock in April 1999. These increases were offset by a
decrease of $4,724,677 in cash used by the Company in its operating activities;
a decrease of $592,081 resulting from cash used for the purchase of furniture
and equipment and a decrease of $548,543 resulting from cash used in development
of internal use computer software.
The Company's accounts receivable balance increased $236,655, or 27%, to
$1,121,642 at June 30, 1999 from $884,987 at December 31, 1998. This increase
(representing the total amount of sales generated in excess of the total amount
of cash received from the Company's customers during the first six months of
1999) was primarily due to a $209,815 receivable balance related to the service
agreements the Company entered into with its customers during the first six
months of 1999, under which payments were scheduled to be made subsequent to
June 30, 1999.
The Company's prepaid expenses and other current assets balance increased
$7,357,035 to $7,754,136 at June 30, 1999 from $397,101 at December 31, 1998
primarily due to a $5,538,674 prepayment recorded in April 1999 in connection
with the issuance of 455,218 shares of the Company's common stock and warrants
to purchase a total of 538,674 shares of the Company's common stock to Intel,
its project co-developer, as a prepayment of royalties and a $1,700,000
prepayment recorded in June 1999 in connection with a two-year e-commerce
marketing agreement entered into by the Company with an Internet portal company
as a prepayment of future marketing expense.
The Company's accounts payable and accrued expenses balance increased $606,952
to $1,110,150 at June 30, 1999 from $503,198 at December 31, 1998 primarily due
to $364,205 of accrued payroll and related taxes recorded as of June 30, 1999.
No such accruals were recorded as of December 31, 1998. Additionally, accrued
legal service fees increased approximately $120,000 from December 31, 1998 to
June 30, 1999 due to legal services in connection with the Company's increased
operating activities during the first six months of 1999.
The Company's total shareholders' equity balance increased $8,631,942, or 70%,
to $20,941,633 at June 30, 1999 from $12,309,691 at December 31, 1998 primarily
due to $7,761,196 net proceeds received from the issuance of a total of 776,827
shares of the Company's common stock to four of its investors in April 1999 and
$223,250 proceeds received from the exercise of stock options to purchase a
total of 23,500 shares of the Company's common stock by 14 employees during the
first six months of 1999. Additionally, an increase of $5,538,674 resulted from
the Company's issuance of 455,218 shares of the its common stock and warrants to
purchase a total of 538,674 shares of the Company's common stock to Intel in
April 1999. Finally, an increase of $425,000 resulted from the Company's
issuance of warrants to purchase 401,667 shares of common stock in the first six
months of 1999 in consideration of business promotion services provided (or to
be provided) to the Company. The increase was offset by a net operating loss in
the amount of $5,316,176 during the first six months of 1999.
18
<PAGE>
The Company anticipates continuing to use its capital primarily to fund the
activities related to the design, development, marketing, sales and support of
the Company's products. Together with its existing capital and anticipated funds
from operations, the Company believes that its capital resources will be
sufficient to provide its anticipated cash needs for working capital and capital
expenditures for at least the next 12 months although the Company may seek to
raise additional capital before then, depending on various considerations and
developments. Thereafter, if cash generated from operations is insufficient to
satisfy the Company's capital requirements, the Company may have to sell
additional equity or debt securities or obtain credit facilities, assuming the
Company can do so on acceptable terms.
Forward-Looking Information
Certain statements in this Section and elsewhere in this report are
forward-looking in nature and relate to trends and events that may affect the
Company's future financial position and operating results. Such statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "believe," "expect," "anticipate," "intend," and
"project" and similar words or expressions are intended to identify
forward-looking statements. These statements speak only as of the date of this
report. The statements are based on current expectations, are inherently
uncertain, are subject to risks, and should be reviewed with caution. Actual
results and experience may differ materially from the forward-looking statements
as a result of many factors, including changes in economic conditions in the
markets served by the Company, increasing competition, fluctuations in raw
materials and energy prices, and other unanticipated events and conditions. It
is not possible to foresee or identify all such factors. The Company makes no
commitment to update any forward-looking statement or to disclose any facts,
events, or circumstances after the date hereof that may affect the accuracy of
any forward-looking statement.
19
<PAGE>
Item 3. Quantitative and Qualitative Disclosure of Market Risk
None.
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities
During the quarter ended June 30, 1999, the Company sold the following
securities which were not registered under the Securities Act of 1933,
as amended (the "1993 Act"):
(a) In April 1999, in consideration of a waiver of the future
royalties to be paid to its project co-developer, the Company
issued to such co-developer 455,218 shares of common stock,
warrants, expiring in April 2000, to purchase 189,674 shares of
common stock at an exercise price of $13.18 per share, warrants,
expiring in July 2000, to purchase 189,674 shares of common stock
at an exercise price of $13.18 per share and warrants, expiring
in April 2004, to purchase 159,326 shares of common stock at an
exercise price of $10.98 per share.
In April 1999, in consideration of approximately $7,800,000 in
net proceeds after paying costs associated with the offering, the
Company issued to four investors an aggregate of 776,827 shares
of the Company's common stock, warrants, expiring in April 2000,
to purchase 323,677 shares of common stock at an exercise price
of $13.18 per share, warrants, expiring in July 2000, to purchase
323,677 shares of common stock at an exercise price of $13.18 per
share and warrants, expiring in April 2004, to purchase 271,889
shares of common stock at an exercise price of $13.73 per share.
Upon completion of these transactions, the Company issued to two
placement agents in consideration of services rendered to the
Company in connection with the sale of the Company' s common
stock and warrants to these investors warrants, expiring in April
2004, to purchase 15,536 shares of common stock at an exercise
price of $10.98 per share.
(b) In April, the Company issued to an outside promotion agency for
services provided to the Company warrants, expiring in March
2004, to purchase 8,333 shares of common stock at an exercise
price of $11.56 per share. In May 1999, the Company issued to the
same agency for services provided to the Company additional
warrants, expiring in April 2004, to purchase 8,335 shares of
common stock at an exercise price of $11.88 per share.
(c) In June 1999, the Company issued to an Internet portal company
for services provided to the Company warrants, expiring in
December 2001, to purchase up to 100,000 shares of common stock
at an exercise price of $12.34 per share.
Exemption from the registration provisions of the 1933 Act for all of
the transactions described above is claimed pursuant to Section 4(2)
of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder
on the grounds that such transactions did not involve any public
offering. The purchasers in such transactions represented their
intention to acquire the securities for investment only and not with a
view to the distribution thereof. Appropriate legends were affixed to
the certificates evidencing the securities issued in such
transactions. All purchasers either received adequate information
about the Company or had access to such information.
21
<PAGE>
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
22
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
*10.1 E-Commerce Marketing Agreement between the
Registrant and America Online dated June 30, 1999(1)
27.1 Financial Data Schedule.(1)
(b) Reports on Form 8-K
Styleclick filed a report on Form 8-K, dated April 9, 1999,
relating to the Securities Purchase Agreement dated as of April
7, 1999, entered into by and between the Company and Castle Creek
Technology Partners LLC, Marshall Capital Management, Inc.,
Winfield Capital Corp., and Spinner Global Technology Fund, Ltd.
Styleclick filed a report on Form 8-K, dated April 14, 1999,
relating to the Purchase and Investor Rights Agreement dated as
of April 7, 1999, entered into by and between the Company and
Intel Corp.
Styleclick filed a report on Form 8-K, dated April 20, 1999,
announcing the change of its independent accountants.
* Confidential treatment is being requested with respect to portions of this
exhibit, and such confidential portions have been deleted and separately filed
with the Securities Exchange Commission pursuant to Rule 24b-2 promulgated under
the Exchange Act of 1934. This exhibit does not include certain schedules and
similar attachments. A list briefly identifying the contents of all omitted
schedules has been provided in this exhibit. The Company will furnish
supplementally to the Securities and Exchange Commission upon request a copy of
any omitted schedule.
- ---------------
(1) This exhibit is being filed electronically in the electronic format
specified by EDGAR.
23
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Styleclick.com Inc.
Date: August 11, 1999 By: /s/ MAURIZIO VECCHIONE
--------------------------------------
Maurizio Vecchione
President and
Co-Chief Executive Officer
/s/ LEE FREEDMAN
--------------------------------------
Lee Freedman
Vice President, Finance and
Chief Financial Officer
24
<PAGE>
EXHIBIT INDEX
Exhibit Number Sequentially
Description Numbered Page
*10.1 E-Commerce Marketing Agreement between the
Registrant and America Online dated
June 30, 1999(1)
27.1 Financial Data Schedule.(1)
* Confidential treatment is being requested with respect to portions of this
exhibit, and such confidential portions have been deleted and separately filed
with the Securities Exchange Commission pursuant to Rule 24b-2 promulgated under
the Exchange Act of 1934. This exhibit does not include certain schedules and
similar attachments. A list briefly identifying the contents of all omitted
schedules has been provided in this exhibit. The Company will furnish
supplementally to the Securities and Exchange Commission upon request a copy of
any omitted schedule.
- ---------------
(1) This exhibit is being filed electronically in the electronic format
specified by EDGAR.
25
Confidential
INTERACTIVE MARKETING AGREEMENT
This Interactive Marketing Agreement (the "Agreement"), dated as of June
18, 1999 (the "Effective Date"), is between America Online, Inc. ("AOL"), a
Delaware corporation, with offices at 22000 AOL Way, Dulles, Virginia 20166, and
ModaCad, Inc. ("Marketing Partner" or "MP"), a California corporation, with
offices at 3861 Sepulveda Blvd., Culver City, CA 90230. AOL and MP may be
referred to individually as a "Party" and collectively as the "Parties."
INTRODUCTION
AOL and MP each desires to enter into an interactive marketing relationship
whereby AOL will promote and distribute an interactive site referred to (and
further defined) herein as the Affiliated MP Site. This relationship is further
described below and is subject to the terms and conditions set forth in this
Agreement. Defined terms used but not defined in the body of the Agreement will
be as defined on Exhibit B attached hereto.
TERMS
1. PROMOTION, DISTRIBUTION AND MARKETING.
1.1. AOL Promotion of Affiliated MP Site. AOL will provide MP with the
promotions for the Affiliated MP Site described on Exhibit A attached
hereto. Subject to MP's reasonable approval, AOL will have the right
to fulfill its promotional commitments with respect to any of the
foregoing by providing MP comparable promotional placements in
appropriate alternative areas of the AOL Network. In addition, if AOL
is unable to deliver any particular Promotion, AOL will work with MP
to provide MP, as its sole remedy, a reasonably comparable promotional
placement to the particular Promotion which AOL is unable to deliver.
AOL reserves the right to redesign or modify the organization,
structure, "look and feel," navigation and other elements of the AOL
Network at any time. In the event such modifications materially and
adversely affect any specific Promotion, AOL will work with MP to
provide MP, as its sole remedy, a comparable promotional placement.
The promotions described on Exhibit A and any comparable promotions
provided herein shall be referred to as the "Promotions."
1.2. Impressions Commitment. During the Initial Term, AOL shall deliver **
Impressions ( ** ) to MP through the Promotions (the "Impressions
Commitment"), of which a minimum of ** Impressions will be delivered
to the Tier I Promotions, a minimum of ** Impressions will be
delivered to the Tier II Promotions, and a minimum of ** Impressions
will be delivered to the Tier III Promotions, as such Tiers are
described on Exhibit A. Notwithstanding the foregoing, in the event
that AOL overdelivers Impressions to the Tier I Impressions, the
excess Impressions may be counted toward the Tier II and Tier III
totals and in the event that AOL overdelivers Impressions to the Tier
II Promotions, such Impressions may count toward the Tier III totals.
In the event there is (or will be in AOL's reasonable judgment) a
shortfall in Impressions as of the end of the Initial Term (a "Final
Shortfall"), AOL will provide MP, as its sole remedy, with either (a)
a continuation of some or all of the Promotions until the Final
Shortfall has been delivered, or (b) advertising placements through
Run Of Service advertising on the AOL Network which have a total
value, based on AOL's then-current advertising rate card, equal to the
value of the Final Shortfall (determined by multiplying the percentage
of Impressions that were not delivered by the total, guaranteed
payment provided for below).
- -------------------
** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
1.3. Content of Promotions. Promotions for MP will link only to the
Affiliated MP Site and will promote only the MP Products described on
Exhibit D. The specific MP Content to be contained within the
Promotions (including, without limitation, advertising banners and
contextual promotions) (the "Promo Content") will be determined by MP,
subject to AOL's technical limitations, the terms of this Agreement
and AOL's then-applicable policies relating to advertising and
promotions. MP will submit in advance to AOL for its review a
quarterly online marketing plan with respect to the Affiliated MP
Site. The Parties will meet in person or by telephone at least monthly
to review operations and performance hereunder, including a review of
the Promo Content to ensure that it is designed to maximize
performance. MP will consistently update the Promo Content no less
than twice per week. Except to the extent expressly described herein
(including, without limitation, any exhibit hereto), the specific
form, placement, duration and nature of the Promotions will be as
determined by AOL in its reasonable editorial discretion (consistent
with the editorial composition of the applicable screens).
1.4. MP Promotion of Affiliated MP Site and AOL. As set forth in fuller
detail in Exhibit C, MP will promote AOL as its preferred Interactive
Service and will promote the availability of the Affiliated MP Site
through the AOL Network. MP will not implement or authorize any
promotion similar in any respect (including, without limitation, in
scope, purpose, amount, prominence or regularity) to the promotion
required or provided pursuant to Exhibit C for any other Interactive
Service, provided that the foregoing shall not prevent MP from
promoting ** on the MP Interactive Site. In addition, MP will promote
AOL to the MP Merchants as MP's preferred access provider and
preferred distribution network.
2. AFFILIATED MP SITE.
2.1. Content. MP will make available through the Affiliated MP Site a
comprehensive offering of Products and related Content described on
Exhibit D. Except as mutually agreed in writing by the Parties, the
Affiliated MP Site will contain only Content that is directly related
to the Product categories listed on Exhibit D. The Affiliated MP Site
will not contain any third-party products, services, programming or
other Content without the prior written approval of AOL. This
Agreement shall constitute AOL's initial prior written approval of the
inclusion on the Affiliated MP Site of Content from the third parties
listed on Exhibit D-2, so long as such Content is directly related to
the Product categories listed on Exhibit D, provided, that MP
acknowledges that AOL may revoke such approval at any time after the
** of the Effective Date upon written notice to MP. MP will remove
from the Affiliated MP Site all Content of any third party subject to
written revocation by AOL within forty-five (45) days of such notice.
Without limiting the generality of the foregoing, all MP Merchants
featured on any page of the Affiliated MP Site will be subject to the
prior written approval of AOL. All sales of Products through the
Affiliated MP Site will be conducted through a direct sales format
(e.g., customer pays one pre-set price for one item); MP will not
promote, sell, offer or otherwise distribute any products through any
format other than a direct sales format (e.g., through auctions or
clubs) without the prior written consent of AOL. MP will review,
delete, edit, create, update and otherwise manage all Content
available on or through the Affiliated MP Site in accordance with the
terms of this Agreement. ** AOL reserves the right (in addition to any
other rights or remedies contained herein) to immediately suspend all
Promotions at any time that the Affiliated MP Site does not comply
with the foregoing sentence.
- -------------------
** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
2.2. Production Work. Except as agreed to in writing by the Parties
pursuant to the "Production Work" section of the Standard Online
Commerce Terms & Conditions attached hereto as Exhibit F, MP will be
responsible for all production work associated with the Affiliated MP
Site, including all related costs and expenses.
