<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1996
REGISTRATION NO. 333-4739
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
WIRED VENTURES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2721 94-3241954
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
520 THIRD STREET, FOURTH FLOOR
SAN FRANCISCO, CA 94107
(415) 276-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------------
JEFFREY SIMON
CHIEF FINANCIAL OFFICER
WIRED VENTURES, INC.
520 THIRD STREET, FOURTH FLOOR
SAN FRANCISCO, CA 94107
(415) 276-5000
[email protected]
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------------
COPIES TO:
<TABLE>
<S> <C>
KENNETH L. GUERNSEY ROBERT T. CLARKSON
JODIE M. BOURDET KENNETH M. SIEGEL
ISOBEL A. JONES TAMARA G. MATTISON
BRADLEY P. MACMILLIN WILSON, SONSINI, GOODRICH & ROSATI, P.C.
COOLEY GODWARD LLP 650 PAGE MILL ROAD
ONE MARITIME PLAZA, 20TH FLOOR PALO ALTO, CA 94304
SAN FRANCISCO, CA 94111 (415) 493-9300
(415) 693-2000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement number for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1)(2) PER SHARE(3) PRICE(3) FEE(4)
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Common Stock, $0.001 par value............ 5,462,500 shares $14.00 $76,475,000 $26,371
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</TABLE>
(1) Includes 712,500 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) The shares of Common Stock are not being registered for the purpose of sales
outside the United States.
(3) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of 1933.
(4) Of such amount, $26,173 has been paid.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1996
4,750,000 SHARES
[WIRED LOGO]
WIRED VENTURES, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
- --------------------------------------------------------------------------------
Of the 4,750,000 shares of Common Stock offered, 3,800,000 shares are being
offered hereby in the United States and 950,000 shares are being offered in a
concurrent international offering outside the United States. The initial public
offering price and the aggregate underwriting discount per share will be
identical for both offerings. See "Underwriting".
All of the shares of Common Stock offered hereby are being sold by Wired
Ventures, Inc. (the "Company"). Prior to the offerings, there has been no public
market for the Common Stock of the Company. It is currently estimated that the
initial public offering price will be between $12.00 and $14.00 per share. For
factors to be considered in determining the initial public offering price, see
"Underwriting".
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol "WWWW", subject to official notice of issuance.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share $ $ $
Total(3) $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting".
(2) Before deducting estimated expenses of $1,300,000 payable by the
Company.
(3) The Company has granted the Underwriters an option for 30 days to
purchase up to an additional 712,500 shares at the initial public
offering price per share, less the underwriting discount, solely to
cover over-allotments. If such option is exercised in full, the total
initial public offering price, underwriting discount, and proceeds to
Company will be $ , $ , and $ , respectively. See
"Underwriting".
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The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York on or about
October , 1996, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. ROBERTSON, STEPHENS & COMPANY
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The date of this Prospectus is , 1996.
<PAGE> 3
[ARTWORK - DESCRIPTION OF COMPANY PRODUCT]
Wired(R) is a registered trademark and HotWired(TM), HardWired(TM),
HotBot(SM), Wired TV(TM), and Wired Online(TM) and certain other terms
used in this Prospectus are trademarks or service marks of the
Company. Trade names, trademarks, and service marks of other companies
appearing in this Prospectus are the property of their respective
holders.
The contents of the Company's Web sites and other media products are
not part of this Prospectus.
----------------------------------------------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------------------------------------------------------------
<PAGE> 4
[ARTWORK - DESCRIPTION OF COMPANY PRODUCT]
<PAGE> 5
[ARTWORK - DESCRIPTION OF COMPANY PRODUCT]
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Except where otherwise indicated, all
share and per-share information in this Prospectus has been adjusted to reflect
(i) the completion in May 1996 of the Reorganization described in "The Company,"
(ii) the repricing by the Company of certain outstanding stock options in
September 1996, (iii) a one-for-two reverse split of the Preferred and Common
Stock of the Company to be effected in October 1996, and (iv) the conversion of
all outstanding shares of Preferred Stock of the Company into shares of Common
Stock (based on an assumed initial public offering price of $13.00 per share),
which will occur automatically upon the completion of the offerings. In
addition, unless otherwise indicated, all information in this Prospectus assumes
that the Underwriters' over-allotment option will not be exercised. See
"Description of Capital Stock" and "Underwriting."
THE COMPANY
Wired Ventures, Inc. (the "Company") is a new kind of global, diversified media
company engaged in creating compelling, branded content. Its current businesses
include publishing Wired magazine and programming original content on the World
Wide Web (the "Web") primarily through its HotWired network of online content
sites (the "HotWired Network"). The Company also launched a series of book
titles in September 1996 and is developing a television program based on its The
Netizen online program. The Company believes that it has developed Wired and
HotWired into strong brands that symbolize new media and the digital age.
Wired magazine and the Company's online content sites have award-winning content
and design that have attracted large and rapidly growing audiences with young,
well educated, and affluent demographics that the Company believes are highly
sought after by advertisers. The Company also believes that with its creative,
research, technological, sales, and management expertise, and its established
brands, it has created a platform from which to launch additional brands across
multiple media. In addition, the Company believes that its brands and media
properties are well positioned to capitalize on the expected growth in the use
of the Internet and the Internet advertising market. Industry sources estimate
that the market for advertising on the Internet will reach $4.8 billion by 2000,
up from $80 million in 1996.
Wired magazine was launched in January 1993 to cover the Digital Revolution, a
term popularized by the Company that describes the profound changes caused by
the convergence of the computer, media, and communications industries. With
Wired magazine's blend of leading-edge editorial and highly innovative design,
the Company has created a unique magazine genre. Wired magazine is not a
computer magazine; it is about the people, companies, and ideas of the Digital
Revolution. Wired magazine's paid circulation has grown from 90,000 at the end
of 1993 to an estimated 325,000 at the end of August 1996, while average
advertising revenues have grown from $265,000 per issue for 1993 to over $1.5
million per issue for the first nine issues of 1996. The magazine's advertisers
range from consumer goods companies such as General Motors Corporation to
technology and telecommunications companies such as Motorola, Inc. Wired
magazine has won a number of prestigious awards, including a 1994 National
Magazine Award for General Excellence and the 1996 National Magazine Award for
Design, both given by the American Society of Magazine Editors.
The Company's online programming is primarily distributed through the Web. Its
flagship offering, the HotWired Network, was launched in October 1994 and
features original content on topics such as politics, travel, technology, arts,
entertainment, health, careers, and lifestyle, as well as content based on Wired
magazine. The HotWired Network also includes HotBot, a Web-wide search engine
designed to search the complete text of all documents on the Web, launched in
June 1996. Users can access the HotWired Network's programs through the main
HotWired Network site (http://www.hotwired.com) or in most cases through each
program's own distinct Web address. The Company also produces the popular
Suck.com online content site (http://www.suck.com), a source of sharp commentary
on the Web and popular culture. During September 1996, the Company's Web sites
received between 137,000 and 206,000 visitors
3
<PAGE> 7
per weekday, up from 12,000 to 19,000 visitors per weekday in September 1995.
The Company's online advertisers range from consumer products companies such as
VISA International to technology and telecommunications companies such as Intel
Corporation. The HotWired Network has won a number of prestigious awards,
including the Digital Hollywood Best of Digital Hollywood award (1995) and Best
Site of the Year award (1996) and the National Information Infrastructure Award
for Best Arts and Entertainment Site (1995).
The Company has devoted and will continue to devote substantial resources to
extending its brands into new print, online, and television media properties,
all of which are aimed at the core demographic groups reached by Wired magazine
and the HotWired Network. The Company, through its HardWired book brand, is in
the process of publishing several book titles. The first two of these have been
chosen as a Book of the Month Club selection and a featured alternate,
respectively. The Company is also developing a television program based on the
HotWired Network's The Netizen political commentary program
(http://www.netizen.com) with funding partially provided under an agreement
between the Company and MSNBC Cable Channel, L.L.C., a joint venture of National
Broadcasting Company, Inc. and Microsoft Corporation. In addition, the Company
is developing an online news service that will provide news from the perspective
of the digital generation. This service is expected to attract additional
traffic to the HotWired Network and, along with other HotWired content, will
also be distributed through alternative channels such as the PointCast Network.
The Company is also exploring several new magazine, online, and television
concepts that are editorially and creatively distinct from the Company's current
products. Although over 90% of the Company's revenues to date have been from
Wired magazine, as of August 31, 1996, approximately half of the Company's
employees were devoted to operating and developing the Company's online
operations.
The Company aims to create "smart media for smart people around the world" -
high-quality information and entertainment products aimed at a well educated,
affluent, technologically savvy, and influential consumer group. Its mission is
to build a new kind of global, diversified media company for the 21st century
utilizing its ability to create compelling, branded content across multiple
media, its research and technological capabilities, its strong connection to
consumers and advertisers, and its commitment to journalistic and artistic
excellence.
RISK FACTORS
For a discussion of considerations relevant to an investment in the Common
Stock, see "Risk Factors."
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered:
U.S. Offering........................... 3,800,000 shares
International Offering.................. 950,000 shares
Total................................ 4,750,000 shares
Common Stock to be outstanding after the
offerings............................... 20,961,518 shares(1)
Use of proceeds........................... Repayment of approximately $5.0
million of indebtedness, product
development, international
expansion, and working capital and
other general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol.... WWWW
</TABLE>
(1) Based on shares outstanding as of September 25, 1996. Excludes: (i)
2,432,240 shares issuable upon the exercise of stock options outstanding as
of such date with a weighted average exercise price of $8.72 per share; (ii)
2,482,166 shares reserved for future issuance under the Company's 1996
Equity Incentive Plan; and (iii) 50,000 shares reserved for future issuance
under the Company's 1996 Non-Employee Director Stock Option Plan.
4
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenues........................... $ 2,928 $ 9,181 $25,255 $10,345 $ 15,628
Total costs and expenses................. 3,952 12,718 33,188 13,548 51,078(1)
Operating loss........................... (1,024) (3,537) (7,933) (3,203) (35,450)(1)
Net loss................................. (1,036) (3,457) (6,505) (3,176) (34,699)(1)
Pro forma net loss per share(2).......... $ (0.37) $ (2.02)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
ACTUAL AS ADJUSTED(3)
------- -------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 12,491 $ 63,618
Working capital.................................................... 316 56,443
Total assets....................................................... 24,576 75,703
Long-term note payable............................................. 1,226 1,226
Accumulated deficit................................................ (29,491) (29,491)
Total stockholders' equity......................................... 6,586 62,713
</TABLE>
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(1) Includes non-cash operating charges of $20.5 million resulting from the
write-off of in-process research and development recorded in connection with
the Business Combination described in "The Company" and $6.0 million
compensation expense relating to stock options granted and stock issued
during the first six months of 1996.
(2) See Note 2 of Notes to Consolidated Financial Statements.
(3) As adjusted to reflect the sale by the Company of 4,750,000 shares of Common
Stock in the offerings at an assumed initial public offering price of $13.00
per share and deduction of the estimated underwriting discount and offering
expenses and application of the net proceeds therefrom as described herein.
See "Use of Proceeds" and "Capitalization."
The Company currently anticipates that revenues for the three months ended
September 30, 1996 will be between $9.1 million and $9.4 million, with online
revenues expected to be nearly double those of the prior quarter, and that the
net loss for the three-month period will be between $7.3 million and $7.6
million. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quarterly Results of Operations."
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and elsewhere in this Prospectus.
5
<PAGE> 9
RISK FACTORS
In addition to the other information presented in this Prospectus, the following
risk factors should be considered carefully in evaluating the Company and its
business before purchasing the Common Stock offered hereby. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors" and elsewhere in this
Prospectus.
LIMITED OPERATING HISTORY AND ANTICIPATION OF LOSSES
The Company commenced the publishing of Wired magazine in January 1993 and
launched the HotWired Network in October 1994. Accordingly, the Company has a
limited operating history upon which an evaluation of the Company and its
prospects can be based. The Company has incurred operating losses since
inception, including operating losses of $1.0 million for 1993, $3.5 million for
1994, $7.9 million for 1995, and $35.4 million for the six months ended June 30,
1996, partially as a result of a one-time, non-cash charge of approximately
$20.5 million resulting from the write-off of in-process research and
development recorded in connection with the Business Combination described in
"The Company." Moreover, deferred compensation expense of $9.9 million relating
to stock options granted and stock issued prior to May 31, 1996 will be
recognized over the vesting periods of the options. Of such amount, $6.0 million
was recognized in the six months ended June 30, 1996, and the balance will be
amortized over the remaining vesting periods of the options, including $430,000
and $380,000 to be recognized in the three months ended September 30, 1996 and
the three months ending December 31, 1996, respectively. Although over 90% of
the Company's revenues to date have been from Wired magazine, the Company has
devoted and will continue to devote substantial resources to extending its
brands into new print, online, and television media properties. The Company and
its prospects must be considered in light of the risks, expenses, and
difficulties frequently encountered by new media companies and companies in the
new and rapidly evolving market for online products and services. To address
these risks, the Company must, among other things, continue to respond to
competitive developments, attract, retain, and motivate qualified personnel,
continue to successfully execute its advertising and print sales strategies, and
develop and successfully commercialize new media properties. There can be no
assurance that the Company will be successful in addressing these risks. The
Company's ability to maintain or increase its revenues or become profitable
depends on many factors, including its ability to increase advertising rate
bases and the resulting revenues for its print publications and online content
sites and increase the paid circulation of its print publications. There can be
no assurance that the Company will be successful in any of these efforts. Since
its inception, the Company has experienced substantial growth, which has
required it to significantly increase the scale of its operations and,
correspondingly, its operating expenses. The increase in operating expenses
reflects the hiring of additional personnel in all functional areas, an increase
in sales and marketing activities, and the funding of development of new
products and technologies. The Company expects that operating expenses will
increase faster than revenues for at least the next 18 months and, as a result,
the Company expects to incur operating and net losses through at least 1997.
There can be no assurance that the Company can maintain or increase its revenues
in the future to offset its increased operating expenses. See "The Company,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," and "Business -- Development
Projects."
6
<PAGE> 10
FLUCTUATIONS IN OPERATING RESULTS
As a result of the Company's limited operating history, the Company does not
have relevant historical financial information for a significant number of
periods on which to base planned revenues and operating expenses. The Company
expects to experience significant fluctuations in future quarterly and annual
operating results that may be caused by many factors, including (i) the seasonal
nature of the advertising business, where the second and fourth calendar
quarters for magazine publishers are generally characterized by higher
advertising revenues; (ii) the ability of the Company to maintain or increase
the paid circulation for Wired magazine and future publications; (iii) the cost
of paper, postage, and other costs associated with magazine production and
distribution; (iv) the ability to maintain or increase print and online
advertising rate bases; (v) the ability to reasonably predict newsstand and
store sales of its magazines and books and thereby limit the returns of unsold
products; (vi) the anticipated increases in operating expenses to support the
expansion of its existing print and online businesses, the development of new
magazine and online content sites, and the Company's book publishing and
television efforts; (vii) the size and rate of growth of the market for Internet
products and online content; (viii) the introduction by others of products that
are competitive with those of the Company; and (ix) the general economic
conditions in the United States and worldwide. As a result of the foregoing,
period-to-period comparisons of the Company's results of operations are not
necessarily meaningful and should not be relied upon as an indication of future
performance.
The Company believes that advertising sales in traditional media, such as
magazines and television, are generally lower in the first and third calendar
quarters than in the respective preceding quarters and that advertising
expenditures fluctuate significantly with economic cycles. Depending on the
extent to which the Web is accepted as an advertising medium, seasonality and
cyclicality in the level of advertising expenditures generally could become more
pronounced for Web advertising. Seasonality and cyclicality in advertising
expenditures generally, or with respect to Web-based advertising specifically,
could have a material adverse effect on the Company's business, financial
condition, and operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
FUTURE CAPITAL NEEDS
The Company will require substantial additional funding to meet its future
operating and capital expenditure requirements. The Company believes that the
net proceeds from the sale of the Common Stock to be sold in the offerings will
be sufficient to meet its product development, international expansion, working
capital and capital expenditure requirements through at least the end of 1997.
However, the Company may need to raise additional funds in order to support more
rapid expansion, develop new or enhance existing products, respond to
competitive pressures, acquire complementary businesses, assets or technologies,
or respond to unanticipated requirements. The Company may seek to raise
additional funds through private or public sales of securities, strategic
relationships, bank or lease financing, or otherwise. If additional funds are
raised through the issuance of equity securities, the percentage ownership of
the stockholders of the Company will be reduced, stockholders may experience
additional dilution, and such securities may have rights, preferences, and
privileges senior to those of the holders of the Company's Common Stock. There
can be no assurance that additional financing will be available when needed on
terms favorable to the Company, if at all. If adequate funds are not available
or are not available on acceptable terms, the Company may be unable to develop
new or enhance existing products, take advantage of future opportunities, or
respond to competitive pressures or unanticipated requirements, which would have
a material adverse effect on the Company's business, financial condition, and
operating results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
7
<PAGE> 11
DEVELOPING MARKET FOR ONLINE MEDIA; UNCERTAIN ACCEPTANCE OF THE INTERNET AS AN
ADVERTISING MEDIUM
The Company's future growth is dependent to a significant extent upon its
ability to increase the amount of revenue it derives from advertising through
online media, principally the Web and proprietary online services. The market
for advertising through online media has only recently begun to develop, is
rapidly evolving, and is characterized by an increasing number of market
entrants who have introduced or developed products and services for information,
entertainment, and commerce through the Web and online services. Demand and
market acceptance for recently introduced online products and services are
subject to a high level of uncertainty. There can be no assurance that the
market for commerce, entertainment, and information through online media will
continue to grow. The use of the Web and online services as a medium for
advertising, particularly by those individuals and enterprises that have
historically relied upon traditional means of marketing and advertising,
generally requires the acceptance of a new way of conducting business and
exchanging information. In particular, enterprises that have already invested
substantial resources in other means of advertising may be particularly
reluctant or slow to adopt advertising through online media. If the Web and
online services do not develop as a significant means for companies to advertise
their products and services, there will be a material adverse effect on the
Company's business, financial condition, and operating results. See
"Business -- Products."
In connection with the development and expansion of the Company's online
products and distribution channels, the Company is exploring new methods of
deriving and increasing revenues, including long-term advertising contracts and
frequency discounts, cross-publication advertising packages, co-branding of
program content, user-customized online advertising, use of detailed demographic
data of online and print consumers, and relationships with online services for
the delivery of online content in exchange for royalties based on user fees.
There can be no assurance that the Company will be able to negotiate such
arrangements with advertisers or strategic partners or that any such
arrangements will generate revenues sufficient to offset the costs incurred by
the Company in developing and maintaining such business arrangements.
The Company's ability to derive revenues from online advertising will also
depend on a robust online industry and the infrastructure for providing Internet
access and carrying Internet traffic, particularly with respect to the Web. The
Internet in general and the Web in particular may not prove to be viable
commercial marketplaces because of inadequate development of the necessary
infrastructure, such as a reliable network backbone, or timely development of
affordable complementary products, such as high-speed modems and accurate
methods for auditing online usage and advertising. Because global commerce and
the exchange of information on the Internet are new and evolving, it is
difficult to predict with any assurance whether the Internet or the Web will
prove to be and remain a viable commercial marketplace. Moreover, critical
issues concerning the commercial use of the Internet and the Web, including
security, technical reliability, cost, ease of use and access, and quality of
service, remain unresolved and may impact the growth of Internet and Web use. If
the necessary infrastructure or complementary products are not developed, or if
the Internet or the Web does not continue to develop as a viable commercial
marketplace, there will be a material adverse effect on the Company's business,
financial condition, and operating results. See "Business -- Advertising Sales."
NO ASSURANCE OF SUCCESSFUL EXPANSION OR DIVERSIFICATION OF OPERATIONS
To date, more than 90% of the Company's revenues have been attributable to its
magazine operations. The Company believes its future success is in part
dependent on its ability to expand its editorial and creative vision to new
magazines and online media products and to other media, including books and
television. The development of such new products generally involves significant
expense and diversion of management, creative, technical, and personnel
resources from the Company's current businesses. The Company's past performance
in print and online media is not an indicator of the performance of future
products, if developed. There
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can be no assurance that the Company will be successful in developing,
marketing, or selling new magazines or online media products, or that the cost
of establishing such products, whether successful or not in the market, will not
have a material adverse effect on the Company's business, financial condition,
and operating results. For example, during the beta test period following the
Company's introduction of the HotBot Web-wide search engine in May 1996, some
users experienced difficulties with HotBot, such as improperly displayed
graphics, long query times, and incomplete searches. While the Company and its
HotBot strategic partner, Inktomi Corporation, substantially resolved these
technical issues with the HotBot service prior to the time the service began
accepting paid advertising in June 1996, there can be no assurance that the
Company will not experience similar or other difficulties in connection with
future online product introductions or that technical problems will not arise
once a site or other product is in operation. In addition, the Company and its
management have only limited prior experience in book publishing, television,
and other media. The Company began distribution of its first book title in
September 1996, and the planned airing of the Company's first television program
did not occur as originally scheduled in the Summer of 1996 and has not yet been
rescheduled. There can be no assurance that the Company will be able to
successfully develop, market, sell, or deliver its book products or television
programming or that the cost of establishing a business in either medium,
whether successful or not in the market, will not have a material adverse effect
on the Company's business, financial condition, and operating results. See
"Business -- Development Projects."
DEPENDENCE ON TECHNOLOGICAL ENHANCEMENTS
A key element of the Company's strategy is to continue to develop technological
innovations for its online media properties that allow it to enhance the user's
experience and strengthen relationships with advertisers. The Company believes
such technological leadership is required for the Company to remain competitive.
There can be no assurance that the Company will be able to conceive, develop, or
acquire such technological innovations successfully or that the Company's
competitors will not successfully implement features on their online media
properties that are superior to those of the Company's online media properties.
Moreover, the cost associated with developing new technology can be significant.
There can be no assurance that these costs will not have a material adverse
effect on the Company's business, financial condition, and operating results.
See "Business -- Products."
MANAGEMENT OF A CHANGING BUSINESS
Since its inception, the Company has experienced significant change and
expansion in its business and operations, which have placed significant demands
on the Company's administrative, operational, financial, and other resources.
Future growth, if any, could place a significant strain on the Company's
management, operational, financial, and other resources. The Company's ability
to manage future growth will depend upon a significant expansion of its
accounting and other internal management systems and the implementation and
subsequent improvement of a variety of systems, procedures, and controls.
Moreover, the Company will need to continue to train, motivate, and manage its
employees and attract and retain qualified senior managers and technical
professionals. If the Company's management is unable to manage growth
effectively, there could be a material adverse effect on the Company's business,
financial condition, and operating results. See "Business -- Employees" and
"Management."
DEPENDENCE ON KEY PERSONNEL; NEED TO ATTRACT AND RETAIN ADDITIONAL PERSONNEL
The Company's performance is substantially dependent on the performance of its
executive officers and other key personnel. The Company is dependent on its
ability to retain and motivate high quality personnel, especially its editorial,
creative, and management personnel. The loss of the services of any of the
Company's key personnel, particularly its co-founders Louis Rossetto and Jane
Metcalfe, who are domestic partners, could have a material adverse effect on the
Company's business, financial condition, and operating results. Ms. Metcalfe
currently anticipates taking a leave of absence of approximately three months
beginning in the first quarter of 1997. The Company does not have "key person"
life insurance policies on any of its employees.
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The Company's future success also depends on its continuing ability to identify,
hire, train, and retain other highly qualified creative, technical, and
managerial personnel with compatible creative visions. The Company has had
difficulties in the past identifying qualified personnel to lead certain of its
proposed new products. Additionally, the Company has experienced turnover of key
personnel in connection with its proposed The Netizen television program. The
Company anticipates hiring a large number of new employees in all functional
areas within the next two years. Competition for highly qualified personnel is
intense. There can be no assurance that the Company will be successful in
attracting, assimilating, and retaining such personnel, and the failure to do so
could delay the launch of new products or otherwise have a material adverse
effect on the Company's business, financial condition, and operating results.
Moreover, in the event of the loss of any such personnel, there can be no
assurance that the Company would be able to prevent the unauthorized disclosure
or use of its proprietary technology, practices, procedures, or customer lists.
See "Business -- Employees" and "Management."