2.3. Technology. MP will take all reasonable steps necessary to conform its
promotion and sale of Products through the Affiliated MP Site to the
then-existing technologies identified by AOL which are optimized for
the AOL Service including, without limitation, AOL's "quick checkout"
tool which facilitates purchase of products by AOL Users through the
Affiliated MP Site. AOL's "quick checkout" tool will be the exclusive
electronic wallet (or similar product) offered by MP on any Affiliated
MP Site. AOL will be entitled to require reasonable changes to the
Content (including, without limitation, the features or functionality)
within any linked pages of the Affiliated MP Site to the extent such
Content will, in AOL's good faith judgment, adversely affect any
operational aspect of the AOL Network. AOL reserves the right to
review and test the Affiliated MP Site from time to time to determine
whether the site is compatible with AOL's then-available client and
host software and the AOL Network.
2.4. Product Offering. MP will ensure that the Affiliated MP Site includes
all of the Products and other Content (including, without limitation,
any features, offers, contests, functionality or technology) that are
then made available by or on behalf of MP through any Additional MP
Channel; provided, however, that (i) such inclusion will not be
required where it is commercially or technically impractical to either
Party (i.e., inclusion would cause either Party to incur substantial
incremental costs); and (ii) the specific changes in scope, nature
and/or offerings required by such inclusion will be subject to AOL's
review and approval and the terms of this Agreement.
2.5. Pricing and Terms. MP will ensure that: (i) the prices (and any other
required consideration) for Products in the Affiliated MP Site do not
exceed the prices for the Products or substantially similar Products
offered by or on behalf of MP through any Additional MP Channel; (ii)
the terms and conditions related to Products in the Affiliated MP Site
are no less favorable in any respect to the terms and conditions for
the Products or substantially similar Products offered by or on behalf
of MP through any Additional MP Channel; and **.
2.6. Exclusive Offers/Member Benefits. MP will generally promote through
the Affiliated MP Site any special or promotional offers made
available by or on behalf of MP through any Additional MP Channel,
excluding any special or promotional offer(s) not approved by AOL. In
addition, MP shall promote through the Affiliated MP Site on a regular
and consistent basis special offers exclusively available to AOL Users
(the "AOL Exclusive Offers"). MP shall, at all times, feature at least
one AOL Exclusive Offer for AOL Users. The AOL Exclusive Offer made
available by MP shall provide a substantial member benefit to AOL
Users, either by virtue of a meaningful price discount, product
enhancement, unique service benefit or other special feature. Specific
AOL Exclusive Offers to be made available by MP shall include the AOL
Exclusive Offers listed on Exhibit D-1 attached hereto. MP will
provide AOL with reasonable prior notice of AOL Exclusive Offers so
that AOL can market the availability of such AOL Exclusive Offers in
the manner AOL deems appropriate in its editorial discretion.
- -------------------
** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
2.7. Operating Standards. MP will ensure that the Affiliated MP Site
complies at all times with the standards set forth in Exhibit E. To
the extent site standards are not established in Exhibit E with
respect to any aspect or portion of the Affiliated MP Site (or the
Products or other Content contained therein), MP will provide such
aspect or portion at a level of accuracy, quality, completeness, and
timeliness which meets or exceeds prevailing standards in the
apparel(including footwear and accessories) and home furnishings
industry. In the event MP fails to comply with any material terms of
this Agreement or any Exhibit attached hereto, AOL will have the right
(in addition to any other remedies available to AOL hereunder) to
decrease the promotion it provides to MP hereunder (and to decrease or
cease any other contractual obligation hereunder) until such time as
MP corrects its non-compliance (and in such event, AOL will be
relieved of the proportionate amount of any promotional commitment
made to MP by AOL hereunder corresponding to such decrease in
promotion) and (b) any revenue threshold(s) set forth in Section 3
will each be adjusted proportionately to correspond to such decrease
in promotion and other obligations during the period of
non-compliance.
2.8. Advertising Sales. AOL shall have the exclusive right to license or
sell Advertisements through the Affiliated MP Site ("Advertisements"),
subject to AOL's then-applicable advertising policies and AOL's prior
approval. The specific advertising inventory within the Affiliated MP
Site will be as reasonably determined by the Parties. AOL will be
entitled to a fifteen percent (15%) sales commission for each
Advertisement sold by AOL (prior to any sharing of revenues between
AOL and MP).
2.9. Traffic Flow. MP will take reasonable efforts to ensure that AOL
traffic is either kept within the Affiliated MP Site or channeled back
into the AOL Network (with the exception of advertising links sold and
implemented pursuant to the Agreement). The Parties will work together
on implementing mutually acceptable links from the Affiliated MP Site
back to the AOL Service.
2.10.AOL Merchants. MP will provide AOL, free of charge, with prominent
promotional banners and/or buttons on the Affiliated MP Site which AOL
shall be entitled to use to promote AOL Shopping Channel participants.
AOL will determine, in its discretion, the manner in which such
participants will be promoted through the banners and/or buttons. MP
will call to AOL's ad server to pull the creative for such promotional
banners and/or buttons, unless otherwise agreed in writing by the
Parties. **.
3. PAYMENTS.
3.1. Guaranteed Payments. MP will pay AOL a guaranteed payment of ** as
follows (subject to the early termination provisions of Section 5.2):
(i) ** upon execution of this Agreement;
(ii) ** on July 1, 1999;
- -------------------
** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
(iii)** on October 1, 1999;
(iv) ** on January 1, 2000;
(v) ** on April 1, 2000;
(vi) ** on July 1, 2000;
(vii)** on October 1, 2000;
(viii) ** on January 1, 2001;
3.2. Sharing of Transaction Revenues. If at any time during the Term of the
Agreement the amount of Transaction Revenues generated exceeds ** (the
"Revenue Threshold"), then MP will pay AOL ** of the Transaction
Revenues generated after the Revenue Threshold is met. MP will pay all
of the foregoing amounts on a quarterly basis within thirty (30) days
following the end of the quarter in which the applicable Transaction
Revenues were generated, provided that MP may reserve twenty percent
(20%) of such amount at the end of each quarter against returns which
may be processed in the following quarter, provided further that MP
shall pay to AOL at the end of the following quarter any portion of
such twenty percent which was not actually paid to a customer in
exchange for a return.
3.3. Sharing of Advertising Revenues. The Parties will ** all Advertising
Revenues. Each Party will pay the other Party all Advertising Revenues
received and owed to such other Party as described herein on a
quarterly basis within thirty (30) days following the end of the
quarter in which such amounts were generated by such Party.
3.4. Alternative Revenue Streams. In the event MP or any of its affiliates
receives or desires to receive, directly or indirectly, any
compensation in connection with the Affiliated MP Site other than
Transaction Revenues or Advertising Revenues (an "Alternative Revenue
Stream"), MP will promptly inform AOL in writing, and the Parties will
negotiate in good faith regarding whether MP will be allowed to market
the products or services producing such Alternative Revenue Stream
through the Affiliated MP Site, and if so, the equitable portion of
revenues from such Alternative Revenue Stream (if applicable) that
will be shared with AOL (in no event less than the percentage of
Transaction Revenues to be paid to AOL pursuant to this Section 3). In
addition, revenues not related to the Affiliated MP Site or an MP
Interactive Site (e.g., fees from catalog production services or
software programming services for a merchant's Interactive Site) shall
not be considered Alternative Revenue Streams.
3.5. Late Payments; Wired Payments. All amounts owed hereunder not paid
when due and payable will bear interest from the date such amounts are
due and payable at the prime rate in effect at such time. All payments
required hereunder will be paid in immediately available,
non-refundable U.S. funds wired to the "America Online" account,
**.
- -------------------
** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
3.6. Auditing Rights. MP will maintain complete, clear and accurate records
of all expenses, revenues and fees in connection with the performance
of this Agreement. For the sole purpose of ensuring compliance with
this Agreement, AOL (or its representative) will have the right to
conduct a reasonable and necessary inspection of portions of the books
and records of MP which are relevant to MP's performance pursuant to
this Agreement. Any such audit may be conducted after twenty (20)
business days prior written notice to MP. AOL shall bear the expense
of any audit conducted pursuant to this Section 4.5 unless such audit
shows an error in AOL's favor amounting to a deficiency to AOL in
excess of five percent (5%) of the actual amounts paid and/or payable
to AOL hereunder, in which event MP shall bear the reasonable expenses
of the audit. MP shall pay AOL the amount of any deficiency discovered
by AOL within thirty (30) days after receipt of notice thereof from
AOL.
3.7. Taxes. MP will collect and pay and indemnify and hold AOL harmless
from, any sales, use, excise, import or export value added or similar
tax or duty not based on AOL's net income, including any penalties and
interest, as well as any costs associated with the collection or
withholding thereof, including attorneys' fees.
3.8. Reports.
3.8.1. Sales Reports. MP will provide AOL in an automated manner with
a monthly report in an AOL-designated format, detailing the
following activity in such period (and any other information
mutually agreed upon by the Parties or reasonably required for
measuring revenue activity by MP through the Affiliated MP Site):
(i) summary sales information by day (date, number of Products,
number of orders, total Transaction Revenues); (ii) detailed
sales information by day (order date/timestamp (if technically
feasible), purchaser name and screenname, SKU or Product
description); and (iii) summary sales information by month
(average sales per customer, average sales per order, repeat
usage percentage) (information in clauses (i) and (ii), "Sales
Reports"). AOL will be entitled to use the Sales Reports in its
business operations, subject to the terms of this Agreement. More
generally, each payment to be made by MP pursuant to this Section
3 will be accompanied by a report containing information which
supports the payment, including information identifying (i) gross
Transaction Revenues and all items deducted or excluded from
gross Transaction Revenues to produce Transaction Revenues,
including, without limitation, chargebacks and credits for
returned or canceled goods or services (and, where possible, an
explanation of the type of reason therefor, e.g., bad credit card
information, poor customer service, etc.) and (ii) any applicable
Advertising Revenues.
3.8.2. Usage Reports. AOL shall provide MP with standard monthly usage
information related to the Promotions (e.g. a schedule of the
Impressions delivered by AOL during such month) which are similar
in substance and form to the reports provided by AOL to other
interactive marketing partners similar to MP.
3.8.3. Fraudulent Transactions. To the extent permitted by applicable
laws, MP will provide AOL with an prompt report of any fraudulent
order, including the date, screenname or email address and amount
associated with such order, promptly following MP obtaining
knowledge that the order is, in fact, fraudulent.
4. WARRANTS. In connection with the obligations of the Parties hereunder,
and subject to the provisions hereof, MP may at its sole and absolute
option, which shall be exercised within fifteen (15) days immediately
<PAGE>
following the execution date hereof, issue and deliver to AOL a
Certificate of Warrants to Purchase Shares of Common Stock in
substantially the form and substance of, and for the number of shares
set forth in, Exhibit H attached hereto (the "Warrant Agreement"),
provided, however, that if for any reason whatever the Warrant
Agreement is not executed and delivered to AOL within said 15-day
period, the payment to be made pursuant to Section 3.1(ii) hereof
shall be in the amount of **, rather than the amount set forth in said
Section. Delivery to AOL of an executed Warrant Agreement at any time
shall constitute MP's election to enter into the Warrant Agreement
rather than increasing the payment pursuant to Section 3.1(ii), which
election shall be irrevocable.
5. TERM; RENEWAL; TERMINATION.
5.1. Term. Unless earlier terminated as set forth herein, the initial term
of this Agreement will begin on the Effective Date and end on June 30,
2001 (the "Initial Term").
5.2. Early Termination. AOL shall have the right to terminate this
Agreement on the one year anniversary of the Effective Date, upon
thirty (30) days prior written notice to MP. In the event that AOL
elects to so terminate this Agreement, MP's payment commitment to AOL
pursuant to Section 3.1 shall be modified to ** . Within thirty days
of the date of termination, either AOL or MP shall pay to the other
any amount owed to accomplish the purposes of the foregoing sentence
(e.g., if MP has previously paid AOL more than the stated amount, AOL
shall refund to MP the difference).
5.3. Renewal. Upon conclusion of the Initial Term, AOL will have the right
to renew the Agreement for successive one-year renewal terms (each a
"Renewal Term" and together with the Initial Term, the "Term") on an
integrated or non-integrated basis. If AOL elects to renew the
Agreement on an integrated basis, all terms and conditions of this
Agreement shall remain in full force and effect for the Renewal Term,
except that (a) ** . A Renewal Term shall automatically commence
following the expiration of the Initial Term (or prior Renewal Term,
as the case may be), provided that AOL shall be entitled to terminate
any such Renewal Term with thirty (30) days prior written notice to
MP.
5.4. Continued Links. If AOL does not elect to renew this Agreement in
accordance with Section 5.3, AOL may, at its discretion, continue to
promote one or more "pointers" or links from the AOL Network to an MP
Interactive Site and continue to use MP's trade names, trade marks and
service marks in connection therewith (collectively, a "Continued
Link"). So long as AOL maintains a Continued Link, (a) MP shall pay
AOL the revenue sharing required pursuant to Sections 3.2 and 3.3,
without regard to any hurdles set forth therein, and (b) Sections 3.5,
3.6 and 3.7, along with the terms of Exhibit G hereto shall continue
to apply with respect to the Continued Link and any transactions
arising therefrom.
5.5. Termination for Breach. Except as expressly provided elsewhere in this
Agreement, either Party may terminate this Agreement at any time in
the event of a material breach of the Agreement by the other Party
which remains uncured after thirty (30) days written notice thereof to
the other Party (or such shorter period as may be specified elsewhere
in this Agreement); provided that AOL will not be required to provide
- -------------------
** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
notice to MP in connection with MP's failure to make any payment to
AOL required hereunder, and the cure period with respect to any
scheduled payment will be fifteen (15) days from the date for such
payment provided for herein. Notwithstanding the foregoing, in the
event of a material breach of a provision that expressly requires
action to be completed within an express period shorter than 30 days,
either Party may terminate this Agreement if the breach remains
uncured after written notice thereof to the other Party and expiration
of the specified period.
5.6. Termination for Bankruptcy/Insolvency. Either Party may terminate this
Agreement immediately following written notice to the other Party if
the other Party (i) ceases to do business in the normal course, (ii)
becomes or is declared insolvent or bankrupt, (iii) is the subject of
any proceeding related to its liquidation or insolvency (whether
voluntary or involuntary) which is not dismissed within ninety (90)
calendar days or (iv) makes an assignment for the benefit of
creditors.
5.7. Termination on Change of Control. In the event of (i) a Change of
Control of MP resulting in control of MP by an Interactive Service or
(ii) a Change of Control of AOL, AOL may terminate this Agreement by
providing thirty (30) days prior written notice of such intent to
terminate. In the event that AOL elects to so terminate this
Agreement, MP's payment commitment to AOL pursuant to Section 3.1
shall be modified to equal a pro rata amount based upon the number of
days elapsed during the Initial Term prior to termination. Within
thirty days of the date of termination, either AOL or MP shall pay to
the other any amount owed to accomplish the purposes of the foregoing
sentence (e.g., if MP has previously paid AOL more than the calculated
amount, AOL shall refund to MP the difference).
5.8. Press Releases. Each Party will submit to the other Party, for its
prior written approval, which will not be unreasonably withheld or
delayed, any press release or any other public statement ("Press
Release") regarding the transactions contemplated hereunder.
Notwithstanding the foregoing, either Party may issue Press Releases
and other disclosures as required by law without the consent of the
other Party and in such event, the disclosing Party will provide at
least three (3) business days prior written notice of such disclosure.