COMPETITION
The Company faces significant competition from a large number of companies, many
of which have significantly greater financial, creative, technical, and
marketing resources than the Company. These companies may be better positioned
to compete in the evolving media and technology industries. In addition, the
Company faces broad competition for advertising revenue from other media
companies that produce magazines, newspapers, online content, radio, and
television, as well as other promotional vehicles such as direct mail, coupons,
and billboard advertising. Each of the Company's products competes with other
media and many other types of leisure activities for audiences and advertising
revenue. Overall competitive factors in these segments include editorial and
design quality, price, and customer service. Competition for advertising dollars
is primarily based on advertising rates, reader response to advertisers'
products and services, and effectiveness of sales teams. There can be no
assurance that one or more of the Company's competitors will not significantly
undermine the sales efforts of the Company or reduce the Company's audiences,
either of which would have a material adverse effect on the Company's business,
financial condition, and operating results.
Competition in the magazine publishing business is also intense with respect to
subscription sales and single copy distribution and display. Wired magazine is
editorially unique, covering a broad range of topics relating to the Digital
Revolution, including technology, business, and lifestyle. As such, the Company
competes with many general interest magazines, including computer magazines such
as BYTE and PC Magazine, business magazines such as Fortune and BusinessWeek,
and lifestyle magazines such as GQ. There can be no assurance that one or more
other magazines or online content sites will not significantly undermine the
marketing efforts of Wired magazine or significantly impact the sources of its
circulation or advertising revenues. If this were to occur, there would be a
material adverse effect on the Company's business, financial condition, and
operating results.
To the extent that the Internet infrastructure is expanded and access to the Web
is made easier and less expensive, the Company expects the number of Web users
to continue to grow at a rapid rate. In response to this anticipated growth,
there is an increasing number of companies, some with significantly greater
resources than the Company, developing online content and services for delivery
on the Web, and competing for audiences and the advertising dollars that are
currently being devoted to the Web. The Company's online content sites compete
with other online content sites such as America Online's Global Network
Navigator, cnet, Starwave's ESPNet, and Time-Warner's Pathfinder. The Company's
HotBot search engine service competes with services such as Alta Vista, Excite,
Infoseek, Lycos, and Yahoo!. All of the Company's online media properties
compete for advertising dollars with Web browser companies such as Netscape
Communications Corporation and Microsoft Corporation. There can be no assurance
that one or more of the Company's competitors will not significantly undermine
the Company's marketing efforts for its online media properties or attract a
significant amount of advertising revenues away from the Company.
The Company's book publishing operations compete for sales with numerous other
publishers and retailers, as well as with other media, including the Company's
own magazine and online
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media products. In addition, the acquisition of publishing rights to books by
leading authors is highly competitive, and the Company competes with numerous
other book publishers. There can be no assurance that the Company's book
publishing efforts will be successful, or that the costs of such efforts will
not have a material adverse effect on the Company's business, financial
condition, and operating results.
The creation, production, and distribution of television programming is a highly
competitive business, as each television program competes with other television
programming and with other forms of entertainment. Furthermore, competition in
the television industry is expected to increase as the number and variety of
basic cable and pay television services available continue to grow. There is
active competition among all production companies in these industries for the
services of producers, directors, actors, and others and for the acquisition of
literary properties. With respect to the distribution of television product,
there is significant competition from independent producers and distributors as
well as major studios. Revenues for filmed entertainment product depend in part
on general economic conditions, but the competitive position of a producer or
distributor is still greatly affected by the quality of, and public response to,
the entertainment product it makes available to the marketplace. There can be no
assurance that the Company's efforts in television programming will result in
programming that is marketable to advertisers and distributors or will be
commercially successful, or that the cost of creating and producing television
programming, whether successful or not in the market, will not have a material
adverse effect on the Company's business, financial condition, and operating
results.
UNCERTAINTY OF CONTENT AVAILABILITY
The success of the Company's products is largely dependent on the availability
of high quality editorial and artistic content that will appeal to consumers
and, in the case of the Company's print publications, generate circulation
revenue. Without strong consumer interest in the Company's publications,
advertisers will not begin or continue to advertise with the Company, and the
Company's ability to generate revenues from advertising will be materially and
adversely affected. The Company believes the most important factor influencing
consumer acceptance and support of its products is the quality of the content.
There can be no assurance that the Company's direct content development efforts
will produce media products that attract consumer interest and generate
advertising and subscription revenues in the future. The failure of the Company
to create compelling content and generate and maintain consumer and advertiser
interest would risk diluting its brands and would have a material adverse effect
on the Company's business, financial condition, and operating results.
In addition to its own direct content development efforts, the Company depends
substantially on third parties, including both occasional and regular outside
contributors, to create content for the Company's media products. The dependence
on third party content providers is expected to continue in the future. In many
cases, the Company is required to compete with other business opportunities for
the attention of these content providers, including other print and online
publications that are or will be directly competitive with the Company's media
products. There can be no assurance that the Company will succeed in attracting
and retaining third party contributors in sufficient numbers or quality to
supply the requisite content for its products to succeed. The inability of the
Company to retain third parties that develop high quality content that appeals
to consumers would have a material adverse effect on the success of the
Company's publications and its business, financial condition, and operating
results. See "Business -- Products."
DEPENDENCE ON INFORMATION TECHNOLOGY INDUSTRIES
The Company's products are generally targeted toward users and developers of
information technology and are susceptible to shifts in this rapidly changing
market. The information technology industries are characterized by intense
competition among various technologies and their respective proponents. The
markets for the technologies to which the Company's editorial content and
product distribution are devoted, including the Internet, are in the early
stages of development. The Company's growth is dependent upon a developing
market for these
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technologies. If information technologies, including the Internet, develop more
slowly than anticipated, or become obsolete, there will be a material adverse
effect on the revenues from the Company's products devoted to or reliant on such
technologies, and on the Company's business, financial condition, and operating
results as a whole. Furthermore, even if these segments of the information
technology market do develop as the Company anticipates, there can be no
assurance that the demand for the Company's products and services will also
increase. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Competition."
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
A component of the Company's strategy is further expansion into international
markets. The Company has only limited experience in developing localized
versions of its print and digital publications and marketing and distributing
them internationally. Moreover, the Company believes that in order for it to
expand internationally, it must continue to enter into strategic alliances with
companies outside of the United States. There can be no assurance that the
Company will be able to obtain such alliances on terms favorable to the Company,
if at all, or that any strategic alliance will be successful. In addition, there
are certain risks inherent in doing business in international markets, such as
unexpected changes in regulatory requirements, currency fluctuations,
state-imposed restrictions on the repatriation of funds, potentially adverse tax
consequences, import and export duties and restrictions, difficulties in
staffing and managing multinational operations, the uncertainty of product
acceptance by different cultures, and seasonal reductions in business activity
during the summer months in Europe and certain other parts of the world. There
can be no assurance that one or more of such factors will not have a material
adverse effect on the Company's future international operations and,
consequently, on the Company's business, financial condition, and operating
results. As a result of the foregoing, there can be no assurance that the
Company will be able to successfully market, sell, and deliver its products and
services in international markets. See "Business -- Products."
DEPENDENCE ON ADVERTISERS
The majority of the Company's revenues has been and is expected to continue to
be attributable to advertising. In 1995 and the first six months of 1996, 66%
and 61%, respectively, of the Company's total revenues were from advertising.
The majority of the Company's print magazine advertising space is sold on a
monthly basis. Longer-term advertising contracts with magazine and online
advertisers are subject to cancellation upon advance notice of 30 days or less.
In addition, the nature of certain of the Company's editorial materials has from
time to time resulted in the loss of advertising accounts. To the extent that
the Company's major advertisers do not continue to advertise in the Company's
products and the Company is unable to replace these advertisers, there would be
a material adverse effect on the Company's business, financial condition, and
operating results. See "Business -- Advertising Sales."
UNCERTAINTY OF GOVERNMENT REGULATION
Laws and regulations may be enacted with respect to the Internet, covering
issues such as access to content, pricing, user privacy, and characteristics and
quality of products and services. The adoption of any such laws or regulations
may decrease the growth of the Internet, which could in turn decrease the demand
for advertising and increase the Company's cost of doing business, or could
otherwise have a material adverse effect on the Company's business, financial
condition, and operating results.
In February 1996, the Communications Decency Act ("CDA") was signed into law as
part of the Telecommunications Act of 1996. Under its provisions, the CDA
creates criminal liability for the expression of "indecent" and similar
communications via online systems accessible to minors, and carries penalties
generally consisting of minimum monetary fines of approximately $250,000 or up
to two years of incarceration for each occurrence. Through a federal court
challenge of certain aspects of the statute by a variety of traditional and new
media publishers, access
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service providers, and other organizations, including the Company, the United
States District Court for the Eastern District of Pennsylvania enjoined the
government from enforcing certain portions of the CDA on the basis that such
portions are unconstitutional. The government is currently appealing this
ruling. There can be no assurance that the injunction against enforcement of the
provisions of the new law that might apply to the Company's online products will
not be overturned or that material created by or on behalf of the Company or
that is otherwise distributed through the Company's online sites, including
those provided via online services such as America Online, will not be deemed in
violation of the CDA. In addition, there can be no assurance that similar state,
federal, or international laws have not or will not be enacted and enforced that
would criminalize or otherwise penalize or restrict such communications. The
inability of the Company to continue publishing any of its current or planned
online content or displaying the online submissions of its users as a result of
the CDA or similar laws, or any penalties incurred by the Company under such
laws, could have a material adverse effect on the Company's business, financial
condition, and operating results.
RISKS ASSOCIATED WITH CLAIMS OF DEFAMATION
Publishing of print and online content and television programming involves the
risk of claims of libel or other forms of defamation. Civil and criminal
liability for libelous or otherwise defamatory content posted to the interactive
spaces in the Company's online publications is not settled under law. Although
the Company has obtained what it believes to be adequate insurance coverage for
potential claims of libel and other forms of defamation, there can be no
assurance the Company will not be exposed to litigation, forcing the Company to
expend funds and other resources not anticipated in the current operating
budgets and projections. Any such litigation, whether or not resulting in a
ruling requiring the payment of damages, could have a material adverse effect on
the Company's business, financial condition, and operating results. The Company
has already defended and settled, without payment or other concession but at
significant expense, one defamation lawsuit. See "Business -- Litigation."
RISKS ASSOCIATED WITH INTELLECTUAL PROPERTY RIGHTS
The Company regards its copyrights, trademarks, trade dress, trade secrets, and
similar intellectual property as critical to its success, and the Company relies
upon trademark and copyright law, trade secret protection, and confidentiality
and license agreements with its employees, strategic partners, and others to
protect its proprietary rights. The Company pursues the registration of its
material trademarks in the United States and, based upon anticipated use, in
certain other countries. The Company has applied for or registered the "Wired"
mark in a variety of classes in the United States and numerous other countries
and has applied for the registration of certain of its other trademarks and
service marks, including "HotWired," "Wired TV," "HardWired," "HotBot," and
"Wired Online." Effective trademark, copyright, and trade secret protection may
not be available in every country in which the Company's products are available.
The Company has licensed in the past, and it expects that it may license in the
future, elements of its trademarks, trade dress, and similar proprietary rights
to third parties, including in connection with Wired magazine's international
editions and other media properties that may be controlled operationally by
third parties. While the Company attempts to ensure that the quality of its
brands is maintained by such licensees, there can be no assurance that such
licensees will not take actions that might materially and adversely affect the
value of the Company's proprietary rights or the reputation of its products,
either of which could have a material adverse effect on the Company's business.
Moreover, while the Company believes that it has the right to use Wired,
HotWired, and its other marks in connection with its business, and it generally
has the right to prohibit others from using such marks in certain fields of use,
there can be no assurance that the Company will be able to maintain such rights.
From time to time the Company has been, is, and expects to continue to be
subject to legal proceedings and claims in the ordinary course of its business,
including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties by the Company and its licensees.
For example, the Company has been involved in a dispute with America Online
regarding the scope of use of the mark "Netizen." While the Company believes
that it will be able to resolve this dispute on terms satisfactory to the
Company, there can be no assurance in
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this regard. Such claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources. The Company is
not aware of any legal proceedings or claims that the Company believes will
have, individually or in the aggregate, a material adverse effect on the
Company's business, financial condition, and results of operations. See
"Business -- Litigation."
CONCENTRATION OF STOCK OWNERSHIP
Upon the completion of the offerings, the present directors, executive officers,
and greater than 5% stockholders and their respective affiliates will
beneficially own approximately 56% of the outstanding Common Stock of the
Company (54% of the outstanding Common Stock if the Underwriters' over-allotment
option is exercised in full). As a result of their ownership, the directors,
executive officers, and greater than 5% stockholders and their respective
affiliates collectively will be able to control all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. Such concentration of ownership may also
have the effect of delaying or preventing a change in control of the Company.
See "Principal Stockholders" and "Description of Capital Stock."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the offerings, there has been no public market for the Company's Common
Stock, and there can be no assurance that an active public market for the
Company's Common Stock will develop or be sustained after the offerings. The
initial public offering price will be determined by negotiation between the
Company and the representatives of the U.S. Underwriters based upon several
factors. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The trading price of the
Company's Common Stock could be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
innovations or new media properties by the Company or its competitors, changes
in financial estimates by securities analysts, the operating and stock price
performance of other companies that investors may deem comparable to the
Company, and other events or factors. Moreover, in some future quarter the
Company's operating results may fall below the expectations of securities
analysts and investors. In such event, the market price of the Company's Common
Stock would likely be materially and adversely affected. In addition, the stock
market in general, and the market prices for Internet-related companies in
particular, have experienced extreme volatility that often has been unrelated to
the operating performance of such companies. These broad market and industry
fluctuations may adversely affect the trading price of the Company's Common
Stock, regardless of the Company's operating performance.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of the Company's Common Stock in the
public market could have the effect of depressing the prevailing market price of
its Common Stock. Upon the completion of the offerings, the Company will have
outstanding 20,961,518 shares of Common Stock (assuming no exercise of
outstanding options after September 25, 1996). Of these shares, the 4,750,000
shares sold in the offerings will be freely transferable without restriction or
further registration under the Securities Act of 1933 (the "Securities Act")
unless purchased by "affiliates" of the Company as that term is defined in Rule
144 under the Securities Act ("Affiliates"), which shares will be subjected to
the resale limitations of Rule 144. All of the remaining 16,211,518 shares (the
"Pre-IPO Shares") outstanding upon the completion of the offerings are subject
to lock-up agreements (the "Lock-up Agreements") entered into between the
stockholders and the Representatives of the U.S. Underwriters as described
below. Beginning 180 days after the date of the Prospectus upon the expiration
of the Lock-up Agreements, 4,025,052 of the Pre-IPO Shares held by
non-Affiliates will become freely tradeable and 11,224,930 additional Pre-IPO
Shares held by Affiliates will become eligible for public resale subject to
compliance with certain volume restrictions set forth in Rule 144. The remaining
961,536 of the Pre-IPO Shares (including 76,925 shares held by Affiliates) will
become eligible for public resale subject to compliance with certain timing,
manner of sale, and volume restrictions set forth in Rule 144 beginning in May
1998.
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All of the stockholders of the Company have entered into Lock-up Agreements with
the Representatives of the U.S. Underwriters providing that, with certain
limited exceptions, such stockholders will not offer, sell, contract to sell,
grant an option to purchase, make a short sale of, or otherwise dispose of or
engage in any hedging or other transaction that is designed or reasonably
expected to lead to a disposition of any shares of Common Stock or any option or
warrant to purchase shares of Common Stock or any securities exchangeable for or
convertible into shares of Common Stock for a period of 180 days after the date
of this Prospectus without the prior written consent of Goldman, Sachs & Co.
Other than the 4,750,000 shares being offered in the offerings, as of the date
of this Prospectus no shares of Common Stock will be eligible for immediate sale
in the public market until the expiration of the 180-day Lock-up Agreements with
the Representatives of the U.S. Underwriters. Goldman, Sachs & Co. may, in its
sole discretion and at any time with or without notice, release all or any
portion of the securities subject to Lock-up Agreements, in which case such
shares would be eligible for sale immediately upon release. Goldman, Sachs & Co.
has informed the Company that it has no current intention to release shares from
the Lock-up Agreements prior to the expiration thereof. Any request for release
would be evaluated by Goldman, Sachs & Co. in light of, and the decision whether
or not to permit early release of shares would be dependent upon, the facts and
circumstances existing at the time of the request.
As of September 25, 1996, options to purchase an aggregate of 2,432,240 shares
of Common Stock were outstanding. Rule 701 under the Securities Act provides
that, beginning 90 days after the date of this Prospectus, shares of Common
Stock acquired upon the exercise of outstanding options may be resold by persons
other than Affiliates subject only to the manner of sale provisions of Rule 144,
and by Affiliates subject to all provisions of Rule 144 except the two-year
minimum holding period. The Company intends to file one or more registration
statements on Form S-8 under the Securities Act to register shares of Common
Stock subject to stock options that will permit the resale of such shares,
subject to the Rule 144 volume limitations applicable to Affiliates, vesting
restrictions with the Company, and Lock-up Agreements between the option holders
and the Company and the Representatives of the U.S. Underwriters.
Holders of 15,835,904 shares of outstanding Common Stock (including 11,275,492
shares held by Affiliates) have the right to require the Company to register
their shares of Common Stock under the Securities Act. If such registration
rights are exercised, the shares registered can be sold without any holding
period or sales volume limitation. Registration and sale of such shares could
have an adverse effect on the trading price of the Common Stock. See
"Description of Capital Stock -- Registration Rights."
ANTITAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS AND DELAWARE LAW
After the completion of the offerings, the Board of Directors will have the
authority to issue up to 7,500,000 shares of Preferred Stock and to determine
the price, rights, preferences, privileges, and restrictions, including voting
rights, of those shares without any further vote or action by the stockholders.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. The issuance of Preferred Stock may have the effect of
delaying, deferring, or preventing a change of control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock. The Company has no present plans to issue
shares of Preferred Stock. Further, certain provisions of the Company's charter
documents, including provisions eliminating the ability of stockholders to take
action by written consent and limiting the ability of stockholders to raise
matters at a meeting of stockholders without giving advance notice, may have the
effect of delaying or preventing changes in control or management of the
Company, which could have an adverse effect on the market price of the Company's
Common Stock. Finally, certain aspects of Delaware law applicable to the Company
may have the effect of discouraging takeover attempts. See "Description of
Capital Stock."
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NO SPECIFIC USE OF PROCEEDS
The Company has not designated any specific use for the net proceeds from the
sale by the Company of Common Stock offered hereby, except for the application
of approximately $5.0 million of such net proceeds for the repayment and
termination of the Company's revolving credit facility. Rather, the Company
intends to use the remaining net proceeds primarily for product development and
international expansion. Remaining proceeds will be used for working capital and
other general corporate purposes. Accordingly, management will have significant
flexibility in applying the net proceeds of the offerings. See "Use of
Proceeds."
DILUTION
The initial public offering price is higher than the book value per outstanding
share of Common Stock. Accordingly, purchasers in the offerings will suffer
immediate and substantial dilution of $10.19 (as of June 30, 1996) in the net
tangible book value per share of Common Stock from the initial public offering
price. Additional dilution will occur upon the exercise of outstanding stock
options. See "Dilution."
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THE COMPANY
Wired Ventures, Inc. is a new kind of global, diversified media company engaged
in creating compelling, branded content. Its current businesses include
publishing Wired magazine and programming original content on the Web primarily
through the HotWired Network. The Company also launched a series of book titles
beginning in September 1996 and is developing a television program based on its
The Netizen online program. The Company believes that it has developed Wired and
HotWired into strong brands that symbolize new media and the digital age.
Although over 90% of the Company's revenues to date have been from Wired
magazine, the Company has devoted and will continue to devote substantial
resources to extend its brands into new print, online, and television media
properties.
The Company's businesses historically have been conducted in partnership and
limited liability company form through Wired Partners, a California general
partnership (from its formation in October 1992 through January 1993), Wired USA
Ltd., a California limited partnership (from its formation in January 1993
through January 1994), Wired Ventures, Ltd., a California limited partnership
(from its formation in January 1994 through May 28, 1996), and Wired Ventures,
Ltd.'s majority interest in HotWired Ventures LLC, a California limited
liability company (from its formation in January 1995 through May 28, 1996). All
operations and operating assets and liabilities resided in Wired Ventures, Ltd.
and HotWired Ventures LLC from January 1994 through May 28, 1996.
Except for the historical financial information presented in this Prospectus and
as otherwise indicated, all information in this Prospectus: (i) gives effect to
a reorganization transaction effected on May 28, 1996 in which (a) the Company
succeeded to the assets, liabilities and businesses of Wired Holdings Inc., a
California corporation, Wired USA Ltd., and Wired Ventures, Ltd. and issued
approximately 14,000,000 shares of the Company's Series A Preferred Stock
therefor (the "Recapitalization"); and (b) the Company acquired the minority
participants' interests in HotWired Ventures LLC in exchange for approximately
1,250,000 shares of the Company's Series A Preferred Stock (the "Business
Combination") (the Recapitalization and the Business Combination being
collectively referred to as the "Reorganization"); (ii) gives effect to a
financing transaction on May 28, 1996 in which 625,000 shares of the Company's
Series B Preferred Stock (convertible into 961,534 shares of Common Stock based
on an assumed initial public offering price of $13.00 per share) were issued to
investors for $20.00 in cash per share (the "Preferred Stock Financing"); (iii)
gives effect to the repricing by the Company of certain outstanding stock
options in September 1996; (iv) gives effect to a one-for-two reverse split of
the Preferred and Common Stock of the Company to be effected in October 1996;
and (v) assumes no exercise of the Underwriters' over-allotment option. Unless
otherwise indicated, all references to the "Company" in this Prospectus include
the above-named predecessors in interest to the Company as a result of the
Reorganization and the wholly owned subsidiaries of the Company: HardWired,
Inc., a Delaware corporation; HotWired, Inc., a Delaware corporation; Wired
Magazine Group, Inc., a California corporation; Wired Television, Inc., a
Delaware corporation; Wired New York, a California corporation; Wired World,
L.L.C., a Delaware limited liability company; and Wired UK, a United Kingdom
unlimited company. See "Certain Transactions" and "Description of Capital
Stock."
The Company was incorporated in Delaware in March 1996. The Company's executive
offices are located at 520 Third Street, Fourth Floor, San Francisco, California
94107, and its telephone number is (415) 276-5000.
17
<PAGE> 21
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,750,000 shares of Common
Stock offered in the offerings are estimated to be approximately $56,127,000
($64,742,000 if the Underwriters' over-allotment option is exercised in full) at
an assumed initial public offering price of $13.00 per share and after deducting
the estimated underwriting discount and offering expenses.
The principal purposes of the offerings are to obtain additional capital, to
create a public market for the Company's Common Stock, and to facilitate future
access by the Company to the public equity markets. The Company anticipates that
it will use the net proceeds primarily for product development and international
expansion. Remaining proceeds will be used for working capital and other general
corporate purposes. The Company also intends to use approximately $5.0 million
of such net proceeds for the repayment and termination of the Company's
revolving credit facility, which bears interest at a rate equal to adjusted
LIBOR plus 3.25% and is due in September 2000. The borrowings under this line of
credit have been used for direct mail activities to increase the subscription
base for Wired magazine. Although the Company may use a portion of the net
proceeds to license or acquire new products or technologies from others or to
acquire or invest in businesses complementary to the Company's current business,
the Company currently has no specific agreements or commitments in this regard.
The Board of Directors and management of the Company will have significant
flexibility in applying the net proceeds from the offerings. The amounts and
timing of the Company's actual expenditures will depend upon numerous factors,
including the status of the Company's product development efforts, competition,
and marketing and sales activities. Pending such uses, the Company intends to
invest the net proceeds from the offerings in short-term, investment-grade,
interest-bearing securities. See "Risk Factors -- No Specific Use of Proceeds."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends since its inception. The
Company currently intends to retain future earnings, if any, for use in the
operation and expansion of the business. The Company does not intend to pay any
cash dividends in the foreseeable future.