The failure by one Party to obtain the prior written approval of the
other Party prior to issuing a Press Release (except as required by
law) shall be deemed a material breach of this Agreement for which
there is no adequate cure. In such event, the non-breaching Party may
terminate this Agreement upon written notice to the other Party.
6. MANAGEMENT COMMITTEE/ARBITRATION.
6.1. Management Committee. The Parties will act in good faith and use
commercially reasonable efforts to promptly resolve any claim,
dispute, claim, controversy or disagreement (each a "Dispute") between
the Parties or any of their respective subsidiaries, affiliates,
successors and assigns under or related to this Agreement or any
document executed pursuant to this Agreement or any of the
transactions contemplated hereby. If the Parties cannot resolve the
Dispute within such time frame, the Dispute will be submitted to the
Management Committee for resolution. For ten (10) days following
submission of the Dispute to the Management Committee, the Management
Committee will have the exclusive right to resolve such Dispute;
provided further that the Management Committee will have the final and
exclusive right to resolve Disputes arising from any provision of the
Agreement which expressly or implicitly provides for the Parties to
reach mutual agreement as to certain terms. If the Management
Committee is unable to amicably resolve the Dispute during the ten-day
period, then the Management Committee will consider in good faith the
possibility of retaining a third party mediator to facilitate
resolution of the Dispute. In the event the Management Committee
<PAGE>
elects not to retain a mediator, the dispute will be subject to the
resolution mechanisms described below. "Management Committee" will
mean a committee made up of a senior executive from each of the
Parties for the purpose of resolving Disputes under this Section 7 and
generally overseeing the relationship between the Parties contemplated
by this Agreement. Neither Party will seek, nor will be entitled to
seek, binding outside resolution of the Dispute unless and until the
Parties have been unable amicably to resolve the Dispute as set forth
in this Section 6 and then, only in compliance with the procedures set
forth in this Section 6.
6.2. Arbitration. Except for Disputes relating to issues of (i) proprietary
rights, including but not limited to intellectual property and
confidentiality, and (ii) any provision of the Agreement which
expressly or implicitly provides for the Parties to reach mutual
agreement as to certain terms (which will be resolved by the Parties
solely and exclusively through amicable resolution as set forth in
Section 6.1), any Dispute not resolved by amicable resolution as set
forth in Section 6.1 will be governed exclusively and finally by
arbitration. Such arbitration will be conducted by the American
Arbitration Association ("AAA") in Washington, D.C. and will be
initiated and conducted in accordance with the Commercial Arbitration
Rules ("Commercial Rules") of the AAA, including the AAA Supplementary
Procedures for Large Complex Commercial Disputes ("Complex
Procedures"), as such rules will be in effect on the date of delivery
of a demand for arbitration ("Demand"), except to the extent that such
rules are inconsistent with the provisions set forth herein.
Notwithstanding the foregoing, the Parties may agree in good faith
that the Complex Procedures will not apply in order to promote the
efficient arbitration of Disputes where the nature of the Dispute,
including without limitation the amount in controversy, does not
justify the application of such procedures.
6.3. Selection of Arbitrators. The arbitration panel will consist of three
arbitrators. Each Party will name an arbitrator within ten (10) days
after the delivery of the Demand. The two arbitrators named by the
Parties may have prior relationships with the naming Party, which in a
judicial setting would be considered a conflict of interest. The third
arbitrator, selected by the first two, should be a neutral
participant, with no prior working relationship with either Party. If
the two arbitrators are unable to select a third arbitrator within ten
(10) days, a third neutral arbitrator will be appointed by the AAA
from the panel of commercial arbitrators of any of the AAA Large and
Complex Resolution Programs. If a vacancy in the arbitration panel
occurs after the hearings have commenced, the remaining arbitrator or
arbitrators may not continue with the hearing and determination of the
controversy, unless the Parties agree otherwise.
6.4. Governing Law. The Federal Arbitration Act, 9 U.S.C. Secs. 1-16, and
not state law, will govern the arbitrability of all Disputes. The
arbitrators will allow such discovery as is appropriate to the
purposes of arbitration in accomplishing a fair, speedy and
cost-effective resolution of the Disputes. The arbitrators will
reference the Federal Rules of Civil Procedure then in effect in
setting the scope and timing of discovery. The Federal Rules of
Evidence will apply in toto. The arbitrators may enter a default
decision against any Party who fails to participate in the arbitration
proceedings.
6.5. Arbitration Awards. The arbitrators will have the authority to award
compensatory damages only. Any award by the arbitrators will be
accompanied by a written opinion setting forth the findings of fact
and conclusions of law relied upon in reaching the decision. The award
rendered by the arbitrators will be final, binding and non-appealable,
and judgment upon such award may be entered by any court of competent
jurisdiction. The Parties agree that the existence, conduct and
content of any arbitration will be kept confidential and no Party will
disclose to any person any information about such arbitration, except
as may be required by law or by any governmental authority or for
financial reporting purposes in each Party's financial statements.
<PAGE>
6.6. Fees. Each Party will pay the fees of its own attorneys, expenses of
witnesses and all other expenses and costs in connection with the
presentation of such Party's case (collectively, "Attorneys' Fees").
The remaining costs of the arbitration, including without limitation,
fees of the arbitrators, costs of records or transcripts and
administrative fees (collectively, "Arbitration Costs") will be born
equally by the Parties. Notwithstanding the foregoing, the arbitrators
may modify the allocation of Arbitration Costs and award Attorneys'
Fees in those cases where fairness dictates a different allocation of
Arbitration Costs between the Parties and an award of Attorneys' Fees
to the prevailing Party as determined by the arbitrators.
6.7. Non Arbitratable Disputes. Any Dispute that is not subject to final
resolution by the Management Committee or to arbitration under this
Section 6 or by law (collectively, "Non-Arbitration Claims") will be
brought in a court of competent jurisdiction in the Commonwealth of
Virginia. Each Party irrevocably consents to the exclusive
jurisdiction of the courts of the Commonwealth of Virginia and the
federal courts situated in the Commonwealth of Virginia, over any and
all Non-Arbitration Claims and any and all actions to enforce such
claims or to recover damages or other relief in connection with such
claims.
7. STANDARD TERMS. The Standard Online Commerce Terms & Conditions set forth
on Exhibit F attached hereto and Standard Legal Terms & Conditions set
forth on Exhibit G attached hereto are each hereby made a part of this
Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
Effective Date.
AMERICA ONLINE, INC. MODACAD, INC.
By: ____________________________ By: _______________________________
Name: Name:
Title: Title:
<PAGE>
EXHIBIT A
Placement/Promotion
A. Carriage Plan
- --------------------------------------------------------------------------------
Promotion Start Date Stop Date
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tier I ( ** Impressions)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AOL Shopping - Women's Apparel Date on which new 3/31/01
Gold Tenant Apparel Commerce
Center launches
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AOL Shopping - Teen's Apparel Date on which new 3/31/01
Gold Tenant Apparel Commerce
Center launches
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AOL Shopping - Accessories Department Date on which new 3/31/01
Gold Tenant Apparel Commerce
Center launches
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AOL Shopping - Home & Garden Date on which new 3/31/01
Gold Tenant Home & Garden
Commerce Center
launches
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Oxygen properties - Content Integration 7/1/99 6/30/01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tier II ( ** Impressions)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Run of AOL Service Entertainment Channel 7/1/99 6/30/01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Run of Oxygen properties 7/1/99 6/30/01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Demographically targeted ad serving 7/1/99 6/30/01
on AOL Service (Women and Teens)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Run of AOL Service Teens Channel 7/1/99 6/30/01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Run of AOL.com Home & Garden Web Center 7/1/99 6/30/01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tier III ( ** Impressions)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AOL Service Email 7/1/99 6/30/01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AOL Service Internet Connection 7/1/99 6/30/01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AOL Instant Messenger 7/1/99 6/30/01
- --------------------------------------------------------------------------------
- -------------------
** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
B. Keyword
During the Term, subject to the terms and conditions hereof, MP shall have the
right to use the following Keyword Search Term: Styleclick.
C. Other
A specific media plan(s) will be developed and refined by AOL after the
Effective Date. MP acknowledges that the Promotions will not launch or continue
unless the Affiliated MP Site is in compliance with AOL's Teens policies (and
that AOL will be entitled to any remedies set forth herein for any delay caused
by failure of the Affiliated MP Site to be so compliant).
<PAGE>
EXHIBIT B
Definitions
The following definitions will apply to this Agreement:
Additional MP Channel. Any other distribution channel (e.g., an Interactive
Service other than AOL) through which MP makes available an offering comparable
in nature to the Affiliated MP Site.
Advertisements. See definition of "AOL Advertising Revenues".
Advertising Revenues. The combination of AOL Advertising Revenues and Internet
Advertising Revenues:
AOL Advertising Revenues. Aggregate amounts collected plus the fair market
value of any other compensation received (such as barter advertising) by
MP, AOL or either Party's agents, as the case may be, arising from the
license or sale of advertisements, promotions, links or sponsorships
("Advertisements") that appear within any pages of the Affiliated MP Site
which may be exclusively available to AOL Users, less applicable
Advertising Sales Commissions. AOL Advertising Revenues does not include
amounts arising from Advertisements on any screens or forms preceding,
framing or otherwise directly associated with the Affiliated MP Site, which
will be sold exclusively by AOL.
Internet Advertising Revenues. For each Advertisement on a page of the
Affiliated MP Site or any MP Interactive Site which is not exclusively
available to AOL Users, the product of: (a) the amount collected plus the
fair market value of any other compensation received (such as barter
advertising) by MP or its agents arising from the license or sale of such
Advertisement attributable to a given period of time less applicable
Advertising Sales Commissions and (b) the quotient of (i) Impressions on
the page containing such Advertisement by AOL Users for such period of time
divided by (ii) total Impressions on the page containing such Advertisement
by all users for such period of time (the "Internet Advertising Quotient")
(or such other percentage or formula as is mutually agreed upon in writing
by the Parties). MP will be responsible for calculating the Internet
Advertising Quotient related to Internet Advertising Revenues. For any
period during which MP fails to calculate the Internet Advertising Quotient
(other than as a sole result of AOL's failure to provide necessary
Impressions information), such quotient will be deemed to be ** percent
(**%).
Advertising Sales Commission. (i) Actual amounts paid as commission to third
party agencies by either buyer or seller in connection with sale of the
Advertisement or (ii) ** , in the event the Party has sold the Advertisement
directly and will not be deducting any third party agency commissions.
Affiliated MP Site. The customized area or web site to be promoted and
distributed by AOL hereunder through which MP can market and complete
transactions regarding Products in accordance with the terms of this Agreement.
AOL Interactive Site. Any Interactive Site which is managed, maintained, owned
or controlled by AOL or its agents.
AOL Look and Feel. The elements of graphics, design, organization, presentation,
layout, user interface, navigation and stylistic convention (including the
digital implementations thereof) which are generally associated with Interactive
Sites within the AOL Service or AOL.com.
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** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
AOL Member. Any authorized user of the AOL Service, including any sub-accounts
using the AOL Service under an authorized master account.
AOL Network. (i) The AOL Service, (ii) AOL.com, and (iii) any other product or
service owned, operated, distributed or authorized to be distributed by or
through AOL or its affiliates worldwide (and including those properties excluded
from the definitions of the AOL Service or AOL.com). It is understood and agreed
that the rights of MP relate only to the AOL Service and AOL.com and not
generally to the AOL Network.
AOL Purchaser. (i) Any person or entity who enters the Affiliated MP Site from
the AOL Network including, without limitation, from any third party area therein
(to the extent entry from such third party area is traceable through both
Parties' commercially reasonable efforts), and generates Transaction Revenues
(regardless of whether such person or entity provides an e-mail address during
registration or entrance to the Affiliated MP Site which includes a domain other
than an "AOL.com" domain); and (ii) any other person or entity who, when
purchasing a product, good or service through an MP Interactive Site, provides
an AOL.com domain name as part of such person or entity's e-mail address and
provided that any person or entity who has previously satisfied the definition
of AOL Purchaser will remain an AOL Purchaser, and any subsequent purchases by
such person or entity (e.g., as a result of e-mail solicitations or any off-line
means for receiving orders requiring purchasers to reference a specific
promotional identifier or tracking code) will also give rise to Transaction
Revenues hereunder (and will not be conditioned on the person or entity's
satisfaction of clauses (i) or (ii) above).
AOL Service. The standard narrow-band U.S. version of the America Online(R)
brand service, specifically excluding (a) AOL.com or any other AOL Interactive
Site, (b) the international versions of an America Online service (e.g., AOL
Japan), (c) the CompuServe(R) brand service and any other CompuServe products or
services (d) "Driveway," "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant
Messenger(TM)," "Digital City," "NetMail(TM)," "Electra", "Thrive", "Real Fans",
"Love@AOL", "Entertainment Asylum," "AOL Hometown," "My News" or any similar
independent product, service or property which may be offered by, through or
with the U.S. version of the America Online(R) brand service, (e) any
programming or Content area offered by or through the U.S. version of the
America Online(R) brand service over which AOL does not exercise complete
operational control (including, without limitation, Content areas controlled by
other parties and member-created Content areas), (f) any yellow pages, white
pages, classifieds or other search, directory or review services or Content
offered by or through the U.S. version of the America Online(R) brand service,
(g) any property, feature, product or service which AOL or its affiliates may
acquire from a third party subsequent to the Effective Date and (h) any other
version of an America Online service which is materially different from the
standard narrow-band U.S. version of the America Online brand service, by virtue
of its branding, distribution, functionality, Content or services, including,
without limitation, any co-branded version of the service and any version
distributed through any broadband distribution platform or through any platform
or device other than a desktop personal computer.
AOL User. Any user of the AOL Service, AOL.com, or the AOL Network.
AOL.com. AOL's primary Internet-based Interactive Site marketed under the
"AOL.COM(TM)" brand, specifically excluding (a) the AOL Service, (b) any
international versions of such site, (c) "ICQ," "AOL NetFind(TM)," "AOL Instant
Messenger(TM)," "NetMail(TM)," "AOL Hometown," "My News" or any similar
independent product or service offered by or through such site or any other AOL
Interactive Site, (d) any programming or Content area offered by or through such
site over which AOL does not exercise complete operational control (including,
without limitation, Content areas controlled by other parties and member-created
Content areas), (e) any programming or Content area offered by or through the
U.S. version of the America Online(R) brand service which was operated,
maintained or controlled by the former AOL Studios division (e.g., Electra), (f)
any yellow pages, white pages, classifieds or other search, directory or review
services or Content offered by or through such site or any other AOL Interactive
<PAGE>
Site, (g) any property, feature, product or service which AOL or its affiliates
may acquire from a third party subsequent to the Effective Date and (h) any
other version of an America Online Interactive Site which is materially
different from AOL's primary Internet-based Interactive Site marketed under the
"AOL.COM(TM)" brand, by virtue of its branding, distribution, functionality,
Content or services, including, without limitation, any co-branded versions and
any version distributed through any broadband distribution platform or through
any platform or device other than a desktop personal computer.
Change of Control. (a) The consummation of a reorganization, merger or
consolidation or sale or other disposition of substantially all of the assets of
a party or (b) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1933,
as amended) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under such Act) of more than 50% of either (i) the then outstanding
shares of common stock of such party; or (ii) the combined voting power of the
then outstanding voting securities of such party entitled to vote generally in
the election of directors.