18
<PAGE> 22
DILUTION
The net tangible book value of the Company as of June 30, 1996 was approximately
$2.8 million, or $0.17 per share of Common Stock on a pro forma basis after
giving effect to the conversion of all outstanding shares of Preferred Stock
into shares of Common Stock. "Pro forma net tangible book value per share" is
determined by dividing the pro forma number of outstanding shares of Common
Stock into the net tangible book value of the Company (total tangible assets
less total liabilities). After giving effect to the sale by the Company of the
4,750,000 shares of Common Stock offered in the offerings at an assumed initial
public offering price of $13.00 per share, after deducting the estimated
underwriting discount and offering expenses, the pro forma net tangible book
value of the Company as of June 30, 1996 would have been approximately $58.9
million, or $2.81 per share of Common Stock. This represents an immediate
increase in pro forma net tangible book value of $2.64 per share to the
Company's existing stockholders and an immediate dilution in pro forma net
tangible book value of $10.19 per share to new investors purchasing shares of
Common Stock in the offerings. The following table illustrates the per share
dilution in pro forma net tangible book value to new investors:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........ $13.00
Pro forma net tangible book value per share
as of June 30, 1996............................... $0.17
Increase per share attributable to new investors..... 2.64
-----
Pro forma net tangible book value per share after the
offerings............................................ 2.81
------
Dilution per share to new investors.................... $10.19
------
</TABLE>
- --------------------------------------------------------------------------------
The following table summarizes, on a pro forma basis as of June 30, 1996,
assuming the exercise of all options to purchase Common Stock that were vested
as of June 30, 1996, the number of (and percentages of) shares of Common Stock
purchased from or issuable by the Company, the total (and percentages of)
consideration paid or to be paid to the Company and the average price per share
paid or payable by existing stockholders, vested optionholders as of June 30,
1996, and the investors purchasing shares of Common Stock in the offerings,
based upon an assumed initial public offering price of $13.00 per share (before
deducting the estimated underwriting discount and offering expenses):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION WEIGHTED
---------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------ ----------- ------ ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 16,211,518 74.8% $24,109,759 26.9% $ 1.49
Vested
optionholders(1)...... 710,089 3.3 3,792,058 4.2 5.34
New investors........... 4,750,000 21.9 61,750,000 68.9 13.00
------------------------------------------------
21,671,607 100.0% $89,651,817 100.0%
=========== ===== ============ =====
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes vested options to purchase a total of 457,908 shares, with a
weighted average exercise price of $3.78 per share, held by existing
stockholders.
The foregoing table assumes the exercise of all stock options outstanding and
vested as of June 30, 1996. Assuming such options are not exercised, the shares
purchased by new investors would represent 22.7% of the total number of shares
purchased and the consideration paid by new investors would represent 71.9% of
the total consideration paid.
The foregoing table assumes no exercise of outstanding unvested stock options.
As of June 30, 1996, there were unvested options to purchase a total of
1,389,399 shares of Common Stock with a weighted average exercise price of $9.83
per share. To the extent that any of these options are exercised, there will be
further dilution to new investors. See "Capitalization" and Note 7 of Notes to
Consolidated Financial Statements.
19
<PAGE> 23
CAPITALIZATION
The following table sets forth: (i) the capitalization of the Company as of June
30, 1996; and (ii) the pro forma capitalization of the Company as adjusted as of
such date to give effect to the conversion into shares of Common Stock of all
outstanding shares of Preferred Stock and the sale of the 4,750,000 shares of
Common Stock offered in the offerings at an assumed initial public offering
price of $13.00 per share and deduction of the estimated underwriting discount
and offering expenses.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- ----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Short-term debt............................................................... $ 5,000 $ --
--------------------
Long-term note payable........................................................ 1,226 1,226
Stockholders' equity(1):
Preferred Stock, $0.001 par value per share; 50,000,000 shares authorized,
15,874,982 shares issued and outstanding actual; 7,500,000 shares
authorized, none issued or outstanding pro forma as adjusted............. 16 --
Common Stock, $0.001 par value per share; 60,000,000 shares authorized, 2
shares issued and outstanding actual; 75,000,000 shares authorized,
20,961,518 shares issued and outstanding pro forma as adjusted(2)........ -- 21
Additional paid-in capital.................................................... 40,005 96,127
Deferred compensation......................................................... (3,960) (3,960)
Accumulated deficit........................................................... (29,491) (29,491)
Other......................................................................... 16 16
--------------------
Total stockholders' equity.................................................... $ 6,586 $ 62,713
--------------------
Total capitalization.......................................................... $ 7,812 $ 63,939
--------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) See Note 7 of Notes to Consolidated Financial Statements.
(2) Excludes: (i) 2,099,488 shares issuable upon the exercise of stock options
outstanding on June 30, 1996 with a weighted average exercise price of $8.31
per share; (ii) 2,817,903 shares reserved for future issuance under the
Company's 1996 Equity Incentive Plan; and (iii) 50,000 shares reserved for
future issuance under the Company's 1996 Non-Employee Director Stock Option
Plan.
20
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of December 31, 1994
and 1995, and for the years ended December 31, 1993, 1994, and 1995 are derived
from the consolidated financial statements of the Company, which consolidated
financial statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, and are included elsewhere herein. The
consolidated balance sheet data as of December 31, 1993 is derived from audited
consolidated financial statements of the Company that are not included in this
Prospectus. The selected consolidated financial data set forth below as of June
30, 1996 and for the six-month periods ended June 30, 1995 and 1996 are
unaudited but have been prepared on the same basis as the audited consolidated
financial statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments, that management believes
necessary for a fair presentation of the financial position and results of
operations for these periods. Historical results are not necessarily indicative
of the results of operations to be expected in the future. The selected
consolidated financial information set forth below should be read in conjunction
with "The Company," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the consolidated financial statements and notes
thereto included elsewhere in this Prospectus.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA(1):
Revenues:
Magazine.................................. $ 2,928 $ 8,833 $23,313 $ 9,542 $ 14,510
Online.................................... -- 348 1,942 803 1,118
--------------------------------------------------
Total revenues..................... 2,928 9,181 25,255 10,345 15,628
--------------------------------------------------
Costs and expenses:
Magazine production and distribution...... 2,356 7,638 14,897 6,533 9,896(2)
Online production and development......... 51 318 1,854 477 3,429(2)
Sales and marketing....................... 748 2,795 9,776 3,835 7,774(2)
General and administrative................ 797 1,967 6,661 2,703 9,479(2)
Write-off of in-process research and
development............................. -- -- -- -- 20,500
--------------------------------------------------
Total costs and expenses........... 3,952 12,718 33,188 13,548 51,078
--------------------------------------------------
Operating loss..................... (1,024) (3,537) (7,933) (3,203) (35,450)
Interest income (expense), net.............. (10) 98 156 30 (86)
Minority interest (3)....................... -- -- 427 -- 846
Wired UK preacquisition loss (3)............ -- -- 854 -- --
--------------------------------------------------
Loss before taxes........................... (1,034) (3,439) (6,496) (3,173) (34,690)
Tax expense................................. (2) (18) (9) (3) (9)
--------------------------------------------------
Net loss........................... $(1,036) $(3,457) $(6,505) $(3,176) $(34,699)
--------------------------------------------------
Pro forma net loss per share(4)........... $ (0.37) $ (2.02)
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- JUNE 30,
1993 1994 1995 1996
------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 645 $ 1,750 $ 7,234 $ 12,491
Working capital (deficit).................... (12) (797) (1,244) 316
Total assets................................. 1,859 5,111 13,218 24,576
Long-term note payable....................... -- -- 1,185 1,226
Accumulated deficit.......................... (1,252) (4,709) (11,214) (29,491)
Total stockholders' equity (deficit)......... (381) (153) (1,507) 6,586
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company began operations in October 1992. For the period from October
1992 (inception) to December 31, 1992, the Company had no revenues and the
net loss was approximately $216,000.
(2) For the six months ended June 30, 1996, magazine production and
distribution, online production and development, sales and marketing, and
general and administrative expenses included non-cash compensation expense
relating to stock options granted and stock issued of $1.3 million,
$595,000, $480,000, and $3.6 million, respectively.
(3) See Note 4 of Notes to Consolidated Financial Statements.
(4) See Note 2 of Notes to Consolidated Financial Statements. In accordance with
APB Statement No. 15, net loss per share has been supplementally computed
assuming the issuance as of the beginning of each period presented of a
sufficient number of shares of Common Stock in the offerings to permit
repayment of the Company's revolving credit facility with the net proceeds
thereof. The resulting supplemental net loss per share amounts for the year
ended December 31, 1995 and the six months ended June 30, 1996 would have
been $(0.37) and $(1.99), respectively.
21
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the consolidated financial
statements and the notes thereto included elsewhere in this Prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors
including, but not limited to, those discussed in "Risk Factors" and elsewhere
in this Prospectus.
OVERVIEW
The Company commenced operations in October 1992. Wired magazine was launched in
January 1993 and is now in its fourth year of publishing. In October 1994, the
Company launched the HotWired Network, a network of online content sites
available on the Web. The Company is actively pursuing the extension of its
editorial and creative vision to other media, including books and television,
and the development of new media products, including online media properties,
magazines, books, television, and international editions of existing media
products.
From inception through June 30, 1996, the Company generated cumulative revenues
of approximately $53.0 million, more than 90% of which were attributable to
magazine operations, and realized cumulative operating losses of approximately
$48.2 million. Although the Company has experienced significant growth in
revenues each year since its inception, prior growth rates are not necessarily
indicative of future operating results. Due to the Company's limited operating
history and limited resources, among other factors, there can be no assurance
that profitability or significant revenues on a quarterly or annual basis will
be realized in the future. Moreover, the Company expects to continue to incur
operating losses through at least 1997.
Since its inception, the Company has experienced substantial growth, which has
required it to significantly increase the scale of its operations and,
correspondingly, its operating expenses. The increase in operating expenses
reflects the hiring of additional personnel in all functional areas, an increase
in sales and marketing activities, and the funding of development of new
products and technologies. The Company expects that operating expenses will
increase faster than revenues for at least the next 18 months and, as a result,
the Company expects to incur operating and net losses through at least 1997.
There can be no assurance that the Company can maintain or increase its revenues
in the future to offset its increased operating expenses.
The Company recognizes print advertising revenue and magazine production costs
at the time the issue is circulated. Subscription circulation revenue for Wired
magazine is deferred and recognized over the life of the subscription period,
generally one to two years. Sales to single copy distributors are recognized as
revenue in the month of distribution utilizing historical experience to estimate
the ultimate single copy sales of magazines. The Company recognizes online
advertising revenue over the period in which the advertisements are displayed.
Product development expenditures are expensed as incurred.
The Company's businesses historically have been conducted in partnership and
limited liability company form through Wired Partners, Wired Holdings Inc.,
Wired USA Ltd., Wired Ventures, Ltd., and Wired Ventures, Ltd.'s majority
ownership interest in HotWired Ventures LLC. The Reorganization, which resulted
in the restructuring of the Company into its current holding company/operating
company structure, was completed in May 1996. See "The Company." The
Recapitalization component of the Reorganization, which consisted of the
combination of the various equity interests in Wired Ventures, Ltd., including
those of Wired Holdings Inc. and Wired USA Ltd., to form Wired Ventures, Inc.,
reflects a combination of companies under common control and has been accounted
for on a historical cost basis. The Business Combination component of the
Reorganization, which consisted of the acquisition of the minority interests in
HotWired Ventures LLC, has been accounted for under the purchase method. The
allocation of the purchase price of the minority interests in HotWired Ventures
LLC included the recording of intangible assets, net of deferred income taxes,
of approximately $24.5 million,
22
<PAGE> 26
of which approximately $20.5 million was expensed in the second quarter of 1996
as in-process research and development in a one-time, non-cash charge. The $4.0
million balance of these intangible assets will be amortized over their
estimated useful lives of three years.
The Company has recorded deferred compensation of $9.9 million for the
difference between the grant price and the deemed fair market value of the
Company's Common Stock for shares subject to options granted and stock issued in
the first six months of 1996. Of such amount, $6.0 million was recognized in the
six months ended June 30, 1996 and the balance will be amortized over the
remaining vesting period of the options, including $430,000 and $380,000 to be
recognized in the three months ended September 30, 1996 and the three months
ending December 31, 1996, respectively.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues, consolidated
statement of operations data for the periods indicated:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
--------------------- -------------
1993 1994 1995 1995 1996
--- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Revenues:
Magazine......................................... 100 % 96 % 92 % 92 % 93%
Online........................................... -- 4 8 8 7
------------------------------------------
Total revenues............................ 100 100 100 100 100
------------------------------------------
Costs and expenses:
Magazine production and distribution............. 80 83 59 63 63
Online production and development................ 2 4 7 5 22
Sales and marketing.............................. 26 31 39 37 50
General and administrative....................... 27 21 26 26 61
Write-off of in-process research and
development.................................... -- -- -- -- 131
------------------------------------------
Total costs and expenses.................. 135 139 131 131 327
------------------------------------------
Operating loss............................ (35 ) (39 ) (31 ) (31 ) (227)
Minority interest.................................. -- -- 2 -- 5
Wired UK preacquisition loss....................... -- -- 3 -- --
Net loss.................................. (35 )% (39 )% (26 )% (31 )% (222)%
------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
Revenues
Magazine revenues consist principally of print advertising and circulation
(subscription and single copy sales) revenues. Online revenues consist of
advertising revenues. Total revenues were $2.9 million, $9.2 million, and $25.3
million in 1993, 1994, and 1995, respectively. Total revenues were $10.3 million
and $15.6 million for the six months ended June 30, 1995 and 1996, respectively.
The increases were attributable to increases in all components of revenue. Print
advertising revenues were $1.6 million, $4.5 million, and $14.8 million for
1993, 1994, and 1995, respectively. Print advertising revenues were $5.4 million
and $8.4 million for the six months ended June 30, 1995 and 1996, respectively.
The increases in print advertising revenues from 1993 to 1995 were primarily due
to increases in the number of advertising pages per issue and increased
advertising rate bases corresponding to increased circulation. The increase in
print advertising revenues from the six months ended June 30, 1995 to the six
months ended June 30, 1996 was primarily attributable to increased advertising
rate bases corresponding to increased circulation, partially offset by a
decrease in the average number of advertising pages per issue. The advertising
rate base per issue was not reported until October 31, 1994, when it was first
reported as 100,000. From that time, it was: 100,000 until December 31, 1994;
130,000 from January 1, 1995 to January 31, 1995; 170,000 from February 1, 1995
to July 31, 1995; 240,000 from
23
<PAGE> 27
August 1, 1995 to December 31, 1995; 300,000 from January 1, 1996 to July 31,
1996; and 325,000 from August 1, 1996 to the present. The average number of
advertising pages per issue was 32, 60, and 102 in 1993, 1994, and 1995,
respectively. The average number of advertising pages per issue was 97 and 95
for the six months ended June 30, 1995 and 1996, respectively. The Company
expects the average number of advertising pages per issue to vary from quarter
to quarter; however, to date the number of advertising pages in the last three
issues of the calendar year has been generally higher than other issues.
Circulation revenues were $1.3 million, $4.0 million, and $7.8 million in 1993,
1994, and 1995, respectively. Circulation revenues were $3.7 million and $5.2
million for the six months ended June 30, 1995 and 1996, respectively. The
increases in circulation revenues were attributable to increased subscriptions
and, to a lesser extent, increased single copy sales. While the Company cannot
predict with certainty the amounts or sources of its future revenues, it
currently anticipates that subscription revenues will increase as a percentage
of total revenues.
Online advertising revenues were $348,000 and $1.9 million in 1994 and 1995,
respectively, and there were no online advertising revenues in 1993. Online
advertising revenues were $803,000 and $1.1 million for the six months ended
June 30, 1995 and 1996, respectively. The increases in online revenues were
primarily due to growth in the number of advertisements on the HotWired Network.
While the Company cannot predict with certainty the amounts or sources of its
future revenues, it currently anticipates that online advertising revenues will
increase as a percentage of total revenues.
Magazine Production and Distribution Costs
Magazine production and distribution costs include editorial, production, and
design expenditures associated with the Company's magazine products. Magazine
production and distribution costs were $2.4 million, $7.6 million, and $14.9
million in 1993, 1994, and 1995, respectively. Magazine production and
distribution costs were $6.5 million and $9.9 million for the six months ended
June 30, 1995 and 1996, respectively. Approximately $1.3 million of these costs
for the six months ended June 30, 1996 are attributable to the amortization of
deferred compensation expense. Excluding this compensation expense, the
increases are attributable to the growth in circulation of Wired magazine and
the costs associated with increased staffing in the editorial and design areas.
Magazine production costs as a percent of magazine revenues increased from 80%
in 1993 to 86% in 1994 and declined to 64% in 1995, and to 59% for the first six
months of 1996 (excluding amortization of deferred compensation expense). The
overall decline in magazine production and distribution costs as a percent of
magazine revenues was primarily attributable to the increase in magazine
advertising revenues as a percentage of magazine revenues, increased operating
efficiencies, and a change in the mix of single copy sales and subscriptions as
components of total circulation. Subscription revenues, which generally carry
lower distribution costs per unit sold than single copy revenues, have increased
as a percentage of total circulation revenues in each period presented. The
Company expects magazine production costs to increase in absolute dollars to the
extent its circulation increases, but to remain relatively flat or decline as a
percentage of magazine revenues. However, there can be no assurance that the
Company's magazine revenues will grow at a rate equal to or exceeding that of
its magazine production and distribution costs, if at all.
Online Production and Development Costs
Online production and development costs consist primarily of the payroll costs
associated with developing, producing, and delivering content on the Company's
online media properties. Online production costs were $51,000, $318,000, and
$1.9 million in 1993, 1994, and 1995, respectively. Online production and
development costs were $477,000 and $3.4 million for the six months ended June
30, 1995 and 1996, respectively. Approximately $595,000 of these costs for the
six months ended June 30, 1996 are attributable to the amortization of deferred
compensation expense. Excluding this compensation expense, these increases were
attributable to increased staffing of editorial, design, engineering, and
production departments to expand the Company's online programming. The Company
anticipates substantial increases in online production costs in the future as it
increases the scope of its online activities. There can be no
24
<PAGE> 28
assurance that the Company will be able to generate sufficient online revenues
to cover its online production costs, and failure to do so will have a material
adverse effect on the Company's business, financial condition, and operating
results.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of direct mail costs associated
with Wired magazine, payroll and related expenses, consulting fees, commission
paid to sales representatives, and advertising expenses. Sales and marketing
expenses were $748,000, $2.8 million, and $9.8 million in 1993, 1994, and 1995,
respectively. Sales and marketing expenses were $3.8 million and $7.8 million
for the six months ended June 30, 1995 and 1996, respectively. Approximately
$480,000 of these costs for the six months ended June 30, 1996 are attributable
to the amortization of deferred compensation expense. Excluding this
compensation expense, these increases primarily resulted from expenditures on
direct marketing campaigns for Wired magazine of $11,000, $1.6 million, and $5.7
million in 1993, 1994, and 1995, respectively, and $1.4 million and $4.4 million
for the six months ended June 30, 1995 and 1996, respectively. In addition, a
portion of such increases is attributable to adding six new employees to the
online sales force during the latter part of 1995. The Company anticipates a
substantial increase in sales and marketing expenses in the future, both in
absolute dollars and as a percentage of revenues, as it expands its print,
online, and broadcast efforts.
General and Administrative Expenses
General and administrative expenses consist of payroll and related expenses for
executive, finance, and administrative personnel, professional fees, and other
general corporate expenses. General and administrative expenses were $797,000,
$2.0 million, and $6.7 million in 1993, 1994, and 1995, respectively. General
and administrative expenses were $2.7 million and $9.5 million for the six
months ended June 30, 1995 and 1996, respectively. Approximately $3.6 million of
these costs for the six months ended June 30, 1996 are attributable to the
amortization of deferred compensation expense. Excluding this compensation
expense, these increases are primarily attributable to the growth in the
Company's finance, senior management, and support personnel associated with the
online business. The Company expects general and administrative expenses to
increase in absolute dollars in future periods as the Company incurs additional
costs related to being a public company and expands its administrative staff and
facilities.
Write-off of In-Process Research and Development
The acquisition of minority interests in HotWired Ventures LLC, which has been
accounted for using the purchase method, resulted in the recording of intangible
assets of approximately $24.5 million, net of deferred taxes, of which
approximately $20.5 million has been expensed as in-process research and
development as a one-time, non-cash charge during the six months ended June 30,
1996. See Note 4 of Notes to Consolidated Financial Statements.
Minority Interest
Minority interest represents the minority participants' share of the losses of
HotWired Ventures LLC prior to the Business Combination. See Note 4 of Notes to
Consolidated Financial Statements.
Wired UK Preacquisition Loss
In 1994, the Company entered into a joint venture with Guardian Media Group plc
("Guardian") for the purpose of publishing the United Kingdom version of Wired
magazine. At formation, the Company contributed the right to use certain
intellectual property to the joint venture and Guardian contributed cash of
approximately $216,000 in exchange for their respective 50% interests. In July
1995, the Company purchased Guardian's 50% interest in the joint venture for a
nominal amount. The Company recorded this acquisition using step acquisition
accounting, has included the joint venture in its consolidated financial
statements as though it had been
25
<PAGE> 29
acquired at the beginning of 1995, and has recorded in its consolidated
statement of operations the preacquisition losses applicable to Guardian's 50%
interest up to the date of acquisition. As a result, in 1995 the Company reduced
its net loss by the $854,000 of preacquisition losses attributable to Guardian's
interest in Wired UK up to the date of the acquisition. See Note 4 of Notes to
Consolidated Financial Statements.
Income Taxes
From inception until the Recapitalization, because the Company was incurring net
operating losses but was operating as a series of "flow through" entities
(partnerships, "S" corporations, and limited liability companies) for tax
purposes, it incurred minimal income tax expenses and has minimal net operating
loss ("NOL") carryforwards. As a result of the Reorganization and incorporation
of the Company's businesses into a taxable "C" corporation, losses incurred by
the Company following the Reorganization will result in the accumulation of NOL
carryforwards. Such NOL carryforwards should be available to offset future
profits, if any.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited consolidated statement of
operations data for each of the four quarters of 1995 and the first two quarters
of 1996, as well as the percentage of the Company's total revenues represented
by each item. The unaudited consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements contained
herein and, in the opinion of management, contain all adjustments, consisting
only of normal recurring adjustments, that management believes necessary for a
fair presentation of the financial position and results of operations for such
periods. Such data should be read in conjunction with the Company's consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
In view of the Company's recent growth and other factors, the Company believes
that quarter-to-quarter comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996
------ ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Magazine............................ $ 3,936 $5,606 $ 5,846 $ 7,925 $ 7,124 $ 7,386
Online.............................. 342 461 545 594 497 621
---------------------------------------------------------
Total revenues............... 4,278 6,067 6,391 8,519 7,621 8,007
---------------------------------------------------------
Costs and expenses:
Magazine production and
distribution...................... 3,147 3,386 3,448 4,916 4,309 5,587
Online production and development... 166 311 527 850 1,245 2,184
Sales and marketing................. 1,952 1,883 1,974 3,967 3,397 4,377
General and administrative.......... 1,444 1,259 1,601 2,357 2,510 6,969
Write-off of in-process research and
development....................... -- -- -- -- -- 20,500
---------------------------------------------------------
Total costs and expenses..... 6,709 6,839 7,550 12,090 11,461 39,617
---------------------------------------------------------
Operating loss............... (2,431 ) (772) (1,159) (3,571 ) (3,840 ) (31,610 )
Interest income (expense), net........ 15 15 42 84 (11 ) (75 )
Minority interest..................... -- -- 107 320 499 347
Wired UK preacquisition loss.......... -- -- 854 -- -- --
---------------------------------------------------------
Loss before taxes..................... (2,416 ) (757) (156) (3,167 ) (3,352 ) (31,338 )
Tax expense........................... (2 ) (1) (2) (4 ) (9 ) --
---------------------------------------------------------
Net loss..................... $(2,418 ) $ (758) $ (158) $(3,171 ) $(3,361 ) $(31,338)
---------------------------------------------------------
</TABLE>
26
<PAGE> 30
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996
------ ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
PERCENT OF TOTAL REVENUES DATA:
Revenues:
Magazine............................ 92 % 92% 91% 93 % 93 % 92 %
Online.............................. 8 8 9 7 7 8
---------------------------------------------------------
Total revenues............... 100 100 100 100 100 100
Costs and expenses:
Magazine production and
distribution...................... 73 56 54 58 56 70
Online production and development... 4 5 8 10 16 27
Sales and marketing................. 46 31 31 46 45 55
General and administrative.......... 34 21 25 28 33 87
Write-off of in-process research and
development....................... -- -- -- -- -- 256
---------------------------------------------------------
Total costs and expenses..... 157 113 118 142 150 495
---------------------------------------------------------
Operating loss............... (57 ) (13) (18) (42 ) (50 ) (395 )
Interest income (expense), net........ -- -- 1 1 -- (1 )
Minority interest..................... -- -- 2 4 6 4
Wired UK preacquisition loss.......... -- -- 13 -- -- --
---------------------------------------------------------
Net loss..................... (57 )% (13)% (2)% (37 )% (44 )% (392 )%
---------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
The Company experienced a significantly larger net loss in the second quarter of
1996 compared to prior quarters partially as a result of two non-cash charges.