Confidential Information. Any information relating to or disclosed in the course
of the Agreement, which is or should be reasonably understood to be confidential
or proprietary to the disclosing Party, including, but not limited to, the
material terms of this Agreement, information about AOL Members, AOL Users, AOL
Purchasers and MP customers, technical processes and formulas, source codes,
product designs, sales, cost and other unpublished financial information,
product and business plans, projections, and marketing data. "Confidential
Information" will not include information (a) already lawfully known to or
independently developed by the receiving Party, (b) disclosed in published
materials, (c) generally known to the public, or (d) lawfully obtained from any
third party.
Content. Text, images, video, audio (including, without limitation, music used
in synchronism or timed relation with visual displays) and other data, Products,
advertisements, promotions, links, pointers and software, including any
modifications, upgrades, updates, enhancements and related documentation.
Impression. User exposure to the applicable Promotion, as such exposure may be
reasonably determined and measured by AOL in accordance with its standard
methodologies and protocols.
Interactive Service. An entity offering one or more of the following: ** .
Interactive Site. Any interactive site or area, including, by way of example and
without limitation, (i) an MP site on the World Wide Web portion of the Internet
or (ii) a channel or area delivered through a "push" product such as the
Pointcast Network or interactive environment such as Microsoft's Active Desktop.
Keyword Search Terms. The Keyword(TM) online search terms made available on the
AOL Service for use by AOL Members, combining AOL's Keyword(TM) online search
modifier with a term or phrase specifically related to MP (and determined in
accordance with the terms of this Agreement).
Licensed Content. All Content offered through the Affiliated MP Site pursuant to
this Agreement or otherwise provided by MP or its agents in connection herewith
(e.g., offline or online promotional Content, Promotions, AOL "slideshows" ,
etc.), including in each case, any modifications, upgrades, updates,
enhancements, and related documentation.
MP Interactive Site. Any Interactive Site (other than the Affiliated MP Site)
which is managed, maintained, owned or controlled by MP or its agents.
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** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
MP Merchant. Any third party seller of a Product which third party's Products
are offered through the Affiliated MP Site or any MP Interactive Site.
Product. Any product, good or service which MP (or others acting on its behalf
or as distributors) offers, sells, provides, distributes or licenses to AOL
Users directly or indirectly through (i) the Affiliated MP Site (including
through any Interactive Site linked thereto), (ii) any other electronic means
directed at AOL Users (e.g., e-mail offers), or (iii) an "offline" means (e.g.,
toll-free number) for receiving orders related to specific offers within the
Affiliated MP Site requiring purchasers to reference a specific promotional
identifier or tracking code, including, without limitation, products sold
through surcharged downloads (to the extent expressly permitted hereunder).
Run Of Service. A collection of inventory made up of all areas of the AOL
Service. AOL will place MP's creative in different locations throughout the AOL
Service in accordance with AOL internal policies. Run Of Service Impressions
will be delivered reasonably evenly over the time period allocated to the Run Of
Service advertising. MP may not control placement within a Run of Service
advertising purchase and AOL does not guarantee placement on any particular
screen or group of screens.
Site Revenues. The combination of Transaction Revenues and Advertising Revenues.
Transaction Revenues. Aggregate amounts paid by AOL Purchasers in connection
with the sale, licensing, distribution or provision of any Products, including,
in each case, handling (not paid to a non-employee third party), shipping (not
paid to a non-employee third party), service charges, and excluding, in each
case, (a) amounts paid by MP to MP Merchants, (b) amounts collected for sales or
use taxes or duties, (c) credits and chargebacks for returned or canceled goods
or services, and (d) transaction fees, shipping, handling, and fulfillment
charges, and bank charges actually paid by MP to third parties.
<PAGE>
EXHIBIT C
MP Cross-Promotion
A. Within each MP Interactive Site, MP shall include the following
(collectively, the "AOL Promos"): (i) a prominent promotional banner or
button (at least ** pixels or ** pixels in size) appearing "above the fold"
on the first screen of the MP Interactive Site, to promote such AOL
products or services as AOL may designate (for example, the America
Online(R) brand service, the CompuServe(R) brand service, the AOL.com(R)
site, any of the Digital City services or the AOL Instant Messenger(TM)
service); (ii) a prominent "Try AOL" feature (at least ** pixels or **
pixels in size) through which users can obtain promotional information
about AOL products or services designated by AOL and, at AOL's option,
download or order the then-current version of client software for such AOL
products or services; and (iii) a button (at least ** pixels or ** pixels
in size) to promote AOL Instant Messenger(TM) or ICQ(TM), at AOL's option,
and allow users to download or order the then-current version of client
software for the promoted product. AOL will provide the creative content to
be used in the AOL Promos (including designation of links from such content
to other content pages). MP shall post (or update, as the case may be) the
creative content supplied by AOL within the spaces for the AOL Promos
within five days of its receipt of such content from AOL. Without limiting
any other reporting obligations of the Parties contained herein, MP shall
provide AOL with monthly written reports specifying the number of
impressions to the pages containing the AOL Promos during the prior month.
In the event that AOL elects to serve the AOL Promos to the MP Interactive
Site from an ad server controlled by AOL or its agent, MP shall take all
reasonable operational steps necessary to facilitate such ad serving
arrangement including, without limitation, inserting HTML code designated
by AOL on the pages of the MP Interactive Site on which the AOL Promos will
appear. In addition, within each MP Interactive Site, MP shall provide
prominent promotion for the keywords granted to MP hereunder.
B. In MP's television, radio, print and "out of home" (e.g., buses and
billboards) advertisements and in any publications, programs, features or
other forms of media over which MP exercises at least partial editorial
control, MP will include specific references or mentions (verbally where
possible) of the availability of the Affiliated MP Site through the ** ,
which are ** any references that MP makes to any MP Interactive Site (by
way of site name, related company name, URL or otherwise). Without limiting
the generality of the foregoing, MP's listing of the "URL" for any MP
Interactive Site will be accompanied by an equally prominent listing of the
"keyword" term ** for the Affiliated MP Site.
C. AOL and MP will discuss additional AOL member acquisition programs (e.g.,
bundling the AOL Service client software on CD-ROM with shipments of MP's
products) which the Parties may undertake. AOL will pay MP AOL's
then-standard bounty for any new AOL Members acquired by AOL through such
member acquisition programs.
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** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
EXHIBIT D
Description of Products and Other Content
**
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** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
EXHIBIT D-1
AOL Exclusive Offers
1. AOL Users will be offered periodic contests with free give-away programs
2. AOL Users will be offered periodic promotions offering free shipping for a
limited time
3. AOL Users will be offered certain premium, limited-quantity merchandise, on
an "exclusive to AOL" basis
<PAGE>
EXHIBIT D-2
Approved Merchants
**
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** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
EXHIBIT E
Operations
1. General. The Affiliated MP Site (including the Products and other Content
contained therein) will be in the top three (3) in the apparel and home
furnishings industries, as determined by each of the following methods :
(a) based on a cross-section of third-party reviewers who are recognized
authorities in such industry and (b) with respect to all material quality
averages or standards in such industry, including each of the following:
(i) pricing of Products, (ii) scope and selection of Products, (iii)
quality of Products, (iv) customer service and fulfillment associated with
the marketing and sale of Products and (v) ease of use. In addition, the
Affiliated MP Site will, with respect to each of the measures listed above,
be competitive in all respects with that which is offered by any MP
Competitors.
2. Affiliated MP Site Infrastructure. MP will be responsible for all
communications, hosting and connectivity costs and expenses associated with
the Affiliated MP Site. MP will provide all hardware, software,
telecommunications lines and other infrastructure necessary to meet traffic
demands on the Affiliated MP Site from the AOL Network. MP will design and
implement the network between the AOL Service and Affiliated MP Site such
that (i) no single component failure will have a materially adverse impact
on AOL Members seeking to reach the Affiliated MP Site from the AOL Network
and (ii) no single line will run at more than 70% average utilization for a
** peak in a daily period. In this regard, MP will provide AOL, upon
request, with a detailed network diagram regarding the network
infrastructure supporting the Affiliated MP Site. In the event that MP
elects to create a custom version of the Affiliated MP Site in order to
comply with the terms of this Agreement, MP will bear responsibility for
all aspects of the implementation, management and cost of such customized
site.
3. Optimization; Speed. MP will use commercially reasonable efforts to ensure
that: (a) the functionality and features within the Affiliated MP Site are
optimized for the client software then in use by AOL Members; and (b) the
Affiliated MP Site is designed and populated in a manner that minimizes
delays when AOL Members attempt to access such site. At a minimum, MP will
ensure that the Affiliated MP Site's data transfers initiate within fewer
than ** seconds on average. Prior to commercial launch of any material
promotions described herein, MP will permit AOL to conduct performance and
load testing of the Affiliated MP Site (in person or through remote
communications), with such commercial launch not to commence until such
time as AOL is reasonably satisfied with the results of any such testing.
4. User Interface. MP will maintain a graphical user interface within the
Affiliated MP Site that is competitive in all material respects with
interfaces of other similar sites based on similar form technology. AOL
reserves the right to review and approve the user interface and site design
prior to launch of the Promotions and to conduct focus group testing to
assess compliance with respect to such consultation and with respect to
MP's compliance with the preceding sentence.
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** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
5. Technical Problems. MP agrees to use commercially reasonable efforts to
address material technical problems (over which MP exercises control)
affecting use by AOL Members of the Affiliated MP Site (a "MP Technical
Problem") promptly following notice thereof. In the event that MP is unable
to promptly resolve a MP Technical Problem following notice thereof from
AOL (including, without limitation, infrastructure deficiencies producing
user delays), AOL will have the right to regulate the promotions it
provides to MP hereunder until such time as MP corrects the MP Technical
Problem at issue.
6. Monitoring. MP will ensure that the performance and availability of the
Affiliated MP Site is monitored on a continuous basis. MP will provide AOL
with contact information (including e-mail, phone, pager and fax
information, as applicable, for both during and after business hours) for
MP's principal business and technical representatives, for use in cases
when issues or problems arise with respect to the Affiliated MP Site.
7. Telecommunications. The Parties agree to explore encryption methodology to
secure data communications between the Parties' data centers. The network
between the Parties will be configured such that no single component
failure will significantly impact AOL Users. The network will be sized such
that no single line runs at more than 70% average utilization for a
5-minute peak in a daily period.
8. Security. MP will utilize Internet standard encryption technologies (e.g.,
Secure Socket Layer - SSL) to provide a secure environment for conducting
transactions and/or transferring private member information (e.g. credit
card numbers, banking/financial information, and member address
information) to and from the Affiliated MP Site. MP will facilitate
periodic reviews of the Affiliated MP Site by AOL in order to evaluate the
security risks of such site. MP will promptly remedy any security risks or
breaches of security as may be identified by AOL's Operations Security
team.
9. Technical Performance.
i. MP will design the Affiliated MP Site to support the AOL-client
embedded versions of the Microsoft Internet Explorer 3.0 and 4.0
browsers (Windows and Macintosh), the Macintosh version of the
Microsoft Internet Explorer 3.0, and make commercially reasonable
efforts to support all other AOL browsers listed at: **.
ii. To the extent MP creates customized pages on the Affiliated MP Site
for AOL Members, MP will configure the server from which it serves the
site to examine the HTTP User-Agent field in order to identify the
"AOL Member-Agents" listed at: **.
iii. MP will periodically review the technical information made available
by AOL at ** .
iv. MP will design its site to support HTTP 1.0 or later protocol as
defined in RFC 1945 and to adhere to AOL's parameters for refreshing
cached information listed at ** .
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** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
v. Prior to releasing material, new functionality or features through the
Affiliated MP Site ("New Functionality"), MP will use commercially
reasonable efforts to either (i) test the New Functionality to confirm
its compatibility with AOL Service client software or (ii) provide AOL
with written notice of the New Functionality so that AOL can perform
tests of the New Functionality to confirm its compatibility with the
AOL Service client software.
10. AOL Internet Services MP Support. AOL will provide MP with access to the
standard online resources, standards and guidelines documentation,
technical phone support, monitoring and after-hours assistance that AOL
makes generally available to similarly situated web-based partners. AOL
support will not, in any case, be involved with content creation on behalf
of MP or support for any technologies, databases, software or other
applications which are not supported by AOL or are related to any MP area
other than the Affiliated MP Site. Support to be provided by AOL is
contingent on MP providing to AOL demo account information (where
applicable), a detailed description of the Affiliated MP Site's software,
hardware and network architecture and access to the Affiliated MP Site for
purposes of such performance and load testing as AOL elects to conduct.
<PAGE>
EXHIBIT F
Standard Online Commerce Terms & Conditions
1. AOL Network Distribution. MP will not authorize or permit any third party
to distribute or promote the Products or any MP Interactive Site through
the AOL Network absent AOL's prior written approval. The Promotions and any
other promotions or advertisements purchased from or provided by AOL will
link only to the Affiliated MP Site, will be used by MP solely for its own
benefit and will not be resold, traded, exchanged, bartered, brokered or
otherwise offered to any third party.
2. Provision of Other Content. In the event that AOL notifies MP that (i) as
reasonably determined by AOL, any Content within the Affiliated MP Site
violates AOL's then-standard Terms of Service (as set forth on the America
Online(R) brand service at Keyword term "TOS"), the terms of this Agreement
or any other standard, written AOL policy or (ii) AOL reasonably objects to
the inclusion of any Content within the Affiliated MP Site (other than any
specific items of Content which may be expressly identified in this
Agreement), then MP will take commercially reasonable steps to block access
by AOL Users to such Content using MP's then-available technology. In the
event that MP cannot, through its commercially reasonable efforts, block
access by AOL Users to the Content in question, then MP will provide AOL
prompt written notice of such fact. AOL may then, at its option, restrict
access from the AOL Network to the Content in question using technology
available to AOL. MP will cooperate with AOL's reasonable requests to the
extent AOL elects to implement any such access restrictions.
3. Contests. MP will take all steps necessary to ensure that any contest,
sweepstakes or similar promotion conducted or promoted through the
Affiliated MP Site (a "Contest") complies with all applicable federal,
state and local laws and regulations.
4. Navigation. Subject to the prior consent of MP, which consent will not be
unreasonably withheld, AOL will be entitled to establish navigational
icons, links and pointers connecting the Affiliated MP Site (or portions
thereof) with other content areas on or outside of the AOL Network.
Additionally, in cases where an AOL User performs a search for MP through
any search or navigational tool or mechanism that is accessible or
available through the AOL Network (e.g., Promotions, Keyword Search Terms,
or any other promotions or navigational tools), AOL shall have the right to
direct such AOL User to the Affiliated MP Site, or any other MP Interactive
Site determined by AOL in its reasonable discretion.
5. Disclaimers. Upon AOL's request, MP agrees to include within the Affiliated
MP Site a product disclaimer (the specific form and substance to be
mutually agreed upon by the Parties) indicating that transactions are
solely between MP and AOL Users purchasing Products from MP.
6. AOL Look and Feel. MP acknowledges and agrees that AOL will own all right,
title and interest in and to the elements of graphics, design,
organization, presentation, layout, user interface, navigation and
stylistic convention (including the digital implementations thereof) which
are generally associated with online areas contained within the AOL
Network, subject to MP's ownership rights in any MP trademarks or
copyrighted material within the Affiliated MP Site.