First, the Company's acquisition of minority interests in HotWired Ventures LLC
resulted in a one-time expense of $20.5 million attributable to the acquisition
of in-process research and development. Second, the Company recorded
compensation expense totaling approximately $6.0 million of the total $9.9
million of deferred compensation expense attributable to stock options granted
and stock issued during the first six months of 1996. The following discussion
excludes the impact of these charges.
The Company currently expects that its total revenues and net loss for the
quarter ended September 30, 1996 will be in the range of $9.1 million to $9.4
million and $7.3 million to $7.6 million, respectively. The increase in total
revenues will be primarily due to higher online advertising revenues, which have
nearly doubled from the quarter ended June 30, 1996 as a result of the
introduction of HotBot and other new online properties, and an increase in the
number of advertising pages sold in Wired magazine. Excluding the impact of
$26.4 million in non-cash charges recorded in the second quarter of 1996 and the
related amortization of deferred compensation expense and intangible assets of
approximately $700,000 in the third quarter of 1996, the net loss is anticipated
to increase from the second quarter to the third quarter primarily as a result
of additional growth in online development and marketing activities and the
introduction of a direct mail campaign to build the circulation of the United
Kingdom edition of Wired magazine.
Magazine revenues increased from quarter to quarter in 1995 and from quarter to
quarter in 1996, reflecting the impact of growth in the subscriber base on
advertising rate bases. Over the quarterly periods presented, the Company's paid
circulation base has grown from an average of 200,000 for the first quarter of
1995 to an estimated 305,000 for the second quarter of 1996. This increase
fueled growth in the Company's average advertising rate base per issue, which
grew from 156,000 for the first quarter of 1995 to 300,000 for the second
quarter of 1996. The increase in magazine revenues from the third quarter of
1995 to the fourth quarter of 1995 as well as the decrease in magazine revenues
from the fourth quarter of 1995 to the first quarters of 1996 are the result of
seasonal factors that generally result in higher advertising revenues during the
fourth quarter. Average advertising pages per issue were 97 in the third quarter
of 1995, growing to 113 for the fourth quarter of 1995. The Company further
capitalized on these seasonal factors by issuing a special 13th edition of the
magazine in the fourth quarter of 1995.
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<PAGE> 31
Online revenues have generally increased from quarter to quarter, reflecting the
impact of increased traffic to, and thus increased capacity for advertising on,
the HotWired Network. Online revenues decreased from the fourth quarter of 1995
to the first quarter of 1996, reflecting the impact of eliminating from the
HotWired Network one program that was not meeting the Company's expectations.
Generally, the Company's costs and expenses as a percentage of revenue were
higher in the first and fourth quarters of 1995 and the first and second
quarters of 1996 resulting from two distinct development phases of the Company's
business. During the first quarter of 1995, the Company was focused on building
the circulation base of Wired magazine, and during the fourth quarter of 1995
and the first and second quarters of 1996, the Company was expanding its online
programming operations. Magazine production and distribution costs have
increased from quarter to quarter, reflecting the impact of growing circulation.
Magazine production and distribution costs as a percentage of magazine revenues
were higher in the first quarter of 1995 as compared to the second and third
quarters of 1995 as a result of a higher proportion of single copy sales in
total circulation during the first quarter of 1995, and was higher in the fourth
quarter of 1995 as a result of the production of a special edition of the
magazine during the period. Online production costs, sales and marketing
expenses, and general and administrative expenses increased most notably in the
fourth quarter of 1995 and first and second quarters of 1996 as the online
business developed and expanded its editorial, production, design, engineering,
senior management, and finance staffs. Sales and marketing expenses as a
percentage of total revenues were higher during the first and fourth quarters of
1995 and the first and second quarters of 1996 due to the costs of significant
direct mail campaigns undertaken in such periods.
Partly as a result of the emerging nature of the markets in which the Company
competes, the Company is unable to accurately forecast its future revenues. The
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall, and a shortfall in actual revenues as compared
to estimated revenues would have an immediate material adverse effect on the
Company's business, financial condition, and operating results. In addition, the
Company currently intends to increase substantially its operating expenses to
develop new online and television programming, magazines, and books, and to
expand its sales and marketing activities. To the extent that such expenses
precede or are not subsequently followed by increased revenues, the Company's
business, financial condition, and operating results will be materially and
adversely affected.
As a result of the Company's limited operating history, the Company does not
have relevant historical financial information for a significant number of
periods on which to base planned revenues and operating expenses. The Company
expects to experience significant fluctuations in future quarterly and annual
operating results that may be caused by many factors, including (i) the seasonal
nature of the advertising business, where the second and fourth calendar
quarters for magazine publishing are generally characterized by higher
advertising revenues; (ii) the ability of the Company to maintain or increase
the paid circulation for Wired magazine and future publications; (iii) the cost
of paper, postage, and other costs associated with magazine production and
distribution; (iv) the ability to maintain or increase print and online
advertising rate bases; (v) the ability to reasonably predict newsstand and
store sales of its magazines and books and thereby limit the returns of unsold
products; (vi) the anticipated increases in operating expenses to support the
expansion of its existing print and online businesses, the development of new
magazine and online content sites, and the Company's book publishing and
television efforts; (vii) the size and rate of growth of the market for Internet
products and online content; (viii) the introduction by others of products that
are competitive with those of the Company; and (ix) the general economic
conditions in the United States and worldwide. As a result of the foregoing,
period-to-period comparisons of the Company's results of operations are not
necessarily meaningful and should not be relied upon as an indication of future
performance.
The Company believes that advertising sales in traditional media, such as
magazines and television, are generally lower in the first and third calendar
quarters than in the respective
28
<PAGE> 32
preceding quarters and that advertising expenditures fluctuate significantly
with economic cycles. Depending on the extent to which the Web is accepted as an
advertising medium, seasonality and cyclicality in the level of advertising
expenditures generally could become more pronounced for Web advertising.
Seasonality and cyclicality in advertising expenditures generally, or with
respect to Web-based advertising specifically, could have a material adverse
effect on the Company's business, financial condition, or operating results.
Due to all of the foregoing factors, it is likely that the Company's operating
results will fall below the expectations of the Company, securities analysts, or
investors in some future quarter. In such event, the trading price of the Common
Stock will be materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily through
private sales of equity securities, the sale of products and advertising, and
debt. Through June 30, 1996, the Company raised approximately $28.0 million from
the sale of equity interests in private financings and debt. In 1993, 1994, and
1995, the Company used $769,000, $1.1 million, and $3.3 million, respectively,
in operating activities. In the six months ended June 30, 1996, the Company used
$8.2 million in operating activities. Since inception, cash used in operating
activities resulted primarily from operating losses and increases in accounts
receivable associated with the increases in revenues, partially offset by
increases in accrued expenses and deferred subscription revenues.
In 1993, 1994, and 1995 and for the six months ended June 30, 1996, the
Company's investing activities consisted primarily of purchases of capital
equipment, primarily computer and communications equipment and software. Capital
expenditures were $53,000, $688,000, $1.5 million, and $1.3 million in 1993,
1994, 1995, and the six months ended June 30, 1996, respectively. The Company
had no material commitments for capital expenditures as of June 30, 1996. The
Company expects that its capital expenditures will increase as the Company's
employee base continues to grow.
In September 1996, the Company secured a commitment from Signet Bank ("Signet")
under which Signet will make available to the Company a new credit facility of
$10.0 million in place of the existing $6.5 million line of credit it has
provided to the Company. Outstanding borrowings under the line of credit
facility will be secured by all tangible and intangible assets of the Company.
The agreement prescribes that the first $5.0 million borrowed under the line of
credit facility be used to repay the Company's existing short-term bank debt of
$5.0 million. The remaining $5.0 million may be used to fund operating expenses.
The Company will use $5.0 million of the net proceeds of the offerings to repay
its existing short-term bank debt and does not anticipate any borrowings under
the new credit facility. See Note 12 of Notes to Consolidated Financial
Statements.
At August 31, 1996, the Company had cash and cash equivalents of $6.8 million
and a working capital deficiency of $3.5 million. The Company believes that the
net proceeds from the sale of the Common Stock to be sold in the offerings will
be sufficient to meet its product development, international expansion, working
capital and capital expenditure requirements through at least the end of 1997.
However, the Company may need to raise additional funds in order to support more
rapid expansion, develop new or enhance existing products, respond to
competitive pressures, acquire complementary businesses, assets or technologies,
or respond to unanticipated requirements. The Company may seek to raise
additional funds through private or public sales of securities, strategic
relationships, bank or lease financings, or otherwise. If additional funds are
raised through the issuance of equity securities, the percentage ownership of
the stockholders of the Company will be reduced, stockholders may experience
additional dilution, and such securities may have rights, preferences, and
privileges senior to those of the holders of the Company's Common Stock. There
can be no assurance that additional financing will be available when needed on
terms favorable to the Company, if at all. If adequate funds are not available
or are not available on acceptable terms, the Company may be unable to develop
new or enhance existing products, take advantage of future opportunities, or
respond to competitive pressures or unanticipated requirements, which would have
a material adverse effect on the Company's business, financial condition, and
operating results.
29
<PAGE> 33
BUSINESS
The following discussion of the Company's business contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors including, but not limited to, those
set forth under "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
Wired Ventures, Inc. is a new kind of global, diversified media company engaged
in creating compelling, branded content. Its current businesses include
publishing Wired magazine and programming original content on the Web primarily
through its HotWired network of online content sites (the "HotWired Network").
The Company also launched a series of book titles in September 1996, and is
developing a television program based on its The Netizen online program. The
Company believes that it has developed Wired and HotWired into strong brands
that symbolize new media and the digital age. Although over 90% of the Company's
revenues to date have been from Wired magazine, the Company has devoted and will
continue to devote substantial resources to extend its brands into new print,
online, and television media properties.
Wired magazine and the Company's online content sites have award-winning content
and design that have attracted large and rapidly growing audiences with young,
well educated, and affluent demographics that the Company believes are highly
sought after by advertisers. The Company also believes that with its creative,
research, technological, sales, and management expertise, and its established
brands, it has created a platform from which to launch additional brands across
multiple media. In addition, the Company believes that its brands and media
properties are well positioned to capitalize on the expected growth of the use
of the Internet and the Internet advertising market. A report by Forrester
Research in May 1996 estimated that the market for advertising on the Internet
will reach $80 million in 1996 and will reach $4.8 billion by 2000.
MISSION AND STRATEGY
The Company aims to create smart media for smart people around the world - high
quality information and entertainment products aimed at a well educated,
affluent, technologically savvy, and influential consumer group. Its mission is
to build a new kind of global, diversified media company for the 21st century
utilizing its ability to create compelling, branded content with attitude across
multiple media, its technological and research capabilities, its strong
connection to consumers and advertisers, and its commitment to journalistic and
artistic excellence. The Company's strategy to achieve its mission includes the
following elements:
Create Smart Media For Smart People Around The World
The Company believes that creating high quality information and entertainment
products aimed at a well educated, affluent, technologically savvy, and
influential consumer group is the key to sustaining the rapid growth of its
audiences, attracting advertisers, and maintaining advertising rates generally
higher than those of its competitors. In addition, the Company believes that by
focusing on a demographic group that includes today's thought leaders and early
adopters of new ideas and technologies, it will also attract a broader group of
consumers who are influenced by this group's ideas and viewpoints.
Leverage Existing Brands and Create New Brands
The Company believes it has developed Wired, HotWired, and their related brands
into brands that symbolize new media and the digital age. The Company intends to
strengthen its existing brands by continuing to publish compelling print and
online content for growing audiences and extending its existing brands across
media including books and television. In addition, the
30
<PAGE> 34
Company intends to apply its creative resources and its expertise to develop new
brands with distinct creative visions for print, online, and television. The
Company believes that this diversification will enable it to create products
that appeal to wider audiences with demographic characteristics similar to those
of its existing consumers. The Company also believes that its HotWired Network
and other online media properties provide a platform from which to rapidly and
cost-effectively launch and test new brands, which can then be extended across
media.
Expand Globally
The Company's products are available to consumers worldwide by subscription or
through the Web. Localized editions of Wired magazine, which contain a
significant amount of original content, are currently published in Japan and the
United Kingdom. The Company also expects to publish material in the German
language in 1997, possibly through a joint venture with one or more German media
companies. The Company believes that it has gained valuable experience from its
Japanese and United Kingdom publishing activities. The Company intends to
leverage this experience to new opportunities to broaden the global production
and dissemination of its branded products and to create additional localized
editions of its print and online properties.
Increase Technological Leadership
The Company believes it is a leader in the development of new technologies for
online media properties and intends to increase its technological capabilities
in the future. The Company develops and acquires proprietary software
technologies to deliver online content and services with advanced features that
help create a richer experience for its users and strengthen advertiser
relationships.
Capitalize on Consumer Profiling Capabilities
The Company believes that its ability to target and develop relationships with
its consumers will enhance the success of its media properties. In addition to
collecting and maintaining profiles of its magazine readers, the Company uses
proprietary technologies to obtain, manage, and analyze large amounts of
volunteered or observed data regarding its online users. This information is
then used by the Company's sales team in soliciting specific advertiser
categories. It is also used by the Company's online advertisers to target
particular users with advertising messages and by the Company to generate
personalized editorial material for its online users. The Company also
frequently surveys a panel of more than 65,000 online members that have
volunteered to answer in-depth queries. The Company believes these capabilities
enable it to develop and refine its own content, enhance the user's experience,
and develop and strengthen its relationships with advertisers, thereby
supporting its premium advertising rates.
Develop Unique Advertising Programs
The Company intends to continue developing unique advertising programs that
increase advertiser retention rates and leverage the favorable demographics of
Wired magazine, the HotWired Network, and the Company's other products. To date,
these programs have included advertising packages that involve placement across
different Wired products, online placements that directly associate an
advertiser's product with editorial content, and increased access to the
Company's online marketing research and experience in exchange for increased
advertising commitments. In addition, the Company is developing new forms of
commercial sponsorship whereby the sponsor gains the full benefit of co-branding
program content in exchange for ongoing financial and co-marketing commitments
to the program. For example, the Levi Strauss Dockers(R) brand became the
exclusive sponsor of the HotWired Network's Dream Jobs program in September
1996.
Develop and Maintain Strategic Relationships
Strategic relationships with publishers, online media, and television
programmers and distributors are important to the Company's success. The Company
develops and maintains such strategic relationships to expand brand awareness
and to extend the reach of its products
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<PAGE> 35
through product and content distribution, expansion into international markets,
and the development of products for different media. For example: the Company is
developing a new television program based on its The Netizen online program with
funding partially provided under an agreement with MSNBC Cable Channel, L.L.C.;
is publishing the Japanese edition of Wired magazine through a license agreement
with Dohosha Publishing Co., Ltd.; is operating HotBot through a strategic
alliance with Inktomi Corporation; and is developing content for future
distribution through emerging interactive media channels in conjunction with
several strategic partners, including the @Home Network and the PointCast
Network.
The Company's strategy involves substantial risk. There can be no assurance that
the Company will be successful in implementing its strategy or that its
strategy, even if implemented, will lead to growth or profitability of the
Company. If the Company is unable to implement its strategy effectively, the
Company's business, financial condition, and operating results would be
materially adversely affected.
PRODUCTS
Wired Magazine -- United States Edition
Background. Wired magazine was launched in January 1993 to cover the Digital
Revolution, a term popularized by the Company that describes the profound
changes caused by convergence of the computer, media, and communications
industries. With Wired magazine's blend of leading-edge editorial and highly
innovative design, the Company has created a unique magazine genre. Wired is not
a computer magazine; it is about the people, companies, and ideas of the Digital
Revolution.
Wired magazine's standard monthly departments and columns include:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Rants & Raves: Reader feedback
Electric Word: Bulletins from the front line of the Digital Revolution
Fetish: The latest objects of technolust
Scans: People, companies, and ideas that matter
Reality Check: The real timetable for the implementation of new
technologies
Follow the Money: The art of the deal
Deductible Junkets: Conferences and events for the digital vanguard
Electrosphere: Short features on topics important to the Digital
Revolution
Idees Fortes: One-page pieces about interesting ideas
Street Cred: User criticism of software, hardware and new media
products
Net Surf: Notable sites on the Web
Nicholas Negroponte: Insight and ideas from MIT's Media Lab Director
</TABLE>
- --------------------------------------------------------------------------------
In addition to retaining its own staff writers, the Company draws from a
community of well known contributors, including: Steven Levy, the author of
Hackers; Po Bronson, the author of Bombardiers; Esther Dyson, Chair of the
Electronic Frontier Foundation and publisher of Release 1.0; Nicholas
Negroponte, Director of the MIT Media Lab and the author of Being Digital; Mitch
Kapor, founder of Lotus Development Corporation; John Perry Barlow, the author
of The Economy of Ideas; and Paul Saffo, Research Fellow at the Institute for
the Future.
Wired magazine's growth has been strong from its launch, as shown in the
following table:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
PAID AVERAGE CIRCULATION
CIRCULATION ADVERTISING FROM
AT PERIOD REVENUES SUBSCRIPTIONS
PERIOD END PER ISSUE AT PERIOD END
------ --------- ---------- ------------
<S> <C> <C> <C>
1993............................................ 90,000 $ 265,000 25%
1994............................................ 168,000 $ 377,000 37%
1995............................................ 261,000 $1,136,000 60%
First Nine Months of 1996....................... 325,000 (est.) $1,510,000 (est.) 67% (est.)
</TABLE>
- --------------------------------------------------------------------------------
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<PAGE> 36
Awards. Wired magazine has been reviewed favorably by industry sources. Listed
below are some of the awards that Wired magazine has received:
- --------------------------------------------------------------------------------
American Society of Magazine Editors: National Magazine Award for General
Excellence (1994)
American Society of Magazine Editors: National Magazine Award for Design (1996)
ADWEEK Magazine: Startup of the Year Award (1993)
Digital Hollywood Awards: Best Digital Magazine (1995 and 1996)
Folio Magazine: Editorial Excellence Award (1994, 1995, and 1996)
International Press Awards: Best International Smaller Publisher (1994)
Tenth Annual Computer Press Awards: Best Broad Interest Magazine (1994)
- --------------------------------------------------------------------------------
Demographics. Wired magazine's readership is young, affluent, and well
educated. The Company believes this group is largely comprised of people who are
influential in making corporate and household purchasing decisions and are
therefore highly sought after by advertisers. Based on an independent survey
conducted by Intelliquest in 1995, the Company believes that Wired magazine was
the magazine most effective in reaching senior management involved in worksite
computer software purchase decisions, surpassing such competitors as Fortune, PC
Magazine, and Business Week. Wired magazine's 1995 Subscriber Survey, conducted
by Beta Research Corp., showed that readers of Wired magazine spend an average
of over two hours reading each issue of Wired magazine, a statistic the Company
believes compares favorably with that of its competitors, and revealed the
following demographics:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Average age.......................................................... 37
Average annual household income...................................... $122,000
Average household net worth.......................................... over $600,000
Percent with post-graduate study..................................... 48%
Percent working in managerial positions.............................. 52%
</TABLE>
- --------------------------------------------------------------------------------
Advertisers. Wired magazine's advertisers range from consumer goods companies
to computer software and hardware vendors. Wired magazine's top 50 advertisers
in terms of advertising revenues for the first nine issues of 1996 are:
- --------------------------------------------------------------------------------
Absolut Vodka
Accent Worldwide Inc.
Acer, Inc.
Anheuser-Busch
Companies, Inc.
(Budweiser division)
Apple Computer, Inc.
Bayer Corporation
Calvin Klein Inc.
Chrysler Corporation
COMPAQ Computer
Corporation
Computerworld
Connectix Corporation
Data Translation, Inc.
Decker Outdoor Corp. (Teva)
Dewar's
Digital Equipment
Corporation
Epson America, Inc.
Fujitsu Ltd.
The GAP, Inc.
Global Village
Communication, Inc.
Grand Metropolitan PLC
H&R Block, Inc.
The Hewlett-Packard
Company
Hitachi, Ltd.
In Focus Systems Inc.
Intel Corporation
International Business
Machines Corporation
International Data Group
Kingston Technology Corp.
l.a. Eyeworks
Lotus Development Corp.
Luckman Interactive, Inc.
Maxis
Motorola, Inc.
NEC Corporation
Origin Technology, Inc.
Pipeline Associates, Inc.
Prodigy Services Co.
Quarterdeck Office
Systems, Inc.
Samsung Electronics
America/Information
Systems Division
The Saturn Corporation
Silicon Graphics, Inc.
Sony Corp.
Symantec Corporation
Toyota Motor Corp.
U.S. Robotics, Inc.
UUNet Technologies Inc.
Video On Line
Volkswagen of America Inc.
Wollongong Group, Inc.
7th Level, Inc.
- --------------------------------------------------------------------------------
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<PAGE> 37
Since its inception, Wired magazine has been able to maintain a consistently
high advertising rate, in terms of cost per thousand readers ("CPM"). In
addition, in contrast to its competitors, which the Company believes offer
significant volume-related discounts that are not disclosed on their published
rate cards, the Company does not offer discounts not disclosed on its published
rate cards. Over 50% of Wired magazine's advertisers during 1995 committed to at
least six pages of advertising (generally one page in each of at least six
issues). In 1995, six of Wired magazine's top 10 advertisers also purchased
advertising on the HotWired Network. The Company has recently completed sales of
advertising for its November 1996 issue, which will be its largest issue to
date, with 166 pages of advertising.
Wired Magazine -- International Editions
Wired magazine is currently published in the United States, Japan, and the
United Kingdom, is available by subscription worldwide, and is available for
newsstand purchase in many countries. In addition, the Company expects to
publish material in the German language in 1997, possibly through a joint
venture with one or more German media companies. Each international edition of
Wired magazine contains a significant amount of original content written
specifically for such edition, as well as content taken from the United States
or other international editions of Wired magazine. The Company believes that
this global pool of editorial material gives the Company a global point of view
that appeals to Wired magazine readers. The Company also believes that these
features distinguish Wired magazine from other international publications, which
are often merely translations of domestic editions, and also increase its
chances for consumer acceptance. See "Risk Factors -- Risks Associated with
International Expansion."
Interactive Media
The Company's current online media properties consist of multiple brands on the
HotWired Network (including the recently launched HotBot search engine), the
Suck.com online content site, and Wired magazine's content site on America
Online. These online media content sites feature original, branded content that
changes on a regular, and in many cases daily, basis. Underpinning the Company's
online media enterprise is a commitment to technological leadership - the
ability to anticipate and meet user and advertiser needs through innovative
technology. The Company has developed several proprietary technologies, shared
among all of the Company's online media properties, that the Company believes
enable it to enhance the user's experience and strengthen advertiser
relationships.
The HotWired Network
Background. The Company's flagship online media offering, launched in October
1994, is the HotWired Network, which features original editorial material on
topics such as politics, travel, technology, arts, entertainment, health,
careers, and lifestyle. In addition, it contains highlights of the current
issues of Wired magazine and full text archives of past issues of Wired magazine
and provides access to the Company's Web search engine service, HotBot. Users
can access the HotWired Network's "programs" through the main HotWired Network
site (http://www.hotwired.com) or in most cases through each program's own
distinct Web address. The HotWired Network's users have the option to become
members of the HotWired Network. Membership is free and gives members access to
many features not available to non-members, including discounts on Wired
magazine subscriptions, a personalized "What's New" feature that enables users
to receive custom generated lists of materials the user has not yet viewed, and
the ability to participate in the Company's interactive discussion spaces. The
34
<PAGE> 38
member registration system allows the Company to obtain and maintain online user
profile data, which it then uses to create, maintain, and enhance user and
advertiser relationships. In addition to providing strong editorial content, the
Company believes it is breaking new ground in the use of digital audio and video
on the Web and in its development and use of live chat and asynchronous
discussion spaces.