<PAGE>
7. Management of the Affiliated MP Site. MP will manage, review, delete, edit,
create, update and otherwise manage all Content available on or through the
Affiliated MP Site, in a timely and professional manner and in accordance
with the terms of this Agreement. MP will ensure that the Affiliated MP
Site is current, accurate and well-organized at all times. MP warrants that
the Products and other Licensed Content : (i) will not infringe on or
violate any copyright, trademark, U.S. patent or any other third party
right, including without limitation, any music performance or other
music-related rights; (ii) will not violate AOL's then-applicable Terms of
Service or any other standard, written AOL policy, including, without
limitation, AOL's Teens policies; and (iii) will not violate any applicable
law or regulation, including those relating to contests, sweepstakes or
similar promotions. Additionally, MP represents and warrants that it owns
or has a valid license to all rights to any Licensed Content used in AOL
"slideshow" or other formats embodying elements such as graphics, animation
and sound, free and clear of all encumbrances and without violating the
rights of any other person or entity. MP also warrants that a reasonable
basis exists for all Product performance or comparison claims appearing
through the Affiliated MP Site. MP shall not in any manner, including,
without limitation in any Promotion, the Licensed Content or the Materials
state or imply that AOL recommends or endorses MP or MP's Products (e.g.,
no statements that MP is an "official" or "preferred" provider of products
or services for AOL). AOL will have no obligations with respect to the
Products available on or through the Affiliated MP Site, including, but not
limited to, any duty to review or monitor any such Products.
8. Duty to Inform. MP will promptly inform AOL of any information related to
the Affiliated MP Site which could reasonably lead to a claim, demand, or
liability of or against AOL and/or its affiliates by any third party.
9. Customer Service. It is the sole responsibility of MP to provide customer
service to persons or entities purchasing Products through the AOL Network
("Customers"). MP will bear full responsibility for all customer service,
including without limitation, order processing, billing, fulfillment,
shipment, collection and other customer service associated with any
Products offered, sold or licensed through the Affiliated MP Site, and AOL
will have no obligations whatsoever with respect thereto. MP will receive
all emails from Customers via a computer available to MP's customer service
staff and generally respond to such emails within one business day of
receipt. MP will receive all orders electronically and generally process
all orders within one business day of receipt, provided Products ordered
are not advance order items. MP will ensure that all orders of Products are
received, processed, fulfilled and delivered on a timely and professional
basis. MP will offer AOL Users who purchase Products through such
<PAGE>
Affiliated MP Site a money back satisfaction guarantee. MP will bear all
responsibility for compliance with federal, state and local laws in the
event that Products are out of stock or are no longer available at the time
an order is received. MP will also comply with the requirements of any
federal, state or local consumer protection or disclosure law. Payment for
Products will be collected by MP directly from customers. MP's order
fulfillment operation will be subject to AOL's reasonable review.
10. Production Work. In the event that MP requests AOL's production assistance
in connection with (i) ongoing programming and maintenance related to the
Affiliated MP Site, (ii) a redesign of or addition to the Affiliated MP
Site (e.g., a change to an existing screen format or construction of a new
custom form), (iii) production to modify work performed by a third party
provider or (iv) any other type of production work, MP will work with AOL
to develop a detailed production plan for the requested production
assistance (the "Production Plan"). Following receipt of the final
Production Plan, AOL will notify MP of (i) AOL's availability to perform
the requested production work, (ii) the proposed fee or fee structure for
the requested production and maintenance work and (iii) the estimated
development schedule for such work. To the extent the Parties reach
agreement regarding implementation of the agreed-upon Production Plan, such
agreement will be reflected in a separate work order signed by the Parties.
To the extent MP elects to retain a third party provider to perform any
such production work, work produced by such third party provider must
generally conform to AOL's standards & practices (as provided on the
America Online brand service at Keyword term ** ). The specific production
resources which AOL allocates to any production work to be performed on
behalf of MP will be as determined by AOL in its sole discretion. With
respect to any routine production, maintenance or related services which
AOL reasonably determines are necessary for AOL to perform in order to
support the proper functioning and integration of the Affiliated MP Site
("Routine Services"), MP will pay the then-standard fees charged by AOL for
such Routine Services.
11. Overhead Accounts. To the extent AOL has granted MP any overhead accounts
on the AOL Service, MP will be responsible for the actions taken under or
through its overhead accounts, which actions are subject to AOL's
applicable Terms of Service and for any surcharges, including, without
limitation, all premium charges, transaction charges, and any applicable
communication surcharges incurred by any overhead Account issued to MP, but
MP will not be liable for charges incurred by any overhead account relating
to AOL's standard monthly usage fees and standard hourly charges, which
charges AOL will bear. Upon the termination of this Agreement, all overhead
accounts, related screen names and any associated usage credits or similar
rights, will automatically terminate. AOL will have no liability for loss
of any data or content related to the proper termination of any overhead
account.
- -------------------
** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
12. Navigation Tools. Any Keyword Search Terms to be directed to the Affiliated
MP Site shall be (i) subject to availability for use by MP and (ii) limited
to the combination of the Keyword(TM) search modifier combined with a
registered trademark of MP. AOL reserves the right to revoke at any time
MP's use of any Keyword Search Terms which do not incorporate registered
trademarks of MP. MP acknowledges that its utilization of a Keyword Search
Term will not create in it, nor will it represent it has, any right, title
or interest in or to such Keyword Search Term, other than the right, title
and interest MP holds in MP's registered trademark independent of the
Keyword Search Term. Without limiting the generality of the foregoing, MP
will not: (a) attempt to register or otherwise obtain trademark or
copyright protection in the Keyword Search Term; or (b) use the Keyword
Search Term, except for the purposes expressly required or permitted under
this Agreement. To the extent AOL allows AOL Users to "bookmark" the URL or
other locator for the Affiliated MP Site, such bookmarks will be subject to
AOL's control at all times. Upon the termination of this Agreement, MP's
rights to any Keyword Search Terms and bookmarking will terminate.
13. Merchant Certification Program. MP will participate in any generally
applicable "Certified Merchant" program operated by AOL or its authorized
agents or contractors. Such program may require merchant participants on an
ongoing basis to meet certain reasonable, generally applicable standards
relating to provision of electronic commerce through the AOL Network
(including, as a minimum, use of ** encryption and if requested by AOL, **)
and may also require the payment of certain reasonable certification fees
to the applicable entity operating the program. Each Certified Merchant in
good standing will be entitled to place on its affiliated Interactive Site
an AOL designed and approved button promoting the merchant's status as an
AOL Certified Merchant.
14. On the Affiliated MP Site, MP shall not offer, provide, implement or
otherwise make available any promotional programs or plans that are
intended to provide customers with rewards or benefits in exchange for, or
on account of, their past or continued loyalty to, or patronage or purchase
of, the products or services of MP or any third party (e.g., a promotional
program similar to a "frequent flier" program), unless such promotional
program or plan ** .
15. Search Terms. To the extent that any of MP's Promotions are displayed in
connection with any particular search term(s) within an AOL product or
service (e.g., an MP banner advertisement is displayed any time an AOL user
enters a specified term in the search box of AOL NetFind), MP hereby
represents and warrants to AOL that MP has all consents, authorizations,
approvals, licenses, permits, or other rights necessary for MP to use such
search term(s).
- -------------------
** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
EXHIBIT G
Standard Legal Terms & Conditions
1. Promotional Materials/Press Releases. Each Party will submit to the other
Party, for its prior written approval, which will not be unreasonably
withheld or delayed, any marketing, advertising, or other promotional
materials, excluding Press Releases, related to the Affiliated MP Site
and/or referencing the other Party and/or its trade names, trademarks, and
service marks (the "Promotional Materials"); provided, however, that either
Party's use of screen shots of the Affiliated MP Site for promotional
purposes will not require the approval of the other Party so long as
America Online(R) is clearly identified as the source of such screen shots;
and provided further, however, that, following the initial public
announcement of the business relationship between the Parties in accordance
with the approval and other requirements contained herein, either Party's
subsequent factual reference to the existence of a business relationship
between the Parties in Promotional Materials, will not require the approval
of the other Party. Each Party will solicit and reasonably consider the
views of the other Party in designing and implementing such Promotional
Materials. Once approved, the Promotional Materials may be used by a Party
and its affiliates for the purpose of promoting the Affiliated MP Site and
the content contained therein and reused for such purpose until such
approval is withdrawn with reasonable prior notice. In the event such
approval is withdrawn, existing inventories of Promotional Materials may be
depleted.
2. License. MP hereby grants AOL a non-exclusive worldwide license to market,
license, distribute, reproduce, display, perform, transmit and promote the
Licensed Content (or any portion thereof) through such areas or features of
the AOL Network as AOL deems appropriate. MP acknowledges and agrees that
the foregoing license permits AOL to distribute portions of the Licensed
Content in synchronism or timed relation with visual displays prepared by
MP or AOL (e.g., as part of an AOL "slideshow"). In addition, AOL Users
will have the right to access and use the Affiliated MP Site.
3. Trademark License. In designing and implementing the Materials and subject
to the other provisions contained herein, MP will be entitled to use the
following trade names, trademarks, and service marks of AOL: the "America
Online(R)" brand service, "AOL(TM)" service/software and AOL's triangle
logo; and AOL and its affiliates will be entitled to use the trade names,
trademarks, and service marks of MP for which MP holds all rights necessary
for use in connection with this Agreement (collectively, together with the
AOL marks listed above, the "Marks"); provided that each Party: (i) does
not create a unitary composite mark involving a Mark of the other Party
without the prior written approval of such other Party; and (ii) displays
symbols and notices clearly and sufficiently indicating the trademark
status and ownership of the other Party's Marks in accordance with
applicable trademark law and practice.
4. Ownership of Trademarks. Each Party acknowledges the ownership right of the
other Party in the Marks of the other Party and agrees that all use of the
other Party's Marks will inure to the benefit, and be on behalf, of the
other Party. Each Party acknowledges that its utilization of the other
Party's Marks will not create in it, nor will it represent it has, any
right, title, or interest in or to such Marks other than the licenses
expressly granted herein. Each Party agrees not to do anything contesting
or impairing the trademark rights of the other Party.
5. Quality Standards. Each Party agrees that the nature and quality of its
products and services supplied in connection with the other Party's Marks
will conform to quality standards set by the other Party. Each Party agrees
to supply the other Party, upon request, with a reasonable number of
samples of any Materials publicly disseminated by such Party which utilize
the other Party's Marks. Each Party will comply with all applicable laws,
regulations, and customs and obtain any required government approvals
pertaining to use of the other Party's marks.
6. Infringement Proceedings. Each Party agrees to promptly notify the other
Party of any unauthorized use of the other Party's Marks of which it has
actual knowledge. Each Party will have the sole right and discretion to
bring proceedings alleging infringement of its Marks or unfair competition
related thereto; provided, however, that each Party agrees to provide the
other Party with its reasonable cooperation and assistance with respect to
any such infringement proceedings.
7. Representations and Warranties. Each Party represents and warrants to the
other Party that: (i) such Party has the full corporate right, power and
authority to enter into this Agreement and to perform the acts required of
it hereunder; (ii) the execution of this Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder, do not
and will not violate any agreement to which such Party is a party or by
which it is otherwise bound; (iii) when executed and delivered by such
Party, this Agreement will constitute the legal, valid and binding
obligation of such Party, enforceable against such Party in accordance with
its terms; and (iv) such Party acknowledges that the other Party makes no
representations, warranties or agreements related to the subject matter
hereof that are not expressly provided for in this Agreement. MP hereby
represents and warrants that it possesses all authorizations, approvals,
consents, licenses, permits, certificates or other rights and permissions
necessary to sell the Products.
<PAGE>
8. Confidentiality. Each Party acknowledges that Confidential Information may
be disclosed to the other Party during the course of this Agreement. Each
Party agrees that it will take reasonable steps, at least substantially
equivalent to the steps it takes to protect its own proprietary
information, during the term of this Agreement, and for a period of three
years following expiration or termination of this Agreement, to prevent the
duplication or disclosure of Confidential Information of the other Party,
other than by or to its employees or agents who must have access to such
Confidential Information to perform such Party's obligations hereunder, who
will each agree to comply with this section. Notwithstanding the foregoing,
either Party may issue a press release or other disclosure containing
Confidential Information without the consent of the other Party, to the
extent such disclosure is required by law, rule, regulation or government
or court order. In such event, the disclosing Party will provide at least
five (5) business days prior written notice of such proposed disclosure to
the other Party. Further, in the event such disclosure is required of
either Party under the laws, rules or regulations of the Securities and
Exchange Commission or any other applicable governing body, such Party will
(i) redact mutually agreed-upon portions of this Agreement to the fullest
extent permitted under applicable laws, rules and regulations and (ii)
submit a request to such governing body that such portions and other
provisions of this Agreement receive confidential treatment under the laws,
rules and regulations of the Securities and Exchange Commission or
otherwise be held in the strictest confidence to the fullest extent
permitted under the laws, , rules or regulations of any other applicable
governing body.
9. Limitation of Liability; Disclaimer; Indemnification.
9.1 Liability. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR
EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES), ARISING FROM BREACH OF THE AGREEMENT,
THE SALE OF PRODUCTS, THE USE OR INABILITY TO USE THE AOL NETWORK, THE
AOL SERVICE, AOL.COM OR THE AFFILIATED MP SITE, OR ARISING FROM ANY
OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS
OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS (COLLECTIVELY,
"DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY WILL REMAIN LIABLE TO
THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A
THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT TO SECTION
9.3. EXCEPT AS PROVIDED IN SECTION 9.3, (I) LIABILITY ARISING UNDER
THIS AGREEMENT WILL BE LIMITED TO DIRECT, OBJECTIVELY MEASURABLE
DAMAGES, AND (II) THE MAXIMUM LIABILITY OF ONE PARTY TO THE OTHER
PARTY FOR ANY CLAIMS ARISING IN CONNECTION WITH THIS AGREEMENT WILL
NOT EXCEED THE AGGREGATE AMOUNT OF PAYMENT OBLIGATIONS OWED TO THE
OTHER PARTY HEREUNDER IN THE YEAR IN WHICH THE EVENT GIVING RISE TO
LIABILITY OCCURS; PROVIDED THAT EACH PARTY WILL REMAIN LIABLE FOR THE
AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER PARTY
PURSUANT TO THE AGREEMENT.
9.2 No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY
DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED,
REGARDING THE AOL NETWORK, THE AOL SERVICE, AOL.COM OR THE AFFILIATED
MP SITE, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF
DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, AOL SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING THE
PROFITABILITY OF THE AFFILIATED MP SITE.
9.3 Indemnity. Either Party will defend, indemnify, save and hold harmless
the other Party and the officers, directors, agents, affiliates,
distributors, franchisees and employees of the other Party from any
and all third party claims, demands, liabilities, costs or expenses,
including reasonable attorneys' fees ("Liabilities"), resulting from
the indemnifying Party's material breach of any duty, representation,
or warranty of this Agreement.
9.4 Claims. If a Party entitled to indemnification hereunder (the
"Indemnified Party") becomes aware of any matter it believes is
indemnifiable hereunder involving any claim, action, suit,
investigation, arbitration or other proceeding against the Indemnified
Party by any third party (each an "Action"), the Indemnified Party
will give the other Party (the "Indemnifying Party") prompt written
notice of such Action. Such notice will (i) provide the basis on which
indemnification is being asserted and (ii) be accompanied by copies of
all relevant pleadings, demands, and other papers related to the
Action and in the possession of the Indemnified Party. The
Indemnifying Party will have a period of ten (10) days after delivery
of such notice to respond. If the Indemnifying Party elects to defend
the Action or does not respond within the requisite ten (10) day
<PAGE>
period, the Indemnifying Party will be obligated to defend the Action,
at its own expense, and by counsel reasonably satisfactory to the
Indemnified Party. The Indemnified Party will cooperate, at the
expense of the Indemnifying Party, with the Indemnifying Party and its
counsel in the defense and the Indemnified Party will have the right
to participate fully, at its own expense, in the defense of such
Action. If the Indemnifying Party responds within the required ten
(10) day period and elects not to defend such Action, the Indemnified
Party will be free, without prejudice to any of the Indemnified
Party's rights hereunder, to compromise or defend (and control the
defense of) such Action. In such case, the Indemnifying Party will
cooperate, at its own expense, with the Indemnified Party and its
counsel in the defense against such Action and the Indemnifying Party
will have the right to participate fully, at its own expense, in the
defense of such Action. Any compromise or settlement of an Action will
require the prior written consent of both Parties hereunder, such
consent not to be unreasonably withheld or delayed.