Standard programming on the HotWired Network includes:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Ask Dr. Weil (http://www.drweil.com): Dr. Andrew Weil, M.D., a Harvard-trained
physician and best-selling author who is an expert in traditional and
alternative medicine, answers questions about health and wellness in an
interactive format, along with a database of helpful information on hundreds of
common ailments
ClubWired (http://www.hotwired.com/club): The Company's auditorium space, based
on its proprietary Java-based chat environment, which features guests ranging
from U.S. Senators to popular musicians to prominent authors
Cocktail (http://www.cocktailtime.com): Includes classic drink recipes introduced
every Friday, a mixologist's dream database of drinks, and opinionated bartender
commentary
Dream Jobs (http://www.dreamjobs.com): The editor's choice of the best jobs
currently available in the media, technology, and online industries
HotBot (http://www.hotbot.com): A comprehensive Web-wide search engine designed
to search the complete text of all documents on the Web.
Net Surf Central (http://www.netsurfcentral.com): A guided tour around the Web
uncovering the quirky and the informative, the bizarre and the imaginative
The Netizen (http://www.netizen.com): Political coverage designed to reflect the
interests of the online community
Packet (http://www.packet.com): Daily reporting on Internet business, technology,
culture, and gossip, along with a half-hour weekly audio program with industry
personalities
Pop (http://www.pop.com): Reporting on the arts and entertainment of the new
digital culture
Rough Guides (http://www.hotwired.com/rough): Interactive database of travel
destinations and discussion forums for independent travelers, provided through
an alliance with the publishers of the Rough Guides travel book series
Talk.com (http://www.talk.com): The Company's proprietary chat environment,
written entirely in Sun Microsystems' Java language
Threads (http://www.hotwired.com/piazza/threads): The Company's proprietary
conference space, where users can read and members can initiate, read, or
respond to threaded discussions
Webmonkey (http://www.webmonkey.com): A service station for the Web, with regular
columns on browsers, HTML, plug-ins, and technology, plus software
demonstrations, tutorials, and an interactive database where members can "tune
up" their browsers
Wired Magazine (http://www.hotwired.com/wired): Wired magazine content and
highlights, as well as interactive forums where users can communicate with each
other and with Wired magazine's writers, editors, and designers
Wired Source (http://www.wiredsource.com): The Wired editors' guide to research on
the Net
</TABLE>
- --------------------------------------------------------------------------------
In addition, the Company is developing a continually updated online news service
that will provide news from the perspective of the digital generation utilizing
news feeds from outside sources and original content written by the Company's
editors and contributors. This news service is expected to attract additional
traffic to the HotWired Network by providing additional reasons to visit the
HotWired Network several times a day. This news service is also expected to
facilitate the distribution of the Company's content through alternative
channels, such as the PointCast Network, the @Home Network and Netscape Mail. In
addition to the daily news service, the Company expects to distribute certain
regular HotWired Network programming, certain new media products, and
advertising through these emerging distribution channels. It is anticipated that
such channels will generate incremental advertising revenues, increase awareness
of the Company's branded products, and drive additional traffic to the Company's
Web sites.
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<PAGE> 39
The first of these alternative distribution channels is expected to be the
HotWired channel on the PointCast Network(TM), scheduled to begin broadcast
distribution during the first quarter of 1997. HotWired has agreed to provide a
branded content channel available for selection by PointCast Network viewers on
PointCast Network client software units distributed by PointCast and
preconfigured as a default channel on the HotWired-branded version of the
PointCast client software, which is expected to be distributed through the
Company's Web sites. The Company will retain the exclusive right to sell
advertising and sponsorships on the HotWired channel and will pay PointCast
monthly fees based on total advertising revenues generated by such channel. The
HotWired channel will also be designed to drive traffic to HotWired's Web sites.
As with Wired magazine, growth in the use of and advertising on the HotWired
Network has been strong from the start. Since its inception in October 1994, the
HotWired Network has grown to over an estimated 440,000 registered members as of
September 30, 1996. For the eight months ended August 31, 1996, registered
members represented approximately 16% of the total number of visitors to the
HotWired Network, excluding HotBot. For the three months ended September 30,
1996, the HotWired Network had an average of over 138,000 visitors per weekday,
and it had approximately 50.3 million page views during that period. Online
advertising revenues were $621,000 for the three months ended June 30, 1996 and
are expected to be nearly double that amount for the three months ended
September 30, 1996.
Awards. The HotWired Network has been reviewed favorably by industry sources.
Listed below are some of the awards the HotWired Network has received:
- --------------------------------------------------------------------------------
Digital Hollywood Awards: Best Site of the Year (1996)
Digital Hollywood Awards: Best of Digital Hollywood (1995)
The National Information Infrastructure Award: Best Arts and Entertainment Site
(1995)
Entertainment Weekly Magazine: One of the Top Multimedia Products for 1995
(Flux)
Tenth Annual Computer Press Awards: Best Online Publication (1994)
Advertising Age Magazine: Best Online Magazine (1994)
Japanese Multimedia Grand Prix: Best in Multimedia (1994)
- --------------------------------------------------------------------------------
Demographics. Like that of Wired magazine, the audience of the HotWired Network
represents a demographic group with strong advertiser appeal. Through research,
the Company has established a profile of its online users. The Company believes
that the users of the HotWired Network are technologically savvy thought leaders
and early adopters of new ideas and technology who will be influential in the
continuing development of the Web. The HotWired Network's 1996 user research
revealed the following demographics:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Average age............................................................ 33
Median annual household income......................................... $52,700
Percent with post-graduate study....................................... 36%
Percent who have been online two years or more......................... 55%
</TABLE>
- --------------------------------------------------------------------------------
The survey was fielded to a random sample (1 in 10) of HotWired Network users
accessing the front door of the HotWired Network from September 6, 1996 through
September 13, 1996. With a cooperation rate of approximately 25%, the final
sample size for the survey was 2,093 users. Data presented is for respondents 18
years of age and older (94.2% of survey respondents).
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<PAGE> 40
Advertisers. The HotWired Network's demographics have attracted a unique mix of
premier advertisers. Excluding advertising on the HotBot search engine service,
HotWired Network's top 25 advertisers in terms of advertising revenues for the
first eight months of 1996 were:
- --------------------------------------------------------------------------------
Accent Software, Inc.
Adaptec, Inc.
American Airlines
Apple Computer, Inc.
AT&T
Excite, Inc.
Huntington Bank
In Focus Systems Inc.
Infoseek Corp.
Intel Corporation
Inter-Continental Hotel of New York
International Business Machines Corporation
Microsoft Corporation
NEC Corporation
Netscape Communications Corporation
NYNEX Interactive Yellow Pages
Open Text Corp.
PointCast Network
Pontiac (Division of General Motors
Corporation)
ROLM Communications, Inc.
The Saturn Corporation
Toyota Motor Corp.
Travelocity
U.S. Web, Inc.
VISA International
- --------------------------------------------------------------------------------
The Company offers advertisers several different models for sponsoring content
on the HotWired Network. These include:
Advertising Banners. Online advertising banners are a format -- now copied
extensively on the Web -- that the Company pioneered on the HotWired Network in
1994. Banner placements on the Company's Websites typically are charged at a
cost per thousand impressions (CPM), which ranges between $20 and $150. The rate
an advertiser pays is negotiated and depends on several factors: rate-card rates
for the banner site location, customized domain or key word targeting, inclusion
of research and promotional elements, and volume discounts. Because there are no
page views in chat forums, the HotWired Network's planned billing model for
placement of ad banners in its real-time chat forums (such as the Talk.com and
ClubWired programs) is expected to be based on time-based increments beginning
in the fourth quarter of 1996.
Sponsorships. These consist of long-term exclusive sponsorships of specific
HotWired Network programming, such as the commitment by the Oldsmobile division
of General Motors Corporation to sponsor and fully underwrite the Packet program
for 12 months beginning in September 1996.
Site Co-branding. Site co-branding is a format introduced by the Company in
1996 through which the sponsor underwrites and actively co-markets a HotWired
Network site in exchange for exclusive long-term sponsorship and deeper
integration of brand presence within site content. For example, in September
1996 Levi Strauss & Co. began a 12-month commitment to co-brand the Dream Jobs
site with its Dockers(R) casual-wear brand, and it will co-market the site as
part of its planned Dockers(R) print advertising campaign in Spring 1997.
During the first eight months of 1996, over 86% of total available ad banner
inventory on the HotWired Network (including HotBot) was placed, notwithstanding
a relatively higher average CPM for these placements than for the Company's
online competitors. The Company believes it has been able to maintain this high
rate of ad placement at premium prices due to the quality of its content, its
audience demographics, the length of time spent by users per page view, the
Company's advanced abilities to rotate banner placements dynamically according
to "smart targeting" criteria customized to advertisers' unique needs, its
research and reporting capabilities, and its added-value programs (such as
assistance in online promotions and inclusion of advertising messages in
HotFlash emails to members and in the ClubWired chat environment).
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HotBot Search Engine. The Company's search engine service, HotBot, was launched
on the Web in May 1996 in order to further leverage the Company's online brand
presence and its advertising sales capabilities. HotBot is currently accessible
on the Web directly and through the HotWired Network. In addition, in August
1996, the Company launched a co-branded version of HotBot that is accessible to
users of BellSouth Telecommunications, Inc.'s proprietary Internet service, is
featured on the BellSouth homepage, and includes advertising specifically
targeted to BellSouth's users. HotBot is being commercialized through a
strategic alliance with Inktomi Corporation. Under the agreement, Inktomi
licenses its search engine technology to the Company and operates the service,
and the Company provides interface design, marketing, and advertising sales. A
significant portion of net advertising revenues is paid to Inktomi as a
licensing fee. HotBot is the first search engine service designed to search the
complete text of the 50 to 60 million documents currently estimated to be on the
Web. Many of the currently popular services search only half that number. HotBot
is also able to provide advertisers with the ability to target ads based on the
keywords from a user's query, the domain from which the user is accessing the
service, and the type of browser and computer the user is running. Advertising
on HotBot is priced competitively with other search engine offerings at a CPM of
$20.00 for non-targeted impressions and at higher CPMs for keyword-targeted
impressions. The Company expects that the number of page views for HotBot will
continue to be substantially higher than those of the editorial programs on the
HotWired Network.
Global Expansion. The HotWired Network is accessible throughout the world on
the Web. The Company is exploring the development of localized versions,
involving customized language, content, and advertising, of the HotWired
Network, in regions of Western Europe and Asia.
Suck.com
Suck.com (http://www.suck.com) began as an underground, anonymously produced Web
site containing sharp commentary on the Web and popular culture. Since its debut
in August 1995, the Company believes that Suck.com has become one of the most
popular, most discussed, and most imitated sites on the Web. In September 1996,
Suck.com had approximately 6,500 to 7,300 visitors per weekday. Purchased by the
Company in March 1996, Suck.com remains editorially independent from the
HotWired Network and maintains a separate brand identity.
In May 1996, Suck.com added a series of new content areas that expanded and
reinforced the attitudes established on the original Suck.com Web site. These
five weekly programs are:
- --------------------------------------------------------------------------------
Vacuum: Parody of Internet community (reader mail)
The Pitch: The latest Web concept that's "too stupid to fail"
Filler: Facts, quotes, figures, and search results, as filtered by the Suck.com
editors
Zero Baud: Discussions of offline living
Net.Moguls: Virtual "trading cards" highlighting conspicuous characters from
the Internet world
- --------------------------------------------------------------------------------
Suck.com began generating revenues through advertising in May 1996. Its
advertisers to date have included Big Book, Marinex Multimedia/The East Village,
Tripod, Inc., Black Star Beer, Wizards of the Coast, Music Boulevard, and
Tanqueray. Each advertiser is guaranteed that its advertising message will be
viewed at least 100,000 times every four weeks. In return for this guarantee,
sponsors are required to commit to between eight and 24 weeks of advertising.
Each advertisement is rotated through the daily Suck.com home page and the five
weekly programs. In May 1996, the basic price for eight weeks of advertising was
$20,000; this rate is discounted by up to 10% as the term of the commitment
increases. Suck.com requires that each advertisement be animated using Sun
Microsystems Inc.'s Java programming language.
Wired Magazine on America Online
The Company provides programming related to Wired magazine on America Online
(keyword: Wired). This programming includes highlights of the current issue of
the magazine and full-text
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<PAGE> 42
archives of past issues. In addition, this site offers an interactive discussion
space where users can communicate with each other as well as with writers,
editors, and designers of the magazine. The Company earns a percentage of
America Online's user fees based on traffic to the site. While the revenues
attributable to this site have not been significant to date, this site has been
a cost-effective way of generating Wired magazine subscriptions, although there
can be no assurances that this will continue to be the case.
Proprietary Technologies
The Company believes that a key to its future success is to develop innovative
software technologies and to deliver online content with advanced features that
create a richer experience for its users and strengthen relationships with
advertisers. In keeping with its commitment to technology leadership, the
Company believes it was the first Web publisher to offer an integrated threaded
discussion space, a member registration system, and custom pages dynamically
generated through database queries. The Company's current development efforts
include the incorporation of video and digital sound into its online content
sites. In order to remain at the forefront of Web technology, the Company has an
in-house staff of 37 people devoted to engineering and technology development.
Some of the software technologies developed by the Company are described below:
Real-Time Chat. Talk.com incorporates familiar "chat room" features of popular
online services and can be used on any platform with any browser that supports
Java. Among the key features of Talk.com are multiple user nicknames,
member-created chat rooms, "instant" private messages, and live auditorium
events. Because the chat service is written in Java, new features and updates
can instantly be made available to users. The Company believes the Talk.com
server software is one of the first high-performance server applications written
entirely in Java. The software is designed to be scalable to support large
numbers of simultaneous users. The software is also able to run in a distributed
mode over several machines and is designed to take advantage of Internet
protocol multicasting, enabling enhanced performance on multicast networks such
as the @Home Network.
Threaded Discussion. Threads is based on the idea of threaded discussions,
which are conversations consisting of a series, or "thread," of user-posted
messages. The system provides users with a discussion area to discuss issues and
topics of interest to the HotWired Network community. The Company believes
Threads is unique on the Web in its feature set and scale, and its threaded
discussion areas have been some of the HotWired Network's most popular features.
Every piece of editorial content on the HotWired Network is linked into threaded
discussion pages created by the HotWired Network's users and contributors. The
standout feature of Threads is the ability to post to the discussion using HTML,
the language of the Web itself. In other words, each user can employ the exact
same tools as the Company's contributors and editors, allowing a level of
expression not seen in prior conferencing systems. The Company believes this
development is a step toward two-way content creation.
Personalized Web Pages and Browser Targeting. The Company has developed user
customization technology that generates personalized Web pages that are created
"on the fly" and are specific to each user. An example is the HotWired Network's
custom "What's New" page, which uses data captured by the Company's user
tracking and database system to generate a custom page for each registered
HotWired Network member that highlights the content sections that the specific
member has not previously viewed. The highlights are based on the member's
previous visits to the HotWired Network, preferences expressed by the member,
and newly posted features and articles. This technology also enables the Company
to send versions of the HotWired Network's Web pages that are optimized for the
user's computer and Web browser software. The Company's technology allows a user
who is running Netscape Navigator on a Macintosh to have a HotWired Network
experience that is substantially similar to that of a user who is visiting the
HotWired Network from America Online and running Windows 95 on a PC. This
capability is implemented through the integration of database technology with
the HotWired Network's publishing system.
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<PAGE> 43
Targeted Advertising. The Company's Smart Targeting Service is an advertisement
insertion system that allows advertisers to target specific users by specified
characteristics, such as by demographic attributes, domain computing platform,
browser software or Internet service provider. The first use of this system in
early 1996 allowed the Company to sell to United Kingdom-based advertisers
advertisements that will be viewed only by users having Internet domain names
specific to the United Kingdom. In addition, Individual, Inc. ran an advertising
campaign in August 1996 targeted at Fortune 1000 Internet domain names to market
its
Newspage.com news service. The Company believes that its targeted advertising
technology provides the Company with a competitive advantage by enabling
advertisers to establish a one-to-one marketing relationship with the HotWired
Network's users.
DEVELOPMENT PROJECTS
The Company has many creative and business concepts in various stages of
development. These development projects include the following:
New Online Media Properties
The Company is continually exploring new ideas for online media properties. The
Company uses the HotWired Network as a cost-effective vehicle for market-testing
these new ideas. As such concepts mature, they may become full-fledged programs
on the HotWired Network, such as Ask Dr. Weil or Dream Jobs, or completely
separate online media properties, such as Suck.com. In addition, successful
online concepts may be extended to other media. The Company also believes that
its HotWired Network and other online media properties provide a platform from
which to rapidly and cost-effectively launch and test new brands, which can then
be extended across media.
New Magazines
The Company is currently exploring several new magazine concepts that are
editorially distinct from the Company's existing products. The Company began
assembling dedicated staff for one such magazine in 1996 and may launch one or
more new magazines in 1997. Each of these magazines will cover a specific topic
of interest to consumers with attractive demographics similar to those of Wired
magazine readers and the Company's online media property users. These magazines
will also feature high-quality editorial material and innovative design.
Television
Leveraging the Company's programming and design resources, as well as the
strength of the Wired and related brands, the Company is exploring the
development of television programming. The Company's first planned television
production is expected to be Netizen TV, a brand extension building on The
Netizen political commentary program (http://www.netizen.com) on the HotWired
Network and section in Wired magazine. Development of Netizen TV is being
partially funded under an agreement with MSNBC Cable Channel, L.L.C., a joint
venture between The National Broadcasting Company and Microsoft Corporation.
This program is currently planned as a 30-minute weekly program of political
coverage from the perspective of the Digital Revolution. The Netizen program is
expected to be a combination of a studio discussion format and on-site location
reports, and, if MSNBC Cable Channel, L.L.C. exercises its option to produce the
show, the Company will receive a per-program license fee for each episode
delivered to MSNBC Cable Channel, L.L.C. The Company will not share in
associated advertising revenues. As the Company continues to explore programming
possibilities, it will evaluate other sources of television revenues, including
sharing in advertising revenues.
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<PAGE> 44
Books
The Company has established a book publishing division, HardWired, which
released its first book in September 1996. A total of six books, many of which
contain or will contain content derived from Wired magazine, are scheduled for
publishing in the Fall/Winter 1996 book season. The books which have been or are
to be published in the upcoming season are:
- --------------------------------------------------------------------------------
Mind Grenades - Manifestos From the Future, by John Plunkett and Louis Rossetto:
A compilation of the stunning and provocative graphic introductions from the
first 30 issues of Wired magazine, which has been chosen as a featured alternate
of the Book of the Month Club and the Quality Paperback Book Club
The Medium is the Massage - An Inventory of Effects, by Marshall McLuhan: A
reprint of Marshall McLuhan's 1967 best-seller
Wired Style - Principles of English Usage in the Digital Age, by the editors of
Wired magazine, which has been chosen as a selection of the Book of the Month
Club and the Quality Paperback Book Club
Digerati - Encounters with the Cyber Elite, by John Brockman, which has been
chosen as a selection of the Newbridge Personal Computing and Executive Book
Clubs
Reality Check, by Brad Wieners and David Pescovitz: The real timetable for the
implementation of new technologies, which has been chosen as a featured
alternate of the Quality Paperback Book Club and as a selection of the Newbridge
Personal Computing and Executive Book Clubs
BOTS - The Origin of a New Species, by Andrew Leonard: An investigation of the
emerging, complex world of intelligent agents
- --------------------------------------------------------------------------------
The Company's development projects involve substantial risk. There can be no
assurance that the Company's new business efforts will result in new products or
will be successful. If the Company is unable to create or commercialize new
products, its business, financial condition, and operating results may be
materially and adversely affected. The foregoing discussion contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors including, but not
limited to, those set forth under "Risk Factors" and elsewhere in this
Prospectus.
ADVERTISING SALES
The Company's sales organization includes professionals with advertising agency
backgrounds, as well as experienced sales executives hired from other media
companies. The Company believes that understanding the sales process from both
the buyer's and seller's point of view provides a strong foundation for both
traditional media packages and more innovative and complex sponsorship-type
sales. The Company provides regular training and education to its sales staff
and believes it has built one of the most knowledgeable sales teams in the new
media sector.
The Company believes it enjoys stable, long-term relationships with many top
national advertisers in the technology and consumer categories. Many
advertisers, including Absolut Vodka, Apple Computer, Inc., and NEC Corporation,
have been advertising with Wired magazine since the first issues in 1993. Eight
of Wired magazine's 10 largest advertisers in 1993 have advertised in one or
more issues of Wired magazine in 1996. The Company believes the basis for these
strong relationships is client satisfaction with advertising results, as well as
the Company's commitment to innovative marketing solutions, research, and
customer service. Because the Company's print and interactive environments are
perceived to be leading-edge in
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<PAGE> 45
both content and design, many advertisers create advertising campaigns
specifically for the Company's products.
The Company believes it was the first technology-related publisher to reach
beyond technology advertisers to include a substantial number of consumer
advertisers. Key advertiser categories in Wired magazine include computer
hardware and software, telecommunications, online services, automotive, liquor,
fashion, entertainment, and financial services. When the Company expanded into
online media with the launch of the HotWired Network, many of its existing
advertisers, including AT&T Corp. and IBM, allocated additional funds to
advertising on the HotWired Network. For the first eight months of 1996, 42% of
the HotWired Network's advertisers also advertised previously in Wired magazine.
The magazine sales force consists of in-house sales professionals in San
Francisco, Boston, New York, and London. As of August 31, 1996, there were a
total of 30 members of the United States magazine sales department, including 15
sales executives, sales support staff, and personnel who provide research,
promotional support, and value-added programs for advertisers. In addition to
the full-time magazine sales staff, the Company has contracts with outside
representatives based in Detroit, Atlanta, Dallas, and Italy.
Initially, the magazine sales staff was also responsible for selling online
advertising. Due to the rapid growth in online advertising, the differences
between interactive and print sales, and the frequently separate handling of
interactive and print budgets within advertising agencies, the Company is now
building a separate sales team dedicated to the Company's online media
properties. As of August 31, 1996, the interactive sales force consisted of 10
people in San Francisco and five people in New York. The HotWired Network's
sales opportunities include standard advertising banners as well as sponsorship
and co-branding models. In the case of banner sales, the advertiser provides a
banner on a HotWired Network page that generally links to the advertiser's Web
site. In the case of sponsorship and co-branding arrangements, the advertiser
has a deeper relationship with the content of a particular program, which
identifies the advertiser's brand more directly with the Company's program. For
example, the Company recently entered into a one-year sponsorship arrangement
with Levi Strauss & Co. under which the Dockers(R) brand will co-market the
Dream Jobs program.
The Company is currently selling advertising packages that combine both print
and online opportunities. As the Company creates new properties in print,
online, and television, advertisers will be offered packages that follow media
lines, brand lines, or geography. The Company believes these packages enable its
advertisers to cost-effectively reach their target audiences, while providing
the Company the opportunity to capture a larger portion of their advertising and
promotional budgets.
MARKETING AND DISTRIBUTION
The Company continually seeks to identify and develop cross-promotional
opportunities in all areas of the Company. In addition, the Company's in-house
telephone and e-mail customer service staffs cross-sell the Company's products.
The Company uses publicity and promotions to increase brand awareness and
position its brands, as well as to generate subscriptions and increase online
traffic. Many of the Company's editors, designers, programmers, and contributors
are recognized as experts in their fields and are regularly contacted by the
press to comment on developments and trends in business, politics, technology,
and lifestyle. The Company intends to invest in expanded marketing and
promotional activities including billboard, bus, and other outdoor advertising,
targeted cable television advertising, and continued print advertising in both
trade and consumer publications.
Magazine Marketing and Distribution
Wired magazine is distributed through both subscriptions and single copy sales.
The majority of growth in paid circulation has come from subscription sales,
which have grown from roughly 21,000 subscriptions at the end of 1993 to an
estimated 207,000 subscriptions at June 30, 1996.
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These subscriptions are generated through a mix of direct mail marketing, online
promotion, insert cards in the magazine and other publications, and advertising.
Another source of subscriptions is the magazine's content areas on the HotWired
Network and America Online. Single copy sales have grown from an average of
64,000 copies per month during 1993 to an estimated 98,000 copies per month
during the first six months of 1996. The single copy price has been $4.95 since
inception. For the first six months of 1996, the Company sold in excess of 40%
of all copies shipped for single copy distribution, which the Company believes
compares favorably with its competitors. The Company uses third-party
distributors to distribute the United States and international editions of Wired
magazine. The United States version of Wired magazine is distributed nationally
primarily by International Circulation Distributors - The Hearst Corporation and
to retailers, smaller stores, computer stores, and internationally by various
other distributors. The United Kingdom version is published by the Company and
distributed through a third-party distributor. The Japanese version is published
by Dohosha Publishing Co., Ltd. under a licensing arrangement. The Company
expects both single copy and subscription sales to increase but expects
subscription sales to increase as a percentage of total circulation revenues.
There can be no assurance, however, that circulation sales will increase at the
rate anticipated or at all.
The primary tool used for circulation marketing is direct mail. After extensive
and ongoing testing, the current tested list universe is 13 million names,
indicating potential for continued growth through direct mail. The list universe
is comprised of several distinct groups, including computer users, business
people, retail consumer groups, and similar demographic groups. The Company has
also found that many of the new mailing lists coming onto the market from
Internet-related businesses are effective in attracting new subscribers. To the
extent Internet-related business continues to grow, the Company expects that
additional attractive mailing lists will become available. The Company mails
major campaigns on a quarterly basis. The roll-out subscription price for direct
mail offers is $24.95, with renewals occurring at either the basic rate of
$39.95 or $29.95. The Company is currently testing a $19.97 subscription price.
Approximately 44% of all first-time direct mail subscribers, and approximately
66% of all other subscribers have renewed their subscriptions. Additionally, the
Company recently began an online advertising campaign and is also producing a
television commercial to run on cable networks, primarily CNN. The goal of both
efforts is to sell magazine subscriptions.
Interactive Media Marketing and Distribution
The Company's marketing of its online media properties has been focused to date
almost exclusively on online venues. This has included: outreach to the
supervisors of Web sites ("Webmasters") to increase the number of online links
made to the HotWired Network's programs; promotion of the HotWired Network's
programs, particularly live events, in appropriate Usenet newsgroups; purchase
of advertising space on frequently visited sites, including Netscape, Yahoo!,
and Infoseek; and creation of online promotions using internal marketing banners
on the HotWired Network. Traditional advertising for the HotWired Network has
been limited to the monthly placement of advertisements in Wired magazine. In
addition, the HotWired Network has co-sponsored several trade shows and
entertainment events, including the DCI Web World conference and exposition, the
SIGGRAPH multimedia conference and exposition, the MacIntosh New York Music
Festival, and the Toyota Comedy Festival. The Company plans to increase total
marketing expenditures for its online media properties in order to increase
traffic and aggressively build brand awareness. The Company is also engaged in
active discussions with third parties regarding the distribution of its online
content through such third parties' proprietary services.
HardWired Marketing and Distribution
HardWired books will be published by the Company and distributed in the United
States and Canada through Publishers Group West Incorporated ("PGW"). The
Company's book marketing program includes a cooperative agreement with PGW for
advertising in wholesaler catalogs, book trade publications, consumer outlets,
and national account promotions. The Company also expects to promote its books
through trade shows, trade and consumer print advertisements (including Wired
magazine), electronic kiosks, and online advertising (including on the Com-
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pany's online media properties), author appearances on television and radio,
book tours, and speaking engagements.
Television Marketing and Distribution
The Company expects to employ the same cross-promotion techniques for its
television programming as it does for its other media properties. In addition,
the Company is currently exploring various methods for marketing its television
programming, including billboards and television advertisements.
COMPETITION
The Company faces significant competition from a large number of companies, many
of which have significantly greater financial, creative, technical, and
marketing resources than the Company. These companies may be better positioned
to compete in the evolving media and technology industries. In addition, the
Company faces broad competition for advertising revenue from other media
companies that produce magazines, newspapers, online content, radio, and
television, as well as other promotional vehicles such as direct mail, coupons,
and billboard advertising. Each of the Company's products competes with other
media and many other types of leisure activities for audiences and advertising
revenue. Overall competitive factors in these segments include editorial and
design quality, price, and customer service. Competition for advertising dollars
is primarily based on advertising rates, reader response to advertisers'
products and services, and effectiveness of sales teams. There can be no
assurance that one or more of the Company's competitors will not significantly
undermine the sales efforts of the Company or reduce the Company's audiences,
either of which would have a material adverse effect on the Company's business,
financial condition, and operating results.
Competition in the magazine publishing business is also intense with respect to
subscription sales and single copy distribution and display. Wired magazine is
editorially unique, covering a broad range of topics relating to the Digital
Revolution, including technology, business and lifestyle. As such, the Company
competes with many general interest magazines, including computer magazines such
as BYTE and PC Magazine, business magazines such as BusinessWeek and Fortune and
lifestyle magazines such as Rolling Stone and GQ. There can be no assurance that
one or more other magazines or online content sites will not significantly
undermine the marketing efforts of Wired magazine or significantly impact the
sources of its circulation or advertising revenues. If this were to occur, there
would be a material adverse effect on the Company's business, financial
condition, and operating results.
To the extent that the Internet infrastructure is expanded and access to the Web
is made easier and less expensive, the Company expects the number of Web users
to continue to grow at a rapid rate. In response to this anticipated growth,
there is an increasing number of companies, some with significantly greater
resources than the Company, developing online content and services for delivery
on the Web, and competing for audiences and the advertising dollars that are
currently being devoted to the Web. The Company's online content sites compete
with other online content sites such as America Online's Global Network
Navigator, cnet, Starwave's ESPNet, and Time-Warner's Pathfinder. The Company's
search engine service competes with services such as Alta Vista, Excite,
Infoseek, Lycos, and Yahoo!. All of the Company's online media properties
compete for advertising dollars with Web browser companies such as Netscape.
There can be no assurance that one or more of the Company's competitors will not
significantly undermine the Company's marketing efforts for its online media
properties or attract a significant amount of advertising revenues away from the
Company.
The Company's book publishing operations will compete for sales with numerous
other publishers and retailers, as well as with other media, including the
Company's own magazine and online media products. In addition, the acquisition
of publishing rights to books by leading authors is highly competitive, and the
Company will compete with numerous other book publishers. There can be no
assurance that the Company's book publishing efforts will be successful, or that
the costs of such efforts will not have a material adverse effect on the
Company's business, financial condition, and operating results.
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<PAGE> 48
The creation, production, and distribution of television programming is a highly
competitive business, as each television program competes with other television
programming and with other forms of entertainment. Furthermore, competition in
the television industry is expected to increase as the number and variety of
basic cable and pay television services available continue to grow. There is
active competition among all production companies in these industries for the
services of producers, directors, actors, and others and for the acquisition of
literary properties. With respect to the distribution of television product,
there is significant competition from independent producers and distributors as
well as major studios. Revenues for filmed entertainment product depend in part
on general economic conditions, but the competitive position of a producer or
distributor is still greatly affected by the quality of, and public response to,
the entertainment product it makes available to the marketplace. There can be no
assurance that the Company's efforts in television programming will result in
programming which is marketable to advertisers and distributors or will be
commercially successful, or that the cost of creating and producing television
programming, whether successful or not in the market, will not have a material
adverse effect on the Company's business, financial condition, and operating
results.
TRADEMARKS AND INTELLECTUAL PROPERTY RIGHTS
The Company regards its copyrights, trademarks, trade dress, trade secrets, and
similar intellectual property as critical to its success, and the Company relies
upon trademark and copyright law, trade secret protection, and confidentiality
and license agreements with its employees, customers, partners, and others to
protect its proprietary rights. The Company pursues the registration of its
material trademarks in the United States and, based upon anticipated use, in
certain other countries. The Company has applied for and registered the "Wired"
mark in a variety of classes in the United States and numerous other countries
and has applied for the registration of certain of its other trademarks,
including "HotWired," "Wired TV," "HardWired," "HotBot," and "Wired Online."
Effective trademark, copyright, and trade secret protection may not be available
in every country in which the Company's products are available. The Company has
licensed in the past, and it expects that it may license in the future, elements
of its trademarks, trade dress, and similar proprietary rights to third parties,
including in connection with Wired magazine's international editions and other
media properties that may be controlled operationally by third parties. While
the Company attempts to ensure that the quality of its brands is maintained by
such licensees, there can be no assurance that such licensees will not take
actions that might materially and adversely affect the value of the Company's
proprietary rights or the reputation of its products, either of which could have
a material adverse effect on the Company's business. Moreover, while the Company
believes that it has the right to use Wired, HotWired, and its other marks in
connection with its business, and it generally has the right to prohibit others
from using such marks in certain fields of use, there can be no assurance that
the Company will be able to maintain such rights. From time to time the Company
has been, is, and expects to continue to be subject to legal proceedings and
claims in the ordinary course of its business, including claims of alleged
infringement of the trademarks and other intellectual property rights of third
parties by the Company and its licensees. For example, the Company has been
involved in a dispute with America Online regarding ownership of the mark
"Netizen." While the Company believes that it will be able to resolve this
dispute on terms satisfactory to the Company, there can be no assurance in this
regard. Such claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources. The Company is not aware of any
legal proceedings or claims that the Company believes will have, individually or
in the aggregate, a material adverse effect on the Company's business, financial
condition, or results of operations. See "Business -- Litigation."
EMPLOYEES
The Company believes that a key to its future success is the continued
contribution of its management, creative, technical, and sales employees. In
particular, the Company benefits from the reputation, imagination, and
experience of key creative managers, such as Louis Rossetto, the Company's Chief
Executive Officer, and Kevin Kelly, Wired magazine's Executive Editor, and the
Company's Creative Directors, John Plunkett and Barbara Kuhr. The Company also
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<PAGE> 49
benefits from the business and technology expertise of Andrew Anker, Chief
Executive Officer of HotWired, Inc. In addition, the Company's senior management
team, including Jane Metcalfe, the Company's President, and Dana Lyon, Vice
President of Wired Magazine Group, Inc., has extensive advertising and
publishing experience, and has created sales teams for the Company's print and
online businesses that the Company believes are key to its success. Mr. Rossetto
and Ms. Metcalfe, the Company's co-founders, are domestic partners. Ms. Metcalfe
currently anticipates taking a leave of absence of approximately three months
beginning in the first quarter of 1997.
As of August 31, 1996, the Company had a total of 338 full-time employees. Of
these employees, 154 are engaged in content development and design, 37 are
engaged in engineering and technology development, 63 are engaged in sales and
marketing, 18 are engaged in circulation, and 66 are engaged in general,
finance, and administrative activities. Of the Company's employees, 126 work on
Wired magazine, 162 work on the Company's online media properties, nine work on
the Company's book properties, nine work on television programming development
and 32 work for all Wired businesses in a general, finance, or administrative
capacity. None of the Company's employees is represented by a labor union.
Certain planned activities of WiredTV may in the future result in the employment
of unionized personnel. The Company has experienced no work stoppages and
considers its relations with employees to be good.
LITIGATION
The Company is not presently party to any material litigation. However, as a new
media publisher, the Company has been and anticipates that it will in the future
be subject to litigation including allegations of defamation. For example,
during 1994 and 1995, the Company was involved in a dispute involving a claim of
defamation arising out of an article that appeared in the January 1994 issue of
Wired magazine. Although the Company expended substantial resources in its
defense, this matter was settled without any payment or other concession by the
Company.
FACILITIES
The Company's headquarters are located in San Francisco, California, and the
Company has offices in New York City, Washington D.C., and London. All 130,000
square feet of office space are leased under agreements that expire on various
dates through 2006. The Company believes that suitable additional or alternative
space, including space available under lease options, will be available at
commercially reasonable terms for future expansion.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The executive officers, key employees and directors of the Company are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- -------
<S> <C> <C>
Louis Rossetto(1)................. 47 Chief Executive Officer and Chair of
the Board
Jane Metcalfe(1).................. 34 President and Director
Jeffrey Simon(1).................. 34 Chief Financial Officer and Secretary
Andrew Anker(1)................... 31 Vice President -- Interactive; Chief
Executive Officer, HotWired, Inc.
Rex Ishibashi(1).................. 32 Vice President -- Corporate and
Business Development
John Plunkett..................... 43 Creative Director
Barbara Kuhr...................... 42 Creative Director
Kevin Kelly....................... 44 Executive Editor -- Wired magazine
Peter Rutten...................... 39 President, HardWired, Inc.
Dana Lyon......................... 40 Vice President, Wired Magazine Group,
Inc.
H. William Jesse, Jr.(2).......... 44 Director
Lawrence Wilkinson(2)............. 46 Director
</TABLE>
- --------------------------------------------------------------------------------
(1) Executive Officer
(2) Member of the Audit and Compensation Committee
Mr. Rossetto, a founder of the Company and Publisher and Editor-In-Chief of
Wired magazine since its launch in January 1993, has served as the Chief
Executive Officer and Chair of the Board of Wired Ventures, Inc. since its
inception in March 1996. Prior to the Reorganization, Mr. Rossetto served as
Chief Executive Officer of Wired Holdings Inc., predecessor in interest to the
Company, since its inception in January 1993. From November 1989 until January
1993, Mr. Rossetto worked on developing Wired magazine. From April 1989 to
November 1989, Mr. Rossetto served as Editor-In-Chief of O Magazine, a Dutch
language men's lifestyle magazine. In 1986, Mr. Rossetto founded Electric Word,
a computer magazine. In 1994, he was named Co-Journalist of the Year (along with
Ms. Metcalfe) by the Society of Professional Journalists, Northern California
Chapter. Mr. Rossetto holds a B.A. in Political Science and an M.B.A. from
Columbia University.
Ms. Metcalfe, a founder of the Company, has served as the President and a
director of Wired Ventures, Inc. since its inception in March 1996. Prior to the
Reorganization, Ms. Metcalfe served as President of Wired Holdings Inc. since
its inception in January 1993. From December 1990 to January 1993, Ms. Metcalfe
worked on developing Wired magazine. From March 1988 to December 1990, Ms.
Metcalfe worked for Electric Word magazine, most recently as Associate
Publisher. Prior to that, she was Director of Export Sales at Valentine Palomba,
a Paris couturier. In 1994, Ms. Metcalfe was named Co-Journalist of the Year
(along with Mr. Rossetto) by the Society of Professional Journalists, Northern
California Chapter. Ms. Metcalfe holds a B.A. in International Relations from
The University of Colorado.
Mr. Simon has served as Chief Financial Officer and Secretary of Wired Ventures,
Inc. since May 1996. From December 1995 to May 1996, Mr. Simon was Vice
President and Chief Financial Officer of HotWired Ventures LLC. Prior to joining
the Company, from February 1994 to November 1995, Mr. Simon was Director of
Business Planning and Analysis for GE Capital Commercial Real Estate Services, a
real estate finance company, and from December 1992 to February 1994, was the
Controller for GE Capital Aircraft Leasing Corporation, an aircraft leasing
company. From August 1990 to October 1992, he was Assistant Controller for Wells
Fargo Nikko Investment Advisors, an investment advisory firm. From 1984 to 1990,
Mr. Simon worked at KPMG Peat Marwick, an independent certified public
accounting firm, most recently in the positions of Senior Tax Manager and Audit
Manager. Mr. Simon is a Certified Public
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<PAGE> 51
Accountant and holds an M.B.A. and a B.S. in Business Administration from the
University of California, Berkeley.
Mr. Anker has served as Vice President - Interactive of Wired Ventures, Inc. and
Chief Executive Officer of its subsidiary, Hotwired, Inc., since May 1996. Prior
to the Reorganization, he served as President and Chief Executive Officer of
HotWired Ventures LLC from its founding in January 1995 to May 1996, after
joining as Wired Ventures, Ltd.'s Vice President and Chief Technology Officer in
March 1994. From January 1992 to March 1994, Mr. Anker was a Principal of
Sterling Payot Company, an investment banking firm, where he remains an Advisory
Principal. From February 1991 to January 1992, he served as Director of
Development of AdExpress Company, an advertising technology firm. Mr. Anker
serves on the board of Gauge Technologies, Inc. Mr. Anker holds a B.A. in
Economics from Columbia University.
Mr. Ishibashi has served as Vice President - Corporate and Business Development
of Wired Ventures, Inc. since May 1996, previously serving as its Chief
Financial Officer and Secretary since its inception in March 1996. From December
1995 to May 1996, he served as Chief Financial Officer and Vice President of
Business Affairs for Wired Ventures, Ltd. Prior to joining the Company, Mr.
Ishibashi worked for The 3DO Company, an interactive games company, from March
1993 to November 1995, most recently as Director of Finance. From July 1992 to
March 1993, Mr. Ishibashi served as an independent financial consultant, and the
Executive Vice President and Chief Financial Officer of Wilderness Trail Bikes,
a mountain bike company. From August 1985 to July 1992, Mr. Ishibashi worked for
KPMG Peat Marwick, an independent certified public accounting firm, most
recently as Senior Audit Manager in the Tokyo and San Francisco offices. Mr.
Ishibashi is a Certified Public Accountant and holds a B.S. in Business
Administration from the University of California, Berkeley.
Mr. Plunkett has served as Creative Director for Wired magazine since its launch
in January 1993 and for Wired Ventures, Inc. since March 1996. Together Mr.
Plunkett and Ms. Kuhr are the co-creators of the look and feel of both Wired
magazine and the HotWired Network, as well as the recently launched HardWired
books. For the past six years, Mr. Plunkett also has been a partner in Plunkett
+ Kuhr, a design firm whose work has been featured in numerous national and
international design publications, including Communication Arts and Graphis, and
received awards from the American Institute of Graphic Arts, the American Center
for Design, and the Society of Publication Designers. Previously, Mr. Plunkett
was a senior designer for the corporate design firm Pentagram Design in New
York. In total, Mr. Plunkett has over 15 years of experience with electronic
pre-press and high-end printing. Mr. Plunkett holds a graduate degree in design
from the California Institute of the Arts.
Ms. Kuhr has served as Creative Director for the HotWired Network since its
launch in October 1994, and for Wired Ventures, Inc. since March 1996. Together
Mr. Plunkett and Ms. Kuhr are the co-creators of the look and feel of both Wired
magazine and the HotWired Network, as well as the recently launched HardWired
books. For the past six years, Ms. Kuhr also has been a partner in
Plunkett + Kuhr, a design firm whose work has been featured in numerous national
and international design publications, including Communication Arts and Graphis,
and received awards from the American Institute of Graphic Arts, the American
Center for Design, and the Society of Publication Designers. From 1987 to 1990,
Ms. Kuhr was a senior designer for the corporate design firm Chermayeff and
Geismar Associates in New York. Ms. Kuhr holds a design degree from Montana
State University.
Mr. Kelly has served as the Executive Editor of Wired magazine since September
1992. From 1985 to January 1990, Mr. Kelly was Editor and Publisher of Whole
Earth Review, a national magazine reporting on unorthodox technical and cultural
news. In January 1990, Mr. Kelly left the Whole Earth Review on sabbatical.
During the time between his sabbatical and joining the Company, he authored Out
of Control, a book on future technology published by Addison Wesley. He also
launched the Electronic Whole Earth Catalog on CD-ROM, edited Signal, a book on
personal communication tools, and founded and owned Nomadic Books, a mail order
company. Mr. Kelly serves as a director of the WELL, one of the first online
communities.
Mr. Rutten has served as Publisher and President of HardWired since its founding
in July 1995 and as President of HardWired, Inc. since May 1996. From December
1992 through June 1995,
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Mr. Rutten was the Creative Director at Michael Wolff & Company, Inc., now Wolff
New Media, Inc., a New York-based book and Web publishing firm. Prior to that,
Mr. Rutten worked as a Media Development Consultant and, between August 1990 and
May 1992, he co-authored the book "Where We Stand -- Can America Make it in the
Global Race for Wealth, Health, and Happiness?" (published by Bantam). From
April 1989 through July 1990, Mr. Rutten served as the Executive Editor of O
Magazine, a Netherlands-based publication written in Dutch. From 1986 to April
1990, he worked for Electric Word magazine, in the last year as its Executive
Editor.
Ms. Lyon has served as Vice President of Wired Magazine Group, Inc. since May
1996 and as Associate Publisher of Wired magazine since July 1994. Prior to
joining the Company, Ms. Lyon worked for Conde-Nast Publications, where she
served as Advertising Manager of Gourmet from July 1993 to July 1994 and as
Advertising Manager of Vanity Fair from February 1989 to July 1992. Prior to her
publishing experience, she served for eight years as an account executive with
J. Walter Thompson. Ms. Lyon holds a B.A. from Ohio Wesleyan University.
Mr. Jesse has served as a director of the Company since its inception in March
1996. Prior to that, he served as a director of Wired Holdings Inc. since its
inception in January 1993. Mr. Jesse is Chairman and President of HWJesse&Co, a
San Francisco-based firm providing financial and business advisory services to
private and closely-held companies. He co-founded and has served as a director
since 1989 of Sterling Payot Company, an investment banking company, and has
served as President of Jesse, Payot & Co., Inc., an investment holding company
since 1988. Mr. Jesse has also served since 1988 as Chair and Chief Executive
Officer of Vineyard Properties Corporation, a manager of California vineyard
properties. Mr. Jesse also serves on the boards of AdExpress Company, The Wine
Group, Inc., Specialized Bicycle Components, Inc., Aidells Sausage Company LLC,
Sonic Force LLC, and Trans Ocean Ltd. Mr. Jesse has a B.S. and an M.S. from
Lehigh University and an M.B.A. from Harvard University.
Mr. Wilkinson has served as a director of the Company since May 1996. Mr.
Wilkinson is the cofounder, and has served as President and Chief Executive
Officer since 1990, of Global Business Network ("GBN"), a consulting firm
specializing in strategic positioning issues and product, service, and venture
development. Prior to 1990, Mr. Wilkinson served as President of Colossal
Pictures, a film production company. Mr. Wilkinson has produced numerous
television programs, multimedia titles, and feature films, including the feature
film Crumb (Sony Pictures Classics). He also has contributed regularly to
general and business periodicals and national television, cable, and radio
business news programs, including Wired magazine, Backstage, Business Times,
Nightly Business Report, and The Wall Street Journal Report. Mr. Wilkinson
serves on the boards of Broderbund Software, GBN and Colossal Pictures. Mr.
Wilkinson has a B.A. from Davidson College, a B.Phil. from Oxford University and
an M.B.A. from Harvard University.
BOARD COMMITTEES
The Audit Committee of the Board of Directors, which currently consists of Mr.
Jesse and Mr. Wilkinson, was formed in May 1996 to review the internal
accounting procedures of the Company and consult with and review the services
provided by the Company's independent public accountants. The Compensation
Committee of the Board of Directors, which currently consists of Mr. Jesse and
Mr. Wilkinson, was formed in May 1996 to review and recommend to the Board the
compensation and benefits of all officers of the Company and review general
policies relating to compensation and benefits of employees of the Company. The
Compensation Committee also administers the issuance of stock options and other
awards under the Company's 1996 Equity Incentive Plan.
DIRECTOR COMPENSATION
All directors are reimbursed for expenses incurred in connection with attendance
at meetings of the Company's Board of Directors. Each non-employee director of
the Company will be eligible to receive stock option grants under the Company's
1996 Director Stock Option Plan. Directors who are also employees of the Company
are eligible to receive stock options and other equity grants under the
Company's 1996 Equity Incentive Plan. See "-- Employee Benefit Plans."
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<PAGE> 53
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to or earned by the
Company's Chief Executive Officer and the other executive officers of the
Company (collectively, the "Named Executive Officers") for the year ended
December 31, 1995:
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) COMPENSATION
------------------------ ------- ------------
<S> <C> <C>
Louis Rossetto................................... $ 88,558 --
Chief Executive Officer
Jane Metcalfe.................................... 88,558 --
President
Jeffrey Simon.................................... 12,500(2) $15,000(3)
Chief Financial Officer and Secretary
Andrew Anker..................................... 140,369 4,938(4)
Vice President - Interactive
Rex Ishibashi.................................... 4,167(5) --
Vice President - Corporate and Business
Development
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes amounts earned but deferred at the election of the Named Executive
Officer under the Company's 401(k) plan.
(2) Mr. Simon joined the Company in November 1995; this number reflects an
annual salary of $110,000.
(3) Represents reimbursement for relocation costs.
(4) Represents medical insurance premiums paid by the Company on behalf of Mr.
Anker.
(5) Mr. Ishibashi joined the Company in December 1995; this number reflects an
annual salary of $110,000.