10. Acknowledgment. AOL and MP each acknowledges that the provisions of this
Agreement were negotiated to reflect an informed, voluntary allocation
between them of all risks (both known and unknown) associated with the
transactions contemplated hereunder. The limitations and disclaimers
related to warranties and liability contained in this Agreement are
intended to limit the circumstances and extent of liability. The provisions
of this Section 9 will be enforceable independent of and severable from any
other enforceable or unenforceable provision of this Agreement.
11. **. During the term of the Agreement and for a two year period thereafter,
MP will not use the AOL Network (including, without limitation, the e-mail
network contained therein) ** . More generally, MP will not send
unsolicited, commercial e-mail (i.e., "spam") or other online
communications through or into AOL's products or services, absent a Prior
Business Relationship. For purposes of this Agreement, a "Prior Business
Relationship" will mean that the AOL User to whom commercial e-mail or
other online communication is being sent has voluntarily either (i) engaged
in a transaction with MP or (ii) provided information to MP through a
contest, registration, or other communication, which included clear notice
to the AOL User that the information provided could result in commercial
e-mail or other online communication being sent to that AOL User by MP or
its agents. Any commercial e-mail or other online communications to AOL
Users which are otherwise permitted hereunder, will (a) include a prominent
and easy means to "opt-out" of receiving any future commercial
communications from MP, and (b) shall also be subject to AOL's
then-standard restrictions on distribution of bulk e-mail (e.g., related to
the time and manner in which such e-mail can be distributed through or into
the AOL product or service in question).
12. AOL User Communications. To the extent that MP is permitted to communicate
with AOL Users under Section 15 of this Exhibit G, in any such
communications to AOL Users on or off the Affiliated MP Site (including,
without limitation, e-mail solicitations), MP will not encourage AOL Users
to take any action inconsistent with the scope and purpose of this
Agreement, including without limitation, the following actions: (i) ** for
the purchase of Products, (ii) using Content other than the Licensed
Content; (iii) ** ; or (iv) **. Additionally, with respect to such AOL User
communications, in the event that MP encourages an AOL User to purchase
products through such communications, MP shall ensure that (a) the AOL
Network is promoted ** through which the AOL User can access the Affiliated
MP Site and (b) any link to the Affiliated MP Site will link to a page
which indicates to the AOL User that such user is in a site which is
affiliated with the AOL Network.
13. Collection and Use of User Information. MP shall ensure that its
collection, use and disclosure of information obtained from AOL Users under
this Agreement ("User Information") complies with (i) all applicable laws
and regulations and (ii) AOL's standard privacy policies, available on the
AOL Service at the keyword term "Privacy" (or, in the case of the
Affiliated MP Site, MP's standard privacy policies so long as such policies
are prominently published on the site and provide adequate notice,
disclosure and choice to users regarding MP's collection, use and
disclosure of user information). MP will not disclose User Information
collected hereunder to any third party in a manner that identifies AOL
Users as end users of an AOL product or service or use Member Information
collected under this Agreement to market another Interactive Service
- -------------------
** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
14. Excuse. Neither Party will be liable for, or be considered in breach of or
default under this Agreement on account of, any delay or failure to perform
as required by this Agreement as a result of any causes or conditions which
are beyond such Party's reasonable control and which such Party is unable
to overcome by the exercise of reasonable diligence.
15. Independent Contractors. The Parties to this Agreement are independent
contractors. Neither Party is an agent, representative or employee of the
other Party. Neither Party will have any right, power or authority to enter
into any agreement for or on behalf of, or incur any obligation or
liability of, or to otherwise bind, the other Party. This Agreement will
not be interpreted or construed to create an association, agency, joint
venture or partnership between the Parties or to impose any liability
attributable to such a relationship upon either Party.
16. Notice. Any notice, approval, request, authorization, direction or other
communication under this Agreement will be given in writing and will be
deemed to have been delivered and given for all purposes (i) on the
delivery date if delivered by electronic mail on the AOL Network (to
screenname "[email protected]" in the case of AOL) or by confirmed
facsimile; (ii) on the delivery date if delivered personally to the Party
to whom the same is directed; (iii) one business day after deposit with a
commercial overnight carrier, with written verification of receipt; or (iv)
five business days after the mailing date, whether or not actually
received, if sent by U.S. mail, return receipt requested, postage and
charges prepaid, or any other means of rapid mail delivery for which a
receipt is available. In the case of AOL, such notice will be provided to
both the Senior Vice President for Business Affairs (fax no. ** ) and the
Deputy General Counsel (fax no. ** ), each at the address of AOL set forth
in the first paragraph of this Agreement. In the case of MP, except as
otherwise specified herein, the notice address will be the address for MP
set forth in the first paragraph of this Agreement, with the other relevant
notice information, including the recipient for notice and, as applicable,
such recipient's fax number or AOL e-mail address, to be as reasonably
identified by AOL.
17. Launch Dates. In the event that any terms contained herein relate to or
depend on the commercial launch date of the Affiliated MP Site contemplated
by this Agreement (the "Launch Date"), then it is the intention of the
Parties to record such Launch Date in a written instrument signed by both
Parties promptly following such Launch Date; provided that, in the absence
of such a written instrument, the Launch Date will be as reasonably
determined by AOL based on the information available to AOL.
18. No Waiver. The failure of either Party to insist upon or enforce strict
performance by the other Party of any provision of this Agreement or to
exercise any right under this Agreement will not be construed as a waiver
or relinquishment to any extent of such Party's right to assert or rely
upon any such provision or right in that or any other instance; rather, the
same will be and remain in full force and effect.
19. Return of Information. Upon the expiration or termination of this
Agreement, each Party will, upon the written request of the other Party,
return or destroy (at the option of the Party receiving the request) all
confidential information, documents, manuals and other materials specified
the other Party.
20. Survival. Sections ** of the body of the Agreement, and Sections ** of this
Exhibit, will survive the completion, expiration, termination or
cancellation of this Agreement.
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** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
21. Entire Agreement. This Agreement sets forth the entire agreement and
supersedes any and all prior agreements of the Parties with respect to the
transactions set forth herein. Neither Party will be bound by, and each
Party specifically objects to, any term, condition or other provision which
is different from or in addition to the provisions of this Agreement
(whether or not it would materially alter this Agreement) and which is
proffered by the other Party in any correspondence or other document,
unless the Party to be bound thereby specifically agrees to such provision
in writing.
22. Amendment. No change, amendment or modification of any provision of this
Agreement will be valid unless set forth in a written instrument signed by
the Party subject to enforcement of such amendment, and in the case of AOL,
by an executive of at least the same standing to the executive who signed
the Agreement.
23. Further Assurances. Each Party will take such action (including, but not
limited to, the execution, acknowledgment and delivery of documents) as may
reasonably be requested by any other Party for the implementation or
continuing performance of this Agreement.
24. Assignment. MP will not assign this Agreement or any right, interest or
benefit under this Agreement without the prior written consent of AOL.
Assumption of the Agreement by any successor to MP (including, without
limitation, by way of merger or consolidation) will be subject to AOL's
prior written approval. Subject to the foregoing, this Agreement will be
fully binding upon, inure to the benefit of and be enforceable by the
Parties hereto and their respective successors and assigns.
25. Construction; Severability. In the event that any provision of this
Agreement conflicts with the law under which this Agreement is to be
construed or if any such provision is held invalid by a court with
jurisdiction over the Parties to this Agreement, (i) such provision will be
deemed to be restated to reflect as nearly as possible the original
intentions of the Parties in accordance with applicable law, and (ii) the
remaining terms, provisions, covenants and restrictions of this Agreement
will remain in full force and effect.
26. Remedies. Except where otherwise specified, the rights and remedies granted
to a Party under this Agreement are cumulative and in addition to, and not
in lieu of, any other rights or remedies which the Party may possess at law
or in equity; provided that, in connection with any dispute hereunder, MP
will be not entitled to offset any amounts that it claims to be due and
payable from AOL against amounts otherwise payable by MP to AOL.
27. Applicable Law. Except as otherwise expressly provided herein, this
Agreement will be interpreted, construed and enforced in all respects in
accordance with the laws of the Commonwealth of Virginia except for its
conflicts of laws principles.
28. Export Controls. Both Parties will adhere to all applicable laws,
regulations and rules relating to the export of technical data and will not
export or re-export any technical data, any products received from the
other Party or the direct product of such technical data to any proscribed
country listed in such applicable laws, regulations and rules unless
properly authorized.
29. Headings. The captions and headings used in this Agreement are inserted for
convenience only and will not affect the meaning or interpretation of this
Agreement.
30. Counterparts. This Agreement may be executed in counterparts, each of which
will be deemed an original and all of which together will constitute one
and the same document.
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** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
EXHIBIT H
Common Stock Subscription Warrant Agreement
June 18, 1999
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO MODACAD, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
Warrants to Purchase
Shares of Common Stock
MODACAD, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
Void after December 31, 2006 (or such later date
as may be determined in accordance with applicable provisions below)
No. 1
THE WARRANTS evidenced by this Warrant Certificate have been issued as of
this 18th day of June, 1999, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged.
THIS CERTIFICATE evidences the right of America Online, Inc. or permitted
assignees ("AOL") to purchase, for the Exercise Price (as defined below), during
the Exercise Term (as defined below), up to ** shares of Common Stock (the
"Shares") of ModaCAD, Inc., a California corporation ("ModaCAD"), subject to the
terms and conditions hereinafter set forth. This Warrant Certificate is issued
pursuant to, and in satisfaction of ModaCAD's obligation contained in Section 4
of the Marketing Agreement (as defined below).
1. Definitions. As used in this Certificate:
(a) "Aggregate Exercise Price" shall mean with respect to any exercise
under this Warrant Certificate the Exercise Price multiplied by the number
of shares of Common Stock as to which the Warrant Certificate is exercised,
as set forth in the Subscription Agreement.
(b) "Date of Issuance" shall mean the date set forth in the first
paragraph of this Warrant Certificate.
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** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
(c) "Exercise Price" shall mean ** per Share, which is ** of the
closing sale price of ModaCAD Common Stock on the Nasdaq National Market on
the Date of Issuance.
(d) "Exercise Term" shall mean, with respect to the respective numbers
of Warrants represented by this Certificate set forth in the left column
below, the respective five (5) year periods commencing on the date of the
occurrence of the corresponding Vesting Event in the right column below, or
if earlier the date of a Stipulated Event, and ending at the close of
business on the fifth annual anniversary of said date, subject to extension
as provided in Section 2(e); provided, however, that (i) no Warrants shall
be exercisable in any event, or at all, unless and until the corresponding
Vesting Event or earlier Stipulated Event shall have occurred and (ii) if
an applicable Vesting Event or earlier Stipulated Event shall not have
occurred by, at the latest, December 31, 2001, the Warrants provided to
become exercisable upon the occurrence of such Vesting Event shall, without
any further act or writing whatever, be terminated and deemed void for all
purposes.
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Warrants Vesting Event
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
** AOL's delivery of first **
Impressions in accordance with the
Marketing Agreement.
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- --------------------------------------------------------------------------------
** AOL's delivery of second **
Impressions in accordance with the
Marketing Agreement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
** AOL's delivery of third **
Impressions in accordance with the
Marketing Agreement.
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- --------------------------------------------------------------------------------
** AOL's delivery of fourth **
Impressions in accordance with the
Marketing Agreement
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
** First ** in Transaction
Revenues is received by ModaCAD.
- --------------------------------------------------------------------------------
(e) "Impressions" shall have the meaning provided for said term in the
Marketing Agreement.
(f) "Marketing Agreement" shall mean the Interactive Marketing
Agreement dated as of June 18, 1999, between AOL and ModaCAD.
- -------------------
** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
(g) "Stipulated Event" shall mean: (A) any consolidation or merger of
ModaCAD with or into any other corporation or other entity, other than any
merger or consolidation resulting in the holders of the capital stock of
ModaCAD entitled to vote for the election of directors holding a majority
of the capital stock of the surviving or resulting corporation or other
entity entitled to vote for the election of directors. (B) any person or
entity (including any affiliates thereof) becoming the holder of a majority
of the capital stock of ModaCAD entitled to vote for the election of
directors, or (C) any sale or other disposition by ModaCAD of all or
substantially all of its assets.
(h) "Subscription Agreement" shall mean the Subscription Agreement in
the forms attached hereto as Exhibit A.
(i) "Transaction Revenues" shall have the meaning provided therefor in
the Marketing Agreement.
(j) "Warrants" shall mean the rights evidenced by this Warrant
Certificate.
(k) "Warrant Shares" shall mean the shares of ModaCAD's Common Stock
issued upon exercise of Warrants.
2. Exercise of Warrants.
(a) Right to Exercise. The Warrants may be exercised by AOL at any
time or from time to time during the Exercise Term applicable thereto as
provided in Section 1(d), provided, that the initial exercise shall be for
** or more Warrants and each subsequent exercise shall be for ** or more
Warrants.
(b) Method of Exercise. The Warrants may be exercised by AOL during
the Exercise Term by the surrender of this Warrant Certificate at the
principal office of ModaCAD, along with the properly completed and executed
Subscription Agreement, and the payment to ModaCAD by certified or
cashier's check of the Aggregate Exercise Price.
(c) "Easy Sale" Exercise. In lieu of the payment methods set forth in
Section 2(b) above, when permitted by law and applicable regulations
(including Nasdaq and NASD rules), AOL may pay the Aggregate Exercise Price
through a "same day sale" commitment from AOL (and if applicable a
broker-dealer that is a member of the National Association of Securities
Dealers (a "NASD Dealer")), whereby AOL elects to exercise this Warrant and
to sell a portion of the Warrant Shares so purchased to pay for the
Aggregate Exercise Price and AOL (or, if applicable, the NASD Dealer)
commits upon sale (or, in the case of the NASD Dealer, upon receipt) of
such Warrant Shares to forward the Aggregate Exercise Price immediately
directly to the Company.
- -------------------
** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
(d) Issuance of Share Certificate and/or New Warrant Certificate. In
the event of any exercise of the Warrants, certificates registered in the
name of the holder for the Shares so purchased shall be delivered to AOL
within a reasonable time but not later than five (5) business days after
the Warrants shall have been so exercised, and unless the Warrants have
expired, a new certificate registered in the name of the holder
representing the right to purchase the number of Shares, if any, with
respect to which this Warrant Certificate shall not then have been
exercised shall also be issued to AOL within such time. All such new
warrant certificates shall be dated the date hereof and shall be identical
to this Warrant Certificate except as to the number of Shares issuable
pursuant thereto. ModaCAD shall pay all documentary, stamp or other
transactional taxes (other than transfer taxes), if any, attributable to
the issuance or delivery of shares of Common Stock of ModaCAD upon exercise
of the Warrants.
(e) Restrictions on Exercise. The Warrants may not be exercised if the
issuance of the Shares upon such exercise would constitute a violation of
any applicable federal or state securities laws or other laws or
regulations, in which event the Exercise Term shall be extended by the
number of days the Warrants may not be exercised. ModaCAD will immediately
advise AOL of the coming into existence, and subsequent cessation, of any
such restriction on exercise, and will use its best efforts to cause such
restriction to terminate at the earliest possible date. As a condition to
the exercise of the Warrants, ModaCAD may require AOL to make such
representations and warranties to ModaCAD as may be required by applicable
law or regulation.
3. Stock Fully Paid; Reservation of Shares. ModaCAD covenants and agrees
that all Shares will, upon issuance and payment in accordance herewith, be fully
paid, validly issued and nonassessable, and free from all taxes, liens and
charges with respect to the issuance thereof. ModaCAD further covenants and
agrees that during the Exercise Term ModaCAD will at all times have authorized
and reserved free from preemptive rights for the purpose of the issue upon
exercise of the Warrants at least the maximum number of shares of ModaCAD's
Common Stock as are issuable upon the exercise of the Warrants. ModaCAD will
list, and will maintain the listing of, the Shares and any other securities
which AOL shall be entitled to receive upon the exercise of this Warrant on each
securities exchange on which such Shares or other securities are listed by
ModaCAD from time to time.
4. Adjustment of Purchase Price and Number of Shares. The number and kind
of securities purchasable upon the exercise of the Warrants and the Exercise
Price shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) Consolidation, Merger or Reclassification. If ModaCAD at any time
while the Warrants remain outstanding and unexpired shall consolidate with
or merge into any other corporation, or sell all or substantially all of
its assets to another corporation, or reclassify or in any manner change
<PAGE>
the securities then purchasable upon the exercise of the Warrants (any of
which shall constitute a "Reorganization"), then lawful and adequate
provision shall be made whereby this Warrant Certificate shall thereafter
evidence the right to purchase such number and kind of securities and other
property as would have been issuable or distributable on account of such
Reorganization upon or with respect to the shares of Common Stock which
were purchasable under the Warrants immediately prior to the
Reorganization. ModaCAD shall not effect any such Reorganization unless
prior to or simultaneously with the consummation thereof the successor
corporation (if other than ModaCAD) resulting from such Reorganization
shall assume by written instrument executed and mailed or delivered to AOL,
at the last address of AOL appearing on the books of ModaCAD, the
obligation to deliver to AOL such shares of stock, securities or assets as,
in accordance with the foregoing provisions, AOL may be entitled to
purchase, all subject to further adjustment as provided in this Section 4.
The foregoing provisions of this Section 4(a) shall similarly apply to
successive reorganizations, consolidations, mergers, sales and transfers
and to the stock or securities of any other corporation that are at the
time receivable upon exercise of this Warrant.
(b) Subdivision or Combination of Shares. If ModaCAD at any time while
the Warrants remain outstanding and unexpired shall subdivide or combine
its Common Stock, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to
such subdivision or combination by a fraction (i) the numerator of which
shall be the total number of shares of Common Stock outstanding immediately
prior to such subdivision or combination and (ii) the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
after such subdivision or combination.
(c) Certain Dividends and Distributions. If ModaCAD at any time while
the Warrants are outstanding and unexpired shall take a record of the
holders of its Common Stock for the purpose of:
(i) Stock Dividends. Entitling them to receive a dividend payable
in, or other distribution without consideration of, Common Stock, then
the Exercise Price shall be adjusted to that price determined by
multiplying the Exercise Price in effect immediately prior to each
dividend or distribution by a fraction (A) the numerator of which
shall be the total number of shares of Common Stock outstanding
immediately prior to such dividend or distribution, and (B) the
denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution; or
(ii) Distribution of Assets, Securities, etc. Making any
distribution without consideration with respect to its Common Stock
(other than a cash dividend paid or payable solely out of retained
earnings) payable otherwise than in its Common Stock, AOL shall, upon
the exercise of the Warrants, be entitled to receive, in addition to
the number of Shares receivable thereupon, and without payment of any
additional consideration therefor, such assets or securities as would
have been payable to it as owner of that number of Shares receivable
by exercise of the Warrants had it been the holder of record of such
Shares on the record date for such distribution, and an appropriate
provision therefor shall be made a part of any such distribution.
<PAGE>
(d) Adjustment of Number of Shares. Upon each adjustment in the
Exercise Price pursuant to Subsections (b) or (c) (i) of this Section 4,
the number of Shares purchasable hereunder shall be adjusted to that number
determined by multiplying the number of such Shares purchasable upon the
exercise of the Warrants immediately prior to such adjustment by a
fraction, the numerator of which shall be the Exercise Price immediately
prior to such adjustment and the denominator of which shall be the Exercise
Price immediately following such adjustment.
(e) Notice. In case at any time:
(i) ModaCAD shall pay any dividend payable in stock upon its
Common Stock or make any distribution, excluding a cash dividend
payable solely out of retained earnings, to the holders of its Common
Stock;
(ii) ModaCAD shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or
other rights;
(iii) There shall be any reclassification of the Common Stock of
ModaCAD, or consolidation or merger of ModaCAD with, or sale of all or
substantially all of its assets to, another corporation; or
(iv) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of ModaCAD;
then, in any one or more of such cases, ModaCAD shall give to AOL at least 10
days' prior written notice (or, in the event of notice pursuant to Section 4(e)
(ii), (iii) or (iv), at least 30 days' prior written notice) of the date on
which the books of ModaCAD shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect to any such reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up. Such notice in accordance with the
foregoing clause shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto, and such notice in accordance with the
foregoing clause shall also specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Each such written
notice shall be given by first-class mail, postage prepaid, addressed to AOL at
the address of AOL as shown on the books of ModaCAD.
(f) No Change in Warrant Certificate. The form of this Warrant
Certificate need not be changed because of any adjustment in the Exercise
Price or in the number of Shares purchasable on its exercise. The Exercise
Price or the number of Shares shall be considered to have been so changed
as of the close of business on the date of adjustment.
<PAGE>
5. Fractional Shares. No fractional Shares will be issued in connection
with any subscription hereunder but, in lieu of such fractional Shares, ModaCAD
shall make a cash payment therefor upon the basis of the Market Price per Share.
As used herein, the "Market Price Per Share" with respect to any class or series
of Common Stock on any date shall mean the closing price per share of ModaCAD's
Common Stock for the trading day immediately preceding such date. The closing
price for each such day shall be the last sale price regular way or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices regular way, in either case on the principal securities exchange on which
the shares of such Common Stock of ModaCAD are listed or admitted to trading or,
if applicable, the last sale price, or in case no sale takes place on such day,
the average of the closing bid and asked prices of such Common Stock on Nasdaq
or any comparable system, or if such Common Stock is not reported on Nasdaq, or
a comparable system, the average of the closing bid and asked prices as
furnished by two members of the National Association of Securities Dealers, Inc.
selected from time to time by ModaCAD for that purpose. If such bid and asked
prices are not available, then "Market Price Per Share" shall be equal to the
fair market value of such Common Stock as determined by a nationally recognized
investment banking firm chosen by ModaCAD from among three such firms specified
by AOL. The "Market Price Per Share" with respect to any class or series of
capital stock other than Common Stock shall, if such capital stock is
convertible into or exchangeable for Common Stock, be determined by reference to
the "Market Price Per Share" for the Common Stock and adjusted based on the
conversion or exchange price, as the case may be. If such capital stock is not
convertible into or exchangeable for Common Stock, the "Market Price Per Share"
shall be determined by a nationally recognized investment banking firm chosen by
ModaCAD from among three such firms specified by AOL.
6. Restrictions on Transfer. The Warrants are restricted from sale,
transfer, assignment or hypothecation by operation of law. The Warrants have not
been registered under the Act or any applicable state securities laws, and may
not be offered for sale, sold, transferred, pledged or hypothecated without an
effective registration statement under the Act and under any applicable state
securities law, or an opinion of counsel, reasonably satisfactory to ModaCAD,
that an exemption from such registration is available. By accepting this Warrant
Certificate, AOL acknowledges its understanding that because the Warrants are
not registered, AOL must hold the Warrants indefinitely unless they are
registered under the Act and any applicable state securities laws or must obtain
exemptions from registration. In addition, by accepting this Warrant
Certificate, AOL represents and warrants (i) that AOL is acquiring the Warrants
for its own account for investment and not with the view to distribution,
assignment, resale or other transfer of the Warrants and (ii) AOL is an
"accredited investor" as such term in defined in Rule 501 of Regulation D
promulgated under the United States Securities Act of 1933, as amended (the
"Act"), and that AOL is able to bear the economic risk of its investment in the
Warrants and any shares issued upon exercise of any of the Warrants. Except as
specifically stated herein, no other person has a direct or indirect beneficial
interest in the Warrants.
<PAGE>
7. Transfer of Warrants to Affiliates. Subject to the restrictions set
forth in Section 6, this Warrant and all rights hereunder are transferable, in
whole or in part but, if in part, not of less than ** Warrants, to any Affiliate
of AOL or to any other entity approved by ModaCAD. For the purposes of this
Section 7, "Affiliate" shall mean any entity in which AOL holds greater than a
** ownership interest.
8. Registration Under Securities Act of 1933.
(a) For purposes of this Section, the following definitions shall
apply:
(i) The terms "register," "registered," and "registration" refer
to a registration under the United States Securities Act of 1933, as
amended (the "Act"), effected by preparing and filing a registration
statement in compliance with the Act, and the declaration or ordering
of effectiveness of such registration statement or amendment thereto.
(ii) The term "Registrable Shares" means any Shares issued or
issuable upon exercise of the Warrants and owned of record and
beneficially by AOL that may not be resold pursuant to Rule 144 under
the Act in one transaction without any limitation with respect to
offerees, manner of offering or the size of the transaction as of the
date on which AOL exercises the Warrants pursuant to Section 8(b) of
this Warrant Certificate.
(iii) The term "SEC" means the United States Securities and
Exchange Commission.
(b) (i) ModaCAD shall, as expeditiously as possible following its
receipt from AOL of an executed Notice of Commitment to Exercise
Warrants and Request for Registration of Underlying Shares, in the
form and with the content of Exhibit B attached hereto ("Notice of
Commitment"), which Notice of Commitment shall cover not less than **
of the Warrants evidenced hereby, file a registration statement on
Form S-3 (or other applicable SEC Form as ModaCAD in its absolute
discretion may elect to use for such purpose) covering the resale of
all the Registrable Shares under Rule 415 and, to the extent
applicable, Rule 416. ModaCAD shall use its best efforts to cause such
registration statement to become effective by the 60th calendar day
after the date it shall have been filed, or, if such registration
statement shall be reviewed by the SEC, the 120th calendar day after
the date it shall have been filed. ModaCAD shall provide AOL
reasonable opportunity to review any such registration statement, or
any amendment or supplement thereto, prior to the filing thereof. The
Notice of Commitment shall be binding and irrevocable for all
purposes. In the event AOL's Notice of Commitment covers less than all
the Warrant Shares and ModaCAD thereupon effects registration of all
the Registrable Shares, no subsequent Notice of Commitment may be
given and all the then-outstanding warrants may only be exercised as
provided in Section 2(b).
- -------------------
** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
(ii) ModaCAD shall, as expeditiously as possible following AOL's
exercise of at least ** of the Warrants evidenced hereby, file a
registration statement on Form S-3 (or other applicable SEC Form as
ModaCAD in its absolute discretion may elect to use for such purpose)
covering the resale of all the Registrable Shares under Rule 415 and,
to the extent applicable, Rule 416; provided that ModaCAD shall not be
required to file a registration statement pursuant to this Section
8(b)(ii) if it has filed a registration statement pursuant to Section
8(b)(i) which has been declared effective by the SEC. ModaCAD shall
use its best efforts to cause such registration statement to become
effective by the 60th calendar day after the date it shall have been
filed, or, if such registration statement shall be reviewed by the
SEC, the 120th calendar day after the date it shall have been filed.
ModaCAD shall provide AOL reasonable opportunity to review any such
registration statement, or any amendment or supplement thereto, prior
to the filing thereof.
(iii) ModaCAD may suspend the effectiveness of any such
registration effected pursuant to this Subsection (b) in the event,
and for such period of time as, such a suspension is required by the
rules and regulations of the SEC, and may suspend use of the
prospectus included in the Registration Statement if such prospectus
ceases to meet the requirements of Section 10 of the Act. ModaCAD will
immediately advise AOL of any such suspension, and will use its best
efforts to cause such suspension to terminate at the earliest possible
date. AOL agrees that following receipt of any such notice, and until
such suspension is terminated, AOL will not make use of the suspended
prospectus and will make no sales requiring delivery of such
prospectus.
(c) Whenever required under this Section to effect the registration of
any Registrable Shares, ModaCAD shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Shares and use its best efforts to cause
such registration to become effective as provided in Section 8(b)(i)
or (ii), as applicable, and keep such registration statement effective
for so long as AOL as owner of Registrable Shares desires to dispose
of the securities covered by such registration statement, or, if
earlier, only until all of such Registrable Shares may be sold under
Rule 144 (provided that ModaCAD's transfer agent has accepted an
instruction from ModaCAD to such effect) in one transaction without
any limitation with respect to offerees, manner of offering or the
size of the transaction.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition
of all securities covered by such registration statement and notify
AOL of the filing and effectiveness of such Registration Statement and
any amendments thereof or supplements thereto.
(iii) Furnish to AOL as owner of Registrable Shares such numbers
of copies of a current prospectus conforming with the requirements of
the Act, copies of the registration statement, any amendment or
supplement thereto and any documents incorporated by reference therein
and such other documents as AOL may reasonably require in order to
facilitate the disposition of Registrable Shares owned by AOL.
- -------------------
** The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
(iv) Notify AOL immediately of the happening of any event as a
result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of material
fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of
the circumstances then existing, and use its best efforts to promptly
update and/or correct such prospectus.
(v) Furnish, at the request of AOL, on the date or promptly
following the date the registration statement is declared effective,
(i) an opinion, dated as of such date, of counsel representing ModaCAD
for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering
and reasonably satisfactory to AOL, addressed to AOL, and (ii) a
"comfort" letter, dated as of such date, from the independent
certified public accountants of the Company, in form and substance as
is customarily given by independent certified public accountants to
underwriters in an underwritten public offering and reasonably
satisfactory to AOL.
(vi) register or qualify such Registrable Shares, under such
other securities or blue sky laws of such jurisdictions in the United
States as any initial seller of Registrable Shares reasonable requests
and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller of Registrable Shares to
consummate the disposition in such jurisdictions of the Registrable
Shares owned by such seller; provided, however, that ModaCAD will not
be required to qualify generally to do business, subject itself to
general taxation or consent to general service of process in any
jurisdiction where it would not otherwise be required so to do but for
this paragraph (vi);
(vii) use its best efforts to cause such Registrable Shares to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and
operations of ModaCAD to enable the initial seller or sellers thereof
to consummate the disposition of such Registrable Shares;
(viii) use its best efforts to take all other steps necessary to
effect the registration of such Registrable Shares contemplated
hereby.
(d) AOL as owner of Registrable Shares will furnish to ModaCAD in
connection with any registration under this Section such information
regarding itself, the Registrable Shares and other securities of ModaCAD
held by it, and the intended method of disposition of such securities, as
shall be reasonably required to effect the registration of the Registrable
Shares held by AOL. AOL shall provide such data as of a specified date
within fifteen (15) days of receipt of such request from ModaCAD and shall
<PAGE>
provide any applicable changes or amendments to such data as of the date of
filing of any applicable registration statement. The intended method of
disposition (Plan of Distribution) of such securities as so provided by AOL
shall be included without alteration in the Registration Statement covering
the Registrable Shares and shall not be changed without the prior written
consent of AOL.