STOCK OPTION INFORMATION
The Company did not grant options to any of the Named Executive Officers in 1995
and none of the Named Executive Officers exercised any options during 1995 or
held any options at the end of 1995.
EMPLOYEE BENEFIT PLANS
1996 Equity Incentive Plan
The Company's 1996 Equity Incentive Plan (the "Incentive Plan") under which
4,250,000 shares of Common Stock are reserved for future issuance, was adopted
by the Board of Directors in May 1996. The Incentive Plan provides for the grant
of stock options, stock bonuses and stock appreciation rights and the sale and
issuance of restricted stock by the Company to its employees, officers,
directors and consultants.
The term of stock options granted under the Incentive Plan may not exceed 10
years. The exercise price of options granted under the Incentive Plan will be
determined by the Board of Directors but, in the case of a nonstatutory stock
option, cannot be less than 85% of the fair market value of the Common Stock on
the date of the option grant and, in the case of an incentive stock option,
cannot be less than 100% of the fair market value of the Common Stock on the
date of grant. Options granted under the Incentive Plan generally vest in
periodic installments that are determined by the Board. No option may be
transferred by the optionee other than by will or the laws of descent or
distribution or, in certain limited circumstances, pursuant to a qualified
domestic relations order. An optionee whose relationship with the
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<PAGE> 54
Company or any affiliate ceases for any reason (other than death or disability)
may exercise options in the three-month period following such cessation unless
such options terminate or expire sooner by their terms.
In addition to, or in tandem with, awards of stock options, the Board of
Directors may grant participants restricted stock awards to purchase the
Company's Common Stock for not less than 85% of its fair market value at the
time of grant or stock bonus awards of the Company's Common Stock. Shares of
stock sold or awarded under the Incentive Plan may, but need not be, subject to
a repurchase option in favor of the Company in accordance with a vesting
schedule determined by the Board of Directors or Compensation Committee. The
Board of Directors may also grant stock appreciation rights of the Company's
Common Stock in addition to, or in tandem or concurrently with, other awards
under the Incentive Plan. The terms of all such awards will be determined by the
Board of Directors.
Shares that (a) are subject to issuance upon exercise of an option but cease to
be subject to such stock option for any reason other than exercise of such stock
option, (b) are subject to another award granted under the Incentive Plan but
are forfeited or are repurchased by the Company at the original issue price, or
(c) are subject to an award that otherwise terminates without shares being
issued will again be available for grant and issuance in connection with future
awards under the Incentive Plan. In the event of a merger of the Company with or
into another corporation or the acquisition by any entity of 50% of the voting
stock of the Company, all outstanding options must either be assumed or
substituted by the surviving entity. If the surviving entity determines not to
assume or substitute such options, the options terminate as of the closing of
the merger or consolidation if not exercised prior to the closing.
1996 Non-Employee Director Stock Option Plan
The Board of Directors adopted a 1996 Non-Employee Director Stock Option Plan
(the "Directors' Plan") in May 1996. The total number of shares of Common Stock
reserved for issuance and granted under the Directors' Plan is 50,000. The
Directors' Plan provides for the grant of nonstatutory stock options to
non-employee directors of the Company. The Directors' Plan is designed to work
automatically without administration; however, to the extent administration is
necessary, it will be performed by the Board. The Directors' Plan provides that
each person who is a non-employee director of the Company upon the closing of
the offerings, or becomes a non-employee director after such date will be
granted an option (the "First Option") to purchase 1,250 shares of Common Stock
on the date on which the optionee first becomes a non-employee director of the
Company. Thereafter, on January 1 of each year each non-employee director will
be granted an additional option to purchase 1,250 shares of Common Stock,
prorated for partial years of service (a "Subsequent Option"). Each First Option
and Subsequent Option will be subject to vesting over a four-year period. The
exercise price of all stock options granted under the Directors' Plan will be
equal to the fair market value of a share of the Company's Common Stock on the
date of grant of the option. Options granted under the Directors' Plan will have
a term of 10 years. The Directors' Plan does not set a maximum or a minimum
number of shares for which options may be granted to any one non-employee
director. No option granted under the Directors' Plan will be transferable by
the optionee other than by will or the laws of descent or distribution or
pursuant to a qualified domestic relations order (as defined by the Internal
Revenue Code of 1986, as amended (the "Code")), and each option will be
exercisable, during the lifetime of the optionee, only by such optionee.
In the event of a merger of the Company with or into another corporation or a
sale of substantially all of the Company's assets, each non-employee director
will have a reasonable time within which (i) to exercise his or her options,
including any part of an option that would not otherwise be exercisable prior to
the effectiveness of the transaction, at which time the options will terminate
or the right to exercise their options, including any part of an option that
would not otherwise be exercisable, or (ii) to receive a substitute option with
comparable terms, for an equivalent number of shares of stock of the acquiring
or successor corporation.
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The Board of Directors may amend or terminate the Directors' Plan; provided,
however, that no such action may adversely affect any outstanding option, and
the provisions regarding the grant of options under the plan may be amended only
once in any six-month period, other than to comport with changes in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or the Code. If not
terminated earlier, the Directors' Plan has a term of 10 years.
401(k) Plan
In August 1995, the Company adopted an employee savings plan (the "401(k) Plan")
covering all of the Company's eligible full-time employees. Pursuant to the
401(k) Plan, eligible employees may elect to reduce their current compensation
by up to the lesser of 20% of their annual compensation or the statutorily
prescribed annual limit ($9,500 in 1996) and have the amount of such reduction
contributed to the 401(k) Plan. In addition, eligible employees may make
rollover contributions to the 401(k) Plan from a tax-qualified retirement plan.
The 401(k) Plan is intended to qualify under Section 401 of the Code, so that
contributions by employees or by the Company to the 401(k) Plan, and income
earned on the 401(k) Plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan, and so that contributions by the Company, if
any, will be deductible by the Company when made. The Company does not presently
intend to make any matching or discretionary contributions.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
The Company's Restated Certificate of Incorporation provides that directors of
the Company will not be personally liable for monetary damages to the Company or
its stockholders for any breach of their fiduciary duty as directors, except for
(i) any breach of such director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (iii) liability arising
under Section 174 of the General Corporation Law of the State of Delaware, or
(iv) any transaction from which a director derives an improper personal benefit.
The Company's Restated Certificate of Incorporation and Bylaws provide that
directors and officers of the Company may be indemnified to the fullest extent
permitted by Delaware law, as it now exists or may in the future be amended,
against all expenses and liabilities reasonably incurred in connection with
service for or on behalf of the Company, including payment of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification. The Restated Certificate of Incorporation and
Bylaws also provide that the rights of directors and officers to such
indemnification is not exclusive of any other right now possessed or hereafter
acquired under any statute, agreement or otherwise.
The Company has entered into indemnification agreements with each of its
executive officers and directors. Each indemnification agreement provides that
such officer or director will be indemnified by the Company to the fullest
extent permitted by the Company's Bylaws and Delaware law, as it now exists or
may in the future be amended, and against all expenses and liabilities
reasonably incurred in connection with service for or on behalf of the Company.
The Company will also authorize under the indemnification agreements to advance
payment of expenses in defending an action or proceeding upon receipt of an
undertaking by the person indemnified to repay such payment if it is ultimately
determined that such person is not entitled to indemnification.
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<PAGE> 56
CERTAIN TRANSACTIONS
Prior to the completion of the Reorganization, which occurred in May 1996, the
Company's businesses were conducted in partnership and limited liability company
form, principally through Wired Partners, a California general partnership (from
its formation in October 1992 through January 1993), Wired USA Ltd. (from its
formation in January 1993 through January 1994), Wired Ventures, Ltd. (from its
formation in January 1994 to May 1996) and HotWired Ventures LLC (from its
formation in January 1995 to May 1996). The ownership of the Company's
constituent entities prior to the Reorganization is summarized below:
- --------------------------------------------------------------------------------
Wired Holdings Inc. ("Holdings"). Holdings, which was owned by 22 individual
shareholders (none of whom individually held a controlling interest), was the
majority owner and general partner of Wired USA Ltd. and a minority owner and
the general partner of Wired Ventures, Ltd. Holdings' only assets were its
ownership interests in these two entities.
Wired USA Ltd. ("USA"). The majority interest in USA was held by its general
partner, Holdings. The remaining interest was held by various limited partners.
From its formation in January 1993 through January 1994, USA owned the assets
associated with Wired magazine and certain other entities. Upon the formation of
Wired Ventures, Ltd. in January 1994, USA transferred its assets to such entity
and thereafter was its majority owner and limited partner. After January 1994,
USA's only asset was its ownership interest in Wired Ventures, Ltd.
Wired Ventures, Ltd. ("Wired Ventures"). Wired Ventures was owned by Holdings,
USA, Advance Magazine Publishers, Inc. ("Advance") (which owned a minority
limited partnership interest) and certain employees (who each owned a minority
limited partnership interest). Wired Ventures owned the assets associated with
Wired magazine and certain other entities, including a majority membership
interest in HotWired Ventures LLC.
HotWired Ventures LLC ("HotWired Ventures"). HotWired Ventures was owned by
Wired Ventures and certain employees and investors (who each owned a minority
membership interest). HotWired Ventures owned the assets associated with the
Company's online media properties.
- --------------------------------------------------------------------------------
The Reorganization was intended to simplify the corporate structure outlined
above such that the Company is a single corporate holding company, Wired
Ventures, Inc., which has wholly owned subsidiaries that conduct the various
aspects of the Company's business. In the Reorganization, the shareholders of
Holdings, the limited partners of USA (other than Holdings), the limited
partners of Wired Ventures (other than USA) and the members of HotWired Ventures
(other than Wired Ventures) contributed their respective interests in such
entities to the Company in exchange for shares of the Company's Series A
Preferred Stock. The Company then contributed its interests in Wired USA, Wired
Ventures and HotWired Ventures to Holdings, resulting in a dissolution of Wired
USA, Wired Ventures and HotWired Ventures and leaving Holdings (which was
renamed Wired Magazine Group, Inc.) as a wholly owned subsidiary of the Company.
The Company's magazine, book, online, and television operations are now
conducted by its subsidiaries, Wired Magazine Group, Inc., HardWired, Inc.,
HotWired, Inc. and Wired Television, Inc., respectively.
Since its inception, the Company has financed a portion of its operations
through the private sales of equity securities of its constituent entities, as
follows:
Launch Financing. In January 1993, Holdings was capitalized with cash and
certain trademarks and other similar intellectual property rights valued at
$79,333 contributed by its predecessor, Wired Partners, a general partnership
comprised of Louis Rossetto, Jane Metcalfe, Charles Jackson and Nicholas
Negroponte. In addition, various investors affiliated with Sterling Payot
Company, an investment banking firm ("Sterling Payot"), contributed a total of
$14,000 to Holdings.
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<PAGE> 57
Concurrently with the initial capitalization of Holdings in January 1993, USA
was organized and assumed the business of its predecessor, Wired Partners. In
connection with USA's formation, (a) Holdings contributed cash and certain
trademarks and other similar intellectual property rights with an aggregate
value of $93,333 in exchange for a general partnership interest in USA
representing a 62% interest in USA, (b) two seed investors contributed a total
of $225,000 in cash in exchange for Class A limited partnership interests in USA
representing an 18.7% ownership interest in USA, and (c) various new investors
contributed a total of $606,400 in cash in exchange for Class A limited
partnership interests in USA representing an 18.9% ownership interest in USA
(the "Launch Financing"). Sterling Payot served as the Company's placement agent
for the Launch Financing, and certain affiliates of Sterling Payot were
investors in such financing. In connection with the completion of the Launch
Financing, H. William Jesse, Jr., a director of Sterling Payot, became a
director of Holdings.
Subsequently, in November 1993, Holdings issued additional shares of stock to
certain key employees of and consultants to the Company, subject to vesting over
a period of two years.
Circulation Financing. In January 1994, USA entered into a limited partnership
agreement with Holdings and Advance, an affiliate of Conde Nast, to form Wired
Ventures for the purpose of owning and operating Wired magazine. Holdings
contributed the Wired brands, logos and trade names to the new partnership in
exchange for a general partnership interest representing a 3% ownership interest
in Wired Ventures. USA contributed all operations, assets and liabilities
relating to Wired magazine in exchange for a limited partnership interest
representing an 82% ownership interest in Wired Ventures. Advance contributed
$3.0 million in cash to Wired Ventures and an outstanding $500,000
non-interest-bearing convertible note (which was converted to capital) in
exchange for a limited partnership interest representing a 15% ownership
interest in Wired Ventures. Wired Ventures subsequently issued Class B limited
partnership interests constituting subordinated profit interests to certain
Wired Ventures employees.
Online Spinoff and Financing. In January 1995, certain Wired Ventures employees
formed HW Acquisition Group LLC, a California limited liability company (the
"LLC"), and purchased equity interests therein. In March 1995, Wired Ventures
contributed its online publishing business to the LLC in exchange for Class A
membership units representing a 90% ownership interest in the LLC. In connection
with the spinoff of the online business, the LLC changed its name to HotWired
Ventures LLC, and the outstanding employee units were recharacterized as Class B
membership units and subordinated to the return of capital of the Class A
membership units issued to Wired Ventures. In August 1995, additional Class A
membership units were issued to 25 business enterprises and individuals,
including certain affiliates of Sterling Payot, for an aggregate purchase price
of $7.0 million, which reduced Wired Ventures' interest in HotWired Ventures to
74.5%. HotWired Ventures subsequently issued Class C membership units
constituting subordinated profit interests to certain key employees and advisors
of HotWired Ventures. Sterling Payot, certain principals of which were Class A
investors in HotWired Ventures, has performed ongoing business advisory services
for HotWired Ventures. Sterling Payot was issued 600 fully vested Class C
membership units (which were subsequently exchanged for shares of the Company's
Series A Preferred Stock in the Reorganization) for services rendered through
October 1995 and has received options to purchase 7,375 shares of the Company's
Common Stock with an exercise price of $2.00 per share for services rendered
after that date. H. William Jesse, Jr., a director of the Company, co-founded
Sterling Payot and has served as one of its directors since 1989.
Debt Financing. The Company has financed certain of its operations through bank
and other debt financing. In its first year of operation, USA received two loans
from related parties. The first loan, from a relative of the publisher, was for
$50,000 at 6% interest per annum and was repaid subsequent to the formation and
financing of Wired Ventures in 1994. The second loan, in the principal amount of
$275,000 at 10% interest per annum, was from the Jackson Living Trust, a limited
partner in USA, and was canceled in connection with the formation and financing
of Wired Ventures in 1994, with part of it being converted into equity and the
remainder being repaid in cash. In connection with the restructuring of its
United Kingdom operations in mid-
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<PAGE> 58
1995, the Company guaranteed a non-interest-bearing note payable by Wired UK to
its former U.K. joint venture partner, Guardian Media Group plc, for L1.0
million (approximately $1.6 million), which is due in July 1998. In November
1995, the Company entered into a $6.5 million revolving credit facility with
Signet Bank to fund the further expansion of its magazine business, which is
secured by all Wired magazine-related assets. The line bears interest at a rate
equal to adjusted LIBOR plus 3.25% (9% at December 31, 1995). See "Use of
Proceeds."
Series B Preferred Stock Financing. In May 1996, the Company sold a total of
625,000 shares of its Series B Preferred Stock (convertible into a total of
961,534 shares of Common Stock based on an assumed initial public offering price
of $13.00 per share) to various investors, including Advance and certain other
preexisting investors in the Company, as well as certain new investors, for
$20.00 per share. Advance purchased 50,000 shares in such financing. In
September 1996, the Company amended its Certificate of Incorporation (i)
eliminating the minimum gross proceeds and minimum price per share requirements
relating to automatic conversion of the Preferred Stock upon the Company's
initial public offering and (ii) providing the holders of its Series B Preferred
Stock with modified anti-dilution protection in connection with the Company's
initial public offering. As a result, upon the completion of the offerings, all
outstanding shares of Preferred Stock will be converted automatically into
shares of Common Stock regardless of the offering price per share or gross
proceeds, with each share of Series B Preferred Stock being converted into a
number of shares equal to $20.00 divided by the per-share price to the public in
the offerings.
Consulting Services. Lawrence Wilkinson, a director of the Company, serves as
the President and Chief Executive Officer of Global Business Network ("GBN").
From June 1995 through June 1996, GBN provided consulting services to the
Company. In compensation for such services, GBN received $5,000 per month and
Mr. Wilkinson received options to purchase 71,338 shares of Common Stock.
Option Repricing. In September 1996, the Company repriced options to purchase
an aggregate of 672,468 shares of Common Stock with an exercise price of $11.90
per share to an exercise price of $10.00 per share and repriced options to
purchase an aggregate of 1,095,366 shares of Common Stock with an exercise price
of $20.00 per share to an exercise price of $12.00 per share. Such repriced
options included options held by executive officers of the Company as set forth
below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OLD EXERCISE NEW EXERCISE
NAME NUMBER OF SHARES PRICE PRICE
- ---------------------------------------------- ---------------- ------------ ------------
<S> <C> <C> <C>
Louis Rossetto................................ 150,000 $20.00 $12.00
Jane Metcalfe................................. 100,000 20.00 12.00
Jeffrey Simon................................. 44,047 11.90 10.00
45,845 20.00 12.00
Rex Ishibashi................................. 17,211 11.90 10.00
17,211 20.00 12.00
</TABLE>
- --------------------------------------------------------------------------------
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<PAGE> 59
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 25, 1996, after giving
effect to the conversion of all outstanding shares of Preferred Stock into
shares of Common Stock (based on an assumed initial public offering price of
$13.00 per share), which will occur automatically upon the completion of the
offerings, and as adjusted to reflect the sale of Common Stock offered in the
offerings, for (i) each stockholder who is known by the Company to own
beneficially more than 5% of the Common Stock; (ii) each Named Executive
Officer; (iii) each director of the Company; and (iv) all executive officers and
directors of the Company as a group.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)
NUMBER OF SHARES ----------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
---------------------- ------------------ ------- -------
<S> <C> <C> <C>
Louis Rossetto(2)...................... 2,971,525 18.1% 14.0%
Wired Ventures, Inc.
520 Third Street
Fourth Floor
San Francisco, CA 94107
Jane Metcalfe(3)....................... 2,827,663 17.3 13.4
Wired Ventures, Inc.
520 Third Street
Fourth Floor
San Francisco, CA 94107
Advance Magazine Publishers, Inc....... 2,119,979 13.1 10.1
350 Madison Avenue
14th Floor
New York, NY 10017
Jackson Living Trust dtd July 15,
1992................................. 1,336,368 8.2 6.4
c/o Clopine Hinkle & Associates
6046 Cornerstone Court West, Suite
2201
San Diego, CA 92121
Nicholas Negroponte.................... 1,210,239 7.5 5.8
MIT Research
20 Ames Street
Cambridge, MA 02139
H. William Jesse, Jr.(4)............... 827,603 5.1 3.9
HWJesse&Co
222 Sutter Street
San Francisco, CA 94108
Andrew Anker(5)........................ 291,538 1.8 1.4
Jeffrey Simon(6)....................... 175,000 1.1 *
Rex Ishibashi(7)....................... 99,999 * *
Lawrence Wilkinson(8).................. 87,593 * *
All executive officers and directors as
a group (7 persons)(9)............... 7,280,921 43.2 33.7
</TABLE>
- --------------------------------------------------------------------------------
* less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
Company believes, based on information furnished by such persons, that the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
Percentage of beneficial ownership is based on 16,211,518 shares of Common
Stock outstanding as of September 25, 1996 and 20,961,518 shares of Common
Stock outstanding after the completion of the offerings. In computing the
number of shares beneficially owned by a person and the percentage ownership
of that person, shares of Common Stock subject to options held
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<PAGE> 60
by that person that will be exercisable on or before November 24, 1996 are
deemed outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.
(2) Includes 200,000 shares of Common Stock subject to immediately exercisable
stock options, of which options to purchase 128,125 shares will be vested as
of November 24, 1996 and the remaining 71,875 shares would be subject to
repurchase if purchased prior to vesting.
(3) Includes 150,000 shares of Common Stock subject to immediately exercisable
stock options, of which options to purchase 102,084 shares will be vested as
of November 24, 1996 and the remaining 47,916 shares would be subject to
repurchase if purchased prior to vesting.
(4) Includes 580,553 shares held by HWJesse&Co, of which Mr. Jesse is the
President, Chief Executive Officer and sole shareholder, and 58,055 shares
held by Pensco Pension Services for the benefit of Mr. Jesse.
(5) Owned by Mr. Anker and his wife as co-trustees of the Anker 1996 Trust.
Includes 25,000 shares of Common Stock subject to immediately exercisable
stock options, of which options to purchase 16,146 shares will be vested as
of November 24, 1996 and the remaining 8,854 shares would be subject to
repurchase if purchased prior to vesting.
(6) Includes 164,892 shares of Common Stock subject to immediately exercisable
stock options, none of which will be vested as of November 24, 1996.
(7) Includes 34,422 shares of Common Stock subject to immediately exercisable
stock options, none of which will be vested as of November 24, 1996.
(8) Includes 71,338 shares of Common Stock subject to immediately exercisable
stock options, 22,293 of which will be vested as of November 24, 1996 and
the remaining 49,045 shares would be subject to repurchase if purchased
prior to vesting.
(9) Includes 645,652 shares of Common Stock subject to immediately exercisable
stock options, of which options to purchase 268,648 shares will be vested as
of November 24, 1996 and the remaining 377,004 shares would be subject to
repurchase if purchased prior to vesting. See Notes 2, 3, 5, 6, 7 and 8.
DESCRIPTION OF CAPITAL STOCK
Immediately following the completion of the offerings, the authorized capital
stock of the Company will consist of 75,000,000 shares of Common Stock, $0.001
par value per share, and 7,500,000 shares of Preferred Stock, $0.001 par value
per share. As of September 25, 1996, and assuming the conversion of all
outstanding shares of Preferred Stock into shares of Common Stock (based on an
assumed initial public offering price of $13.00 per share), there were
outstanding 16,211,518 shares of Common Stock held of record by 113
stockholders.
COMMON STOCK
Subject to preferences that may apply to any Preferred Stock outstanding at the
time, the holders of outstanding shares of Common Stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board of Directors may from time to time determine. Each
stockholder is entitled to one vote for each share of Common Stock held on all
matters submitted to a vote of stockholders. Cumulative voting for the election
of directors is not provided for in the Company's Amended and Restated
Certificate of Incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. The
Common Stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Upon liquidation, dissolution or winding-up of the
Company, the assets legally available for distribution to stockholders are
distributable ratably among the holders of the Common Stock and any
participating Preferred Stock outstanding at that time after payment of
liquidation preferences, if any, on any outstanding Preferred Stock and payment
of other claims of creditors. Each outstanding share of Common Stock is, and all
shares of Common Stock to be outstanding upon completion of the offerings will
be, fully paid and nonassessable.
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<PAGE> 61
PREFERRED STOCK
Upon the completion of the offerings, all outstanding shares of Preferred Stock
(the "Convertible Preferred") will be converted automatically into shares of
Common Stock. See Note 7 of Notes to Consolidated Financial Statements for a
description of the Convertible Preferred. The Board of Directors is authorized,
subject to any limitations prescribed by Delaware law, to provide for the
issuance of additional shares of Preferred Stock in one or more series, to
establish from time to time the number of shares to be included in each such
series, to fix the powers, designations, preferences, and rights of the shares
of each wholly unissued series and any qualifications, limitations, or
restrictions thereon, and to increase or decrease the number of shares of any
such series (but not below the number of shares of such series then outstanding)
without any further vote or action by the stockholders. The Board of Directors
may authorize the issuance of Preferred Stock with voting or conversion rights
that could adversely affect the voting power or other rights of the holders of
Common Stock. Thus, the issuance of Preferred Stock may have the effect of
delaying, deferring, or preventing a change in control of the Company. The
Company has no current plan to issue any shares of Preferred Stock.
DELAWARE'S ANTI-TAKEOVER LAW
Upon the completion of the offerings, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law (the
"Anti-Takeover Law") regulating corporate takeovers. The Anti-Takeover Law
prevents certain Delaware corporations, including those whose securities are
listed on the Nasdaq National Market, from engaging, under certain
circumstances, in a "business combination" not approved in advance by the Board
(which includes a merger or sale of more than 10% of the corporation's assets)
with any "interested stockholder" (a stockholder who owns 15% or more of the
corporation's outstanding voting stock) for three years following the date that
such stockholder became an "interested stockholder." The effect of the
Anti-Takeover Law is to discourage takeover attempts, including attempts that
might result in a premium over the market price of the Common Stock. A Delaware
corporation may "opt out" of the Anti-Takeover Law with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or bylaws resulting from a stockholders' amendment
approved by at least a majority of the outstanding voting shares. The Company
has not "opted out" of the provisions of the Anti-Takeover Law.