(e) (i) ModaCAD shall indemnify, defend and hold harmless AOL and
each of its officers, directors, employees, agents, partners or
controlling persons (within the meaning of the Act) (each, an
"indemnified party") from and against, and shall reimburse such
indemnified party with respect to, any and all claims, suits, demands,
causes of action, losses, damages, liabilities, costs or expenses
("Liabilities") to which such indemnified party may become subject
under the Act or otherwise, arising from or relating to (A) any untrue
statement or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein or
any amendment or supplement thereto, or (B) the omission or alleged
omission to state in such registration statement, any prospectus
contained therein or any amendment or supplement thereto a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading; provided, however, that ModaCAD shall not be liable in any
such case to the extent that any such Liability arises out of or is
based upon an untrue statement or omission so made in conformity with
information furnished in writing by an indemnified party; provided
further, that ModaCAD shall not be liable in any such case to the
extent that such Liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if (i) AOL was subject to an
obligation to send or deliver a copy of the prospectus with or prior
to the delivery of written confirmation of the sale of Registrable
Securities to the person asserting such Liability who purchased such
Registrable Securities which are the subject matter thereof from AOL
and AOL failed to do so, (ii) the prospectus would have corrected such
untrue statement or omission and (iii) ModaCAD has delivered to AOL
sufficient copies of such final prospectus; and provided further, that
ModaCAD shall not be liable in any such case to the extent that any
Liability arises out of or is based upon an untrue statement or
alleged untrue statement, omission or alleged omission which is
corrected in an amendment or supplement to the prospectus and if,
having previously been furnished by or on behalf of ModaCAD with
copies of the prospectuses so amended or supplemented and having been
obligated to deliver such prospectuses, AOL thereafter failed to
deliver such prospectus as so amended or supplemented, prior to or
concurrently with the sale of Registrable Securities to the person
asserting such Liability who purchased such Registrable Securities
which are the subject thereof from AOL.
(ii) In the event of any registration under the Act of
Registrable Securities pursuant to Subsection (b), AOL hereby agrees
to indemnify, defend and hold harmless ModaCAD, and its officers,
directors, employees, agents, partners, or controlling persons (within
the meaning of the Act) (each, an "indemnified party") from and
against, and shall reimburse such indemnified party with respect to,
any and all Liabilities to which such indemnified party may become
subject under the Act or otherwise, arising from or relating to (A)
any untrue statement or alleged untrue statement of any material fact
<PAGE>
contained in such registration statement, any prospectus contained
therein or any amendment or supplement thereto, or (B) the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading;
provided, that AOL will be liable in any such case to the extent, and
only to the extent, that any such Liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, prospectus or
amendment or supplement thereto in reliance upon and in conformity
with information furnished in writing by AOL for use in the
registration statement, and provided further that the total amounts
payable in indemnity by AOL pursuant to this clause (ii) shall not
exceed the net proceeds received by AOL under the registration giving
rise to the liability.
(iii) Promptly after receipt by any indemnified party of notice
of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against another party (the
"indemnifying party") hereunder, notify such party in writing thereof,
but the omission so to notify shall not relieve the indemnifying party
from any Liability which it may have to the indemnified party other
than under this section and shall only relieve it from any Liability
which it may have to the indemnified party under this section if and
to the extent it is actually prejudiced by such omission. In case any
such action shall be brought against any indemnified party and such
indemnified party shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to
such indemnified party, and, after notice from the indemnifying party
to the indemnified party of its election so to assume and undertake
the defense thereof, the indemnifying party shall not be liable to the
indemnified party under this section for any legal expenses
subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of
liaison with counsel so selected, provided, however, that if the
defendants in any such action include both the indemnifying party and
the indemnified party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which
are different from or additional to those available to the
indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the
indemnifying party, the indemnified party shall have the right to
select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other
reasonable expenses related to such participation to be reimbursed by
the indemnifying party as incurred.
(iv) If the indemnification provided for in this Section 8(e)
shall for any reason be unenforceable by an indemnified party,
although otherwise available in accordance with its terms, then each
indemnifying party shall, in lieu of indemnifying such indemnified
party, contribute to the amount paid or payable by such indemnified
party as a result of the losses, claims, damages, liabilities or
expenses with respect to which such indemnified party has claimed
indemnification, in such proportion as to appropriate to reflect the
relative fault of the indemnified party on the one hand and the
indemnifying party on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities
or expenses, as well as any other relevant equitable considerations.
The relative fault, in the case of an untrue statement, alleged untrue
statement, omission or alleged omission, shall be determined by, among
other things, whether such statement, alleged statement, omission or
alleged omission relates to information supplied by the indemnifying
party or the indemnified party, and such parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement, alleged statement, omission or alleged omission. The
<PAGE>
Company and AOL agree that it would not be just and equitable if
contribution pursuant hereto were to be determined by pro rata
allocation or by any other method of allocation which does not take
into account such equitable considerations. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses referred to herein shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending against any action
or claim which in the subject hereof. In no case, however, shall AOL
be responsible for a portion of the contribution obligation in excess
of the net proceeds to it of securities sold as contemplated herein.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
(f) (i) With respect to the inclusion of Registrable Securities
in a registration statement pursuant to Subsection (b), all fees,
costs and expenses of and incidental to such registration shall be
borne by ModaCAD; provided, however, that AOL shall bear AOL's own
expenses and share of the underwriting discounts and commissions, and
transfer taxes, if any, incurred by AOL in connection with such
registration.
(ii) The fees, costs and expenses of registration to be borne by
ModaCAD as provided in this Subsection (f) shall include, without
limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel and accountants for ModaCAD. Fees and
disbursements of counsel and accountants for AOL shall be borne by
AOL.
9. No Rights as Shareholder. AOL, as holder of the Warrants, shall not be
entitled to vote or receive dividends or be considered a shareholder of ModaCAD
for any purpose, nor shall anything in this Warrant Certificate be construed to
confer on AOL, as such, any rights of a shareholder of ModaCAD or any right to
vote, give or withhold consent to any corporate action, to receive notice of
meetings of shareholders (except to the extent provided in Section 4(e)), to
receive dividends or subscription rights or otherwise.
10. Notices. All demands, notices, consents and other communications to be
given hereunder shall be in writing and shall be deemed duly given on the day of
delivery when delivered personally or by confirmed facsimile, five days after
being mailed by first class mail, postage prepaid, or one day after delivery
when delivered by air courier, properly addressed, if to ModaCAD at ModaCAD,
Inc., 3861 Sepulveda Boulevard, Culver City, California 90230, facsimile no:
(310) 751-2122; or, if to AOL at America Online, Inc., 22000 AOL Way, Dulles,
Virginia 20166, Attn: Senior Vice President for Business Affairs, facsimile no.
(703) 265-1206, with a copy to Attn: Deputy General Counsel at the same address,
and facsimile no. (703) 265-2208. ModaCAD and AOL may change such address at any
time or times by notice hereunder to the other.
<PAGE>
11. Representations and Warranties of ModaCAD. ModaCAD hereby represents
and warrants to AOL that:
(a) All corporate action on the part of ModaCAD, its officers,
directors and shareholders necessary for (a) the authorization, execution
and delivery of, and the performance of all obligations of ModaCAD under,
this Warrant, and (b) the authorization, issuance, reservation for issuance
and delivery of all of the Common Stock issuable upon exercise of the
Warrants, has been duly taken. This Warrant Certificate constitutes a valid
and binding obligation of ModaCAD enforceable in accordance with its terms,
subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, moratorium, reorganization and similar laws affecting
creditors' rights generally and to general equitable principles. All
consents, approvals and authorizations of, and registrations,
qualifications and filings with, any federal or state governmental agency,
authority or body, or any third party, required in connection with the
execution, delivery and performance of this Warrant and the consummation of
the transactions contemplated hereby and thereby have been obtained, except
for filings and related actions to be taken as provided in Section 8
hereof.
(b) ModaCAD is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and has all
requisite corporate power to own, lease and operate its property and to
carry on its business as now being conducted and as currently proposed to
be conducted.
(c) ModaCAD has duly filed with the SEC ModaCAD's annual report on
Form 10-K for the year ended December 31, 1998, and its quarterly report on
Form 10-Q for the quarter ended March 31, 1999 (collectively, the "ModaCAD,
Inc. SEC Reports"). As of their respective filing dates, the ModaCAD, Inc.
SEC Reports complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended, and none of the SEC ModaCAD,
Inc. SEC Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances in which
they were made, not misleading, except to the extent corrected by a
subsequently filed document with the SEC.
(d) Each of the consolidated financial statements (including, in each
case, any related notes) contained in the ModaCAD, Inc. SEC Reports
complied as to form in all material respects with the applicable published
rules and regulations of the SEC with respect thereto, was prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be
indicated in the notes to such financial statements or, in the case of
unaudited statements, as permitted by SEC Form 10-Q) and presented fairly,
in all material respects, the consolidated financial position of the
Company and its subsidiaries as at the respective dates and the
consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements are
subject to normal and recurring year-end adjustments which are not expected
to be material in amount.
<PAGE>
(e) The authorized capital stock of the Company consists of 15,000,000
shares of Common Stock. As of May 31, 1999: (i) 7,401,515 shares of common
stock of the Company were issued and outstanding, all of which are validly
issued, fully paid and nonassessable; (ii) 1,650,000 shares of Common Stock
of the Company were reserved for issuance under the Company's 1995 Stock
Option Plan, 67,546 shares of which were subject to options outstanding on
such date; (iii) shares of the Common Stock of the Company were reserved
for issuance upon exercise of outstanding warrants. No material change in
such capitalization has occurred between May 31, 1999, and the date of
Issuance.
(f) The execution and delivery by ModaCAD of this Warrant and
compliance with the terms hereof will not (a) conflict with, or result in
any violation of or default under, any provision of ModaCAD's Articles of
Incorporation or By-laws; or (b) conflict with, or result in any violation
of or default under, any permit, concession, grant, franchise, law, rule or
regulation, judgment, decree, order of any court or other governmental
entity, agreement, contract, indenture or other instrument to which ModaCAD
is a party or to which any of its property or assets is subject.
12. Amendments; Waivers, Terminations, Governing Law; Headings. The
Warrants 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. The Warrants shall
be governed by and construed and interpreted in accordance with the laws of the
State of California, provided, however, that any dispute involving the Warrants
that is a Dispute (as defined in the Marketing Agreement) involving the
provisions of the Marketing Agreement and only secondarily the Warrants shall be
governed by the laws of the Commonwealth of Virginia. The headings in this
Warrant Certificate are for convenience of reference only and are not part of
the Warrants.
Dated: June ___, 1999.
MODACAD, INC.
By:
----------------------------------
Name: Maurizio Vecchione
Title:President and Co-Chief Executive Officer
Attest:
RECEIPT ACKNOWLEDGED BY AOL:
By:
---------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
MODACAD, INC.
3861 Sepulveda Boulevard
Culver City, California 90230
Subscription Agreement for the Exercise of Warrants
(To be completed and signed only upon exercise of the Warrants)
The undersigned, the holder and registered owner of the attached Warrants,
hereby irrevocably and unconditionally elects to exercise such Warrants and
subscribes for the purchase of * shares of ModaCAD, Inc. (the "Company") common
stock (the "Common Stock") pursuant to and in accordance with the terms and
conditions of the Warrant Certificate attached hereto, and elects to effect a
cash exercise and herewith tenders a check in the amount of $_________, in
exchange for the Common Stock which should be delivered to the undersigned at
the address stated below, and, if said number of shares of Common Stock shall
not be all of the Common Stock purchasable hereunder, a new Warrant of like
tenor for the balance of the remaining Common Stock purchasable hereunder should
be delivered to the undersigned at the address stated below.
The undersigned agrees that:
(1) the undersigned will not offer, sell, transfer or otherwise dispose of
any Common Stock unless either (a) a registration statement, or
post-effective amendment thereto, covering Common Stock has been filed
with the Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended (the "Act"), such sale, transfer or other
disposition is accompanied by a prospectus meeting the requirements of
Section 10 of the Act forming a part of such registration statement,
or post-effective amendment thereto, which is in effect under the Act
covering the Common Stock to be so sold, transferred or otherwise
disposed of, and all applicable state securities laws have been
complied with, or (b) the undersigned has delivered to the Company a
written opinion of counsel, addressed to the Company, which opinion is
reasonably acceptable to the Company and its counsel, that such
proposed offer, sale, transfer or other disposition of the Common
Stock is exempt from the provisions of Section 5 of the Act in view of
the circumstances of such proposed offer, sale, transfer or other
disposition; and
(2) The Company may notify the transfer agent for Common Stock that the
certificates for the Common Stock acquired by the undersigned are not
to be transferred unless the transfer agent receives advice from the
Company that one or both of the conditions referred to in (1)(a) and
(1)(b) above have been satisfied and, until such satisfaction, the
Company may affix an appropriate legend to the certificates for the
Common Stock.
Dated: AOL
----------------- -----------------------------------
By:
-----------------------------------
* Insert here the number of shares called for on the face of the Warrants (or in
the case of a partial exercise, that number of shares for which the Warrants are
being exercised), without making any adjustments for additional Common Stock or
any other securities or property which, under the adjustment provisions of the
Warrants, may be deliverable upon exercise.
<PAGE>
Name:
------------------------------
Title:
------------------------------
EXHIBIT B
MODACAD, INC.
3861 Sepulveda Boulevard
Culver City, California 90230
Notice of Commitment to Exercise Warrants
and
Request for Registration of Underlying Shares
The undersigned, the holder and registered owner of the attached Warrants,
hereby (i) tenders to ModaCAD, Inc. (the "Company") its notice of commitment to
exercise such Warrants and subscribe for the purchase of ____________* shares of
the Company's common stock (the "Common Stock") pursuant to and in accordance
with the terms and provisions of the Warrant Certificate attached hereto (the
"Warrant Certificate"), (ii) requests that the Company file a registration
statement on Form S-3 (or other applicable SEC Form as the Company in its
absolute discretion may elect to use for such purpose) covering the resale of
all Registrable Shares (as such term is defined in the Warrant Certificate) and
(iii) agrees to, upon effectiveness of such registration statement, deliver to
the Company an executed Subscription Agreement attached as Exhibit A to the
Warrant Certificate and the Aggregate Exercise Price (as such term is defined in
the Warrant Certificate). This Notice of Commitment to Exercise Warrants and
Request for Registration of Underlying Shares ("Notice of Commitment") shall be
binding and irrevocable for all purposes.
Dated:
---------------------------
AOL
---------------------------
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF OPERATIONS AS OF MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 10-QSB FOR QUARTER ENDED MARCH 31,1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,462,744
<SECURITIES> 0
<RECEIVABLES> 1,121,642
<ALLOWANCES> 280,000
<INVENTORY> 2,100
<CURRENT-ASSETS> 17,058,522
<PP&E> 4,121,569
<DEPRECIATION> 1,430,657
<TOTAL-ASSETS> 22,554,305
<CURRENT-LIABILITIES> 1,612,672
<BONDS> 0
0
0
<COMMON> 40,523,747
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,554,305
<SALES> 4,364,796
<TOTAL-REVENUES> 4,364,796
<CGS> 322,874
<TOTAL-COSTS> 322,874
<OTHER-EXPENSES> 9,516,060
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,316,176)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,316,176)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,316,176)
<EPS-BASIC> (0.79)
<EPS-DILUTED> (0.79)
</TABLE>