REGISTRATION RIGHTS
The holders of 15,835,904 shares of Common Stock (the "Registrable Securities")
have certain rights with respect to the registration of those shares under the
Securities Act. If the Company proposes to register any of its shares of Common
Stock under the Securities Act other than in connection with a Company employee
benefit plan or a corporate reorganization, the holders of Registrable
Securities may require the Company to include all or a portion of their shares
in such registration, subject to certain conditions and limitations. In
addition, beginning one year after the closing date of the offerings, holders of
Registrable Securities may require the Company to register all or any portion of
their Registrable Securities on Form S-3 when such form becomes available to the
Company, subject to certain conditions and limitations. The Company may be
required to effect up to one such registration on Form S-3 per year, and is not
required to effect more than two such registrations. All expenses incurred in
connection with such registrations (other than underwriters' or brokers'
discounts and commissions) will be borne by the Company. All expenses incurred
in connection with such registrations (other than underwriters' discounts and
commissions) will be borne by the Company. The registration rights expire three
years after the date of this Prospectus.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is The First
National Bank of Boston.
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<PAGE> 62
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Company's Common Stock in the
public market could have the effect of depressing the prevailing market price of
its Common Stock. Upon the completion of the offerings, the Company will have
outstanding 20,961,518 shares of Common Stock (assuming no exercise of
outstanding options after September 25, 1996). Of these shares, the 4,750,000
shares sold in the offerings will be freely transferable without restriction or
further registration under the Securities Act of 1933 (the "Securities Act")
unless purchased by "affiliates" of the Company as that term is defined in Rule
144 under the Securities Act ("Affiliates"), which shares will be subjected to
the resale limitations of Rule 144. All of the remaining 16,211,518 shares (the
"Pre-IPO Shares") outstanding upon the completion of the offerings are subject
to lock-up agreements (the "Lock-up Agreements") entered into between the
stockholders and the representatives of the U.S. Underwriters as described
below. Beginning 180 days after the date of the Prospectus upon expiration of
the Lock-up Agreements, 4,025,052 of the Pre-IPO Shares (as well as 448,110
additional shares issuable upon the exercise of stock options that will be
vested as of April 1, 1997) will become freely tradeable and 11,224,930
additional Pre-IPO Shares (as well as 701,723 additional shares issuable upon
the exercise of stock options that will be vested as of April 1, 1997) held by
Affiliates will become eligible for public resale subject to compliance with
certain volume restrictions set forth in Rule 144. The remaining 961,536 of the
Pre-IPO Shares (including 76,925 shares held by Affiliates) will become eligible
for public resale subject to compliance with certain timing, manner of sale, and
volume restrictions set forth in Rule 144 beginning in May 1998.
All of the stockholders of the Company have entered into Lock-up Agreements with
the Representatives of the U.S. Underwriters providing that, with certain
limited exceptions, such stockholders will not offer, sell, contract to sell,
grant an option to purchase, make a short sale of, or otherwise dispose of or
engage in any hedging or other transaction that is designed or reasonably
expected to lead to a disposition of any shares of Common Stock or any option or
warrant to purchase shares of Common Stock or any securities exchangeable for or
convertible into shares of Common Stock for a period of 180 days after the date
of this Prospectus without the prior written consent of Goldman, Sachs & Co.
Other than the 4,750,000 shares being offered in the offerings, as of the date
of this Prospectus no shares of Common Stock will be eligible for immediate sale
in the public market until the expiration of the 180-day Lock-up Agreements with
the Representatives of the U.S. Underwriters. Goldman, Sachs & Co. may, in its
sole discretion and at any time with or without notice, release all or any
portion of the securities subject to Lock-up Agreements. Goldman, Sachs & Co.
has informed the Company that it has no current intention to release shares from
the Lock-up Agreements prior to the expiration thereof. Any request for release
would be evaluated by Goldman, Sachs & Co. in light of, and the decision whether
or not to permit early release of shares would be dependent upon, the facts and
circumstances existing at the time of the request.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned Restricted Shares for at least
two years (and, with respect to non-Affiliates, a person who has beneficially
owned Restricted Shares less than three years), will be entitled to sell in any
three-month period a number of shares that does not exceed the greater of (i) 1%
of the then outstanding shares of the Company's Common Stock (approximately
209,600 shares immediately after the offerings) or (ii) the average weekly
trading volume of the Company's Common Stock in the Nasdaq National Market
during the four calendar weeks immediately preceding the date of which notice of
the sale is filed with the Securities and Exchange Commission. Such sales
pursuant to Rule 144 are subject to certain requirements relating to manner of
sale, notice and availability of current public information about the Company.
The Securities and Exchange Commission has recently proposed to reduce the two
year holding periods under Rule 144 to one year. If enacted, such modification
will have a material effect on the timing of when certain shares of Common Stock
become eligible for resale.
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<PAGE> 63
As of September 25, 1996, options to purchase an aggregate of 2,432,240 shares
of Common Stock were outstanding. Rule 701 under the Securities Act provides
that, beginning 90 days after the date of this Prospectus, shares of Common
Stock acquired upon the exercise of outstanding options may be resold by persons
other than Affiliates subject only to the manner of sale provisions of Rule 144,
and by Affiliates subject to all provisions of Rule 144 except the two-year
minimum holding period. The Company intends to file one or more registration
statements on Form S-8 under the Securities Act to register shares of Common
Stock subject to stock options that will permit the resale of such shares,
subject to the Rule 144 volume limitations applicable to Affiliates, vesting
restrictions with the Company, and Lock-up Agreements between the option holders
and the Company and the Representatives of the U.S. Underwriters.
Holders of 15,835,904 shares of outstanding Common Stock (including 11,275,492
shares held by Affiliates) have the right to require the Company to register
their shares of Common Stock under the Securities Act. If such registration
rights are exercised, the shares registered can be sold without any holding
period or sales volume limitation. Registration and sale of such shares could
have an adverse effect on the trading price of the Common Stock. See
"Description of Capital Stock -- Registration Rights."
Prior to the offerings, there has been no public market for the Common Stock of
the Company, and no predictions can be made of the effect, if any, that the sale
or availability for sale of shares of additional Common Stock will have on the
trading price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could adversely affect the trading price of the Common Stock and could impair
the Company's future ability to raise capital through an offering of its equity
securities. See "Description of Capital Stock."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company by its counsel, Cooley Godward LLP, San Francisco, California.
Certain legal matters will be passed upon for the Underwriters by Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation, Palo Alto, California. As
of the date of this Prospectus, certain members of and persons associated with
Cooley Godward LLP beneficially owned 75,267 shares of Common Stock.
EXPERTS
The consolidated financial statements and schedule of the Company as of December
31, 1994 and 1995 and for the three-year period ended December 31, 1995 have
been included in this Prospectus and Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein and in the Registration Statement, and upon the
authority of such firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
In February 1996, the Company decided to retain KPMG Peat Marwick LLP as the
Company's independent accountants and dismissed Coopers & Lybrand LLP, the
Company's former accountants. The decision to change independent accountants was
ratified and approved by the Company's Board of Directors in May 1996. During
the period from the Company's inception through February 1996 and with respect
to the Company's financial statements for the years ended December 31, 1993 and
1994, there were no disagreements with Coopers & Lybrand LLP regarding any
matters with respect to accounting principles or practices, financial statement
disclosure or audit scope or procedure, which disagreements, if not resolved to
the satisfaction of the former accountants, would have caused Coopers & Lybrand
LLP to make reference to the subject matter of the disagreement in connection
with its report. The former accountants' reports for the years ended December
31, 1993 and 1994 are not a part of the financial statements of the Company
included in this Prospectus and the related financial statement schedules
included elsewhere in the Registration Statement. Such reports did not contain
an
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<PAGE> 64
adverse opinion or disclaimer of opinion or qualifications or modifications as
to uncertainty, audit scope or accounting principles. Prior to retaining KPMG
Peat Marwick LLP, the Company had not consulted with KPMG Peat Marwick LLP
regarding accounting principles.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating to
the shares of Common Stock offered hereby has been filed by the Company with the
Commission under the Securities Act. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at the regional offices of the
Commission located at Room 1228, 75 Park Place, New York, New York 10007 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any part of the Registration Statement and the
exhibits and schedules thereto may be obtained from those offices upon the
payment of certain fees prescribed by the Commission. In addition, the
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission.
61
<PAGE> 65
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 66
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Form of Independent Auditors' Report.................................... F-3
Consolidated Balance Sheets............................................. F-4
Consolidated Statements of Operations................................... F-5
Consolidated Statements of Minority Interest and Stockholders' Equity
(Deficit)............................................................. F-6
Consolidated Statements of Cash Flows................................... F-8
Notes to Consolidated Financial Statements.............................. F-9
</TABLE>
F-1
<PAGE> 67
[THIS PAGE INTENTIONALLY LEFT BLANK.]
F-2
<PAGE> 68
FORM OF INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wired Ventures, Inc.:
When the reverse stock split referred to in Note 12 of the Notes to Consolidated
Financial Statements has been consummated, we will be in a position to render
the following report.
KPMG PEAT MARWICK LLP
San Francisco, California
September 30, 1996
We have audited the accompanying consolidated balance sheets of Wired Ventures,
Inc., a Delaware Corporation, and subsidiaries (the Company) as of December 31,
1994 and 1995, and the related consolidated statements of operations, minority
interest and stockholders' equity (deficit), and cash flows for each of the
years in the three-year period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wired Ventures, Inc.
and subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
San Francisco, California
May 24, 1996, except as to Note 12, which is
as of , 1996
F-3
<PAGE> 69
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 1996
DECEMBER 31, ------------------
--------------- PRO FORMA
1994 1995 ACTUAL (NOTE 1)
------ ------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 1,750 $ 7,234 $ 12,491 $ 12,491
Accounts receivable, net of allowances for returns and doubtful
accounts of $2,022, $2,564, $2,324 and $2,324, respectively......... 2,198 3,071 3,662 3,662
Deferred production costs............................................. 261 341 352 352
Prepaid expenses...................................................... 95 160 310 310
-------------------------------------
Total current assets........................................... 4,304 10,806 16,815 16,815
Property and equipment, net............................................. 791 2,216 2,999 2,999
Goodwill and other intangibles.......................................... -- -- 3,822 3,822
Other assets............................................................ 16 196 940 940
-------------------------------------
$ 5,111 $13,218 $ 24,576 $ 24,576
-------------------------------------
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable...................................................... $ 2,261 $ 4,237 $ 3,869 $ 3,869
Accrued expenses...................................................... 306 2,356 3,331 3,331
Deferred revenue...................................................... 2,534 3,957 4,299 4,299
Notes payable to bank................................................. -- 1,500 5,000 5,000
-------------------------------------
Total current liabilities...................................... 5,101 12,050 16,499 16,499
Deferred revenue........................................................ 163 124 265 265
Notes payable........................................................... -- 1,185 1,226 1,226
-------------------------------------
Total liabilities.............................................. 5,264 13,359 17,990 17,990
Minority interest....................................................... -- 1,366 -- --
Commitments and contingencies
Stockholders' equity (deficit):
Undesignated preferred stock; $0.001 par value; 15,000,000 shares
authorized, none issued and outstanding as of December 31, 1994 and
1995 and June 30, 1996; 7,500,000 shares authorized, none issued and
outstanding on a pro forma basis.................................... -- -- -- --
Series A preferred stock; $0.001 par value; 30,500,000 shares
authorized; 14,330,504, 14,104,356, and 15,249,982 shares issued and
outstanding as of December 31, 1994 and 1995 and June 30, 1996,
respectively; none authorized, issued and outstanding on a pro forma
basis (liquidation preference of $20.00 per share).................. 14 14 15 --
Series B preferred stock; $0.001 par value; 4,500,000 shares
authorized; none issued and outstanding as of December 31, 1994 and
1995, and 625,000 outstanding as of June 30, 1996; none authorized,
issued and outstanding on a pro forma basis (liquidation preference
of $20.00 per share)................................................ -- -- 1 --
Common stock, $0.001 par value; 60,000,000 shares authorized; 2 shares
issued and outstanding as of December 31, 1994 and 1995, and June
30, 1996, respectively; 75,000,000 shares authorized, 16,211,518
shares issued and outstanding on a pro forma basis.................. -- -- -- 16
Additional paid-in capital............................................ 4,542 9,643 40,005 40,005
Deferred compensation................................................. -- -- (3,960) (3,960 )
Deficit accumulated prior to recapitalization......................... (4,709) (11,214) -- --
Accumulated deficit................................................... -- -- (29,491) (29,491 )
Translation adjustment................................................ -- 50 16 16
-------------------------------------
Total stockholders' equity (deficit)........................... (153) (1,507) 6,586 6,586
-------------------------------------
$ 5,111 $13,218 $ 24,576 $ 24,576
-------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 70
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- -------------------
1993 1994 1995 1995 1996
------ ------ ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Magazine................................ $ 2,928 $ 8,833 $23,313 $ 9,542 $ 14,510
Online.................................. -- 348 1,942 803 1,118
----------------------------------------------------
Total revenues................... 2,928 9,181 25,255 10,345 15,628
----------------------------------------------------
Costs and expenses:
Magazine production and distribution.... 2,356 7,638 14,897 6,533 9,896
Online production and development....... 51 318 1,854 477 3,429
Sales and marketing..................... 748 2,795 9,776 3,835 7,774
General and administrative.............. 797 1,967 6,661 2,703 9,479
Write-off of in-process research and
development........................... -- -- -- -- 20,500
----------------------------------------------------
Total costs and expenses......... 3,952 12,718 33,188 13,548 51,078
----------------------------------------------------
Operating loss................... (1,024) (3,537) (7,933) (3,203) (35,450)
Interest income (expense), net............ (10) 98 156 30 (86)
Minority interest......................... -- -- 427 -- 846
Wired UK preacquisition loss (Note 4)..... -- -- 854 -- --
----------------------------------------------------
Loss before taxes......................... (1,034) (3,439) (6,496) (3,173) (34,690)
Tax expense............................... (2) (18) (9) (3) (9)
----------------------------------------------------
Net loss......................... $(1,036) $(3,457) $(6,505) $(3,176) $(34,699)
----------------------------------------------------
Pro forma net loss data (Notes 2 and 4):
Pro forma net loss...................... $(6,505) $(34,699)
----------------------------------------------------
Pro forma net loss per share............ $ (0.37) $ (2.02)
----------------------------------------------------
Shares used in computing pro forma net
loss per share........................ 17,528 17,157
----------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 71
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF MINORITY INTEREST AND STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED
STOCK COMMON STOCK
MINORITY ----------------- --------------
INTEREST SHARES AMOUNT SHARES AMOUNT
-------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1992 ..................... $ -- 1,947 $-- -- $--
Issuance of Series A Preferred Stock ......... -- 9,809 12 -- --
Syndication costs ............................ -- -- -- -- --
Net loss ..................................... -- -- -- -- --
----------------------------------------------------
Balances, December 31, 1993 ..................... -- 11,756 12 -- --
Issuance of Series A Preferred Stock ......... -- 1,938 2 -- --
Conversion of debt to Series A
Preferred Stock ............................ -- 637 -- -- --
Net loss ..................................... -- -- -- -- --
----------------------------------------------------
Balances, December 31, 1994 ..................... -- 14,331 14 -- --
Capital contribution of HotWired
Ventures LLC ............................... 1,793 -- -- -- --
Stock repurchase ............................. -- (226) -- -- --
Translation adjustment ....................... -- -- -- -- --
Net loss ..................................... (427) -- -- -- --
----------------------------------------------------
Balances, December 31, 1995 ..................... 1,366 14,105 14 -- --
Net loss accumulated prior to recapitalization
(unaudited) ................................ (846) -- -- -- --
Recapitalization (unaudited) ................. -- -- -- -- --
Aquisition of minority interest in HotWired
Ventures LLC (unaudited) ................... (520) 1,242 1 -- --
Series B Preferred Stock private
placement (unaudited) ...................... -- 625 1 -- --
Compensatory stock option grants
(unaudited) ................................ -- -- -- -- --
Issuance of Series A Preferred Stock
(unaudited) ................................ -- 79 -- -- --
Amortization of deferred compensation
expense (unaudited) ........................ -- -- -- -- --
Stock repurchase (unaudited) ................. -- (176) -- -- --
Translation adjustment (unaudited) ........... -- -- -- -- --
Net loss following recapitalization
(unaudited) ................................ -- -- -- -- --
----------------------------------------------------
Balances, June 30, 1996 (unaudited) ............. $ -- 15,875 $16 -- $--
====================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 72
<TABLE>
<CAPTION>
DEFICIT
ADDITIONAL ACCUMULATED
PAID-IN DEFERRED PRIOR TO ACCUMULATED TRANSLATION
CAPITAL COMPENSATION RECAPITALIZATION DEFICIT ADJUSTMENT
---------- ------------ ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1992 ..................... $ 252 $ -- $ (216) $ -- $ --
Issuance of Series A Preferred Stock ......... 661 -- -- -- --
Syndication costs ............................ (54) -- -- -- --
Net loss ..................................... -- -- (1,036) -- --
------------------------------------------------------------------------------
Balances, December 31, 1993 ..................... 859 -- (1,252) -- --
Issuance of Series A Preferred Stock ......... 2,998 -- -- -- --
Conversion of debt to Series A
Preferred Stock ............................ 685 -- -- -- --
Net loss ..................................... -- -- (3,457) -- --
------------------------------------------------------------------------------
Balances, December 31, 1994 ..................... 4,542 -- (4,709) -- --
Capital contribution of HotWired
Ventures LLC ............................... 5,105 -- -- -- --
Stock repurchase ............................. (4) -- -- -- --
Translation adjustment ....................... -- -- -- -- 50
Net loss ..................................... -- -- (6,505) -- --
------------------------------------------------------------------------------
Balances, December 31, 1995 ..................... 9,643 -- (11,214) -- 50
Net loss accumulated prior to recapitalization
(unaudited) ................................ -- -- (5,208) -- --
Recapitalization (unaudited) ................. (16,422) -- 16,422 -- --
Aquisition of minority interest in HotWired
Ventures LLC (unaudited) ................... 24,852 -- -- -- --
Series B Preferred Stock private
placement (unaudited) ...................... 12,299 -- -- -- --
Compensatory stock option grants
(unaudited) ................................ 9,139 (9,139) -- -- --
Issuance of Series A Preferred Stock
(unaudited) ................................ 790 (790) -- -- --
Amortization of deferred compensation
expense (unaudited) ........................ -- 5,969 -- -- --
Stock repurchase (unaudited) ................. (296) -- -- -- --
Translation adjustment (unaudited) ........... -- -- -- -- (34)
Net loss following recapitalization
(unaudited) ................................ -- -- -- (29,491) --
------------------------------------------------------------------------------
Balances, June 30, 1996 (unaudited) ............. $ 40,005 $(3,960) $ -- $(29,491) $ 16
==============================================================================
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Balances, December 31, 1992 ..................... $ 36
Issuance of Series A Preferred Stock ......... 673
Syndication costs ............................ (54)
Net loss ..................................... (1,036)
--------
Balances, December 31, 1993 ..................... (381)
Issuance of Series A Preferred Stock ......... 3,000
Conversion of debt to Series A
Preferred Stock ............................ 685
Net loss ..................................... (3,457)
--------
Balances, December 31, 1994 ..................... (153)
Capital contribution of HotWired
Ventures LLC ............................... 5,105
Stock repurchase ............................. (4)
Translation adjustment ....................... 50
Net loss ..................................... (6,505)
--------
Balances, December 31, 1995 ..................... (1,507)
Net loss accumulated prior to recapitalization
(unaudited) ................................ (5,208)
Recapitalization (unaudited) ................. --
Aquisition of minority interest in HotWired
Ventures LLC (unaudited) ................... 24,853
Series B Preferred Stock private
placement (unaudited) ...................... 12,300
Compensatory stock option grants
(unaudited) ................................ --
Issuance of Series A Preferred Stock
(unaudited) ................................ --
Amortization of deferred compensation
expense (unaudited) ........................ 5,969
Stock repurchase (unaudited) ................. (296)
Translation adjustment (unaudited) ........... (34)
Net loss following recapitalization
(unaudited) ................................ (29,491)
--------
Balances, June 30, 1996 (unaudited) ............. $ 6,586
========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 73
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................... $(1,036) $(3,457) $(6,505) $(3,176) $(34,699)
Adjustments to reconcile net loss to net cash used in
operating activities:
Minority interest........................................ -- -- (427) -- (846)
Preacquisition losses.................................... -- -- (854) -- --
Depreciation and amortization............................ 18 87 470 178 725
Amortization of deferred compensation.................... -- -- -- -- 5,969
Loss on disposition of property and equipment............ 17 -- -- -- --
Equipment acquired in exchange for advertising........... (132) (34) (361) (101) --
Write-off of in-process research and development......... -- -- -- -- 20,500
Changes in operating assets and liabilities:
Accounts receivable, net............................... (824) (1,372) (873) 129 (591)
Deferred production costs.............................. (88) (66) (80) 10 (11)
Prepaid expenses....................................... (29) (65) (65) (56) (150)
Accounts payable and accrued expenses.................. 791 1,697 4,026 1,646 457
Deferred revenue....................................... 514 2,153 1,384 564 483
-------------------------------------------------
Net cash used in operating activities............... (769) (1,057) (3,285) (806) (8,163)
-------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (53) (688) (1,509) (432) (1,306)
Proceeds from sale of equipment............................ 8 -- -- -- --
Other assets............................................... 15 (10) (205) (244) (259)
-------------------------------------------------
Net cash used in investing activities............... (30) (698) (1,714) (676) (1,565)
-------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions by HotWired Ventures LLC minority
participants............................................. -- -- 6,898 2 --
Convertible loan from related parties...................... 500 -- -- -- --
Repurchase of Series A preferred stock..................... -- -- (4) -- (296)
Loans (repayments) from related parties.................... 325 (140) -- -- --
Issuance of Series A preferred stock, net.................. 673 3,000 -- -- --
Issuance of Series B preferred stock, net.................. -- -- -- -- 12,300
Loan and advances from Guardian Media Group plc............ -- -- 2,039 1,398 --
Syndication and deferred offering costs.................... (54) -- -- -- (485)
Net proceeds from bank loan................................ -- -- 1,500 -- 3,500
-------------------------------------------------
Net cash provided by financing activities........... 1,444 2,860 10,433 1,400 15,019
Effect of foreign exchange rate changes...................... -- -- 50 (8) (34)
-------------------------------------------------
Increase (decrease) in cash and cash equivalents............. 645 1,105 5,484 (90) 5,257
Cash and cash equivalents, beginning of period............... -- 645 1,750 1,750 7,234
-------------------------------------------------
Cash and cash equivalents, end of period..................... $ 645 $ 1,750 $ 7,234 $ 1,660 12,491
-------------------------------------------------
Supplemental cash flow disclosure -- cash paid for
interest................................................... $ 1 $ 16 $ 16 $ -- $ 51
-------------------------------------------------
Supplemental disclosure of noncash investing and financing
activities:
Equipment acquired in exchange for advertising............. $ 132 $ 34 $ 361 $ 101 $ --
Conversion of notes payable to capital..................... $ -- $ 685 $ -- $ -- $ --
Accrual of stock and stock option deferred compensation.... -- -- -- -- 9,929
Issuance of stock to acquire minority interest in HotWired
Ventures LLC............................................. -- -- -- -- 24,853
-------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 74
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
(1) THE COMPANY
Wired Ventures, Inc. ("Wired" or the "Company"), is a new kind of global,
diversified media company engaged in creating content for print, online, and
other media.
The Company (a Delaware C corporation) was recapitalized in May 1996 such that
the ownership interests of Wired Holdings Inc. (previously a California S
corporation), Wired USA Ltd., and Wired Ventures Ltd. were contributed to the
Company and approximately 14,000,000 shares of the Company's Series A preferred
stock were issued to the owners of such entities. The effective ownership
percentage of each respective equity holder in the Company after the
recapitalization is the same as their respective interests in the operating
assets and liabilities of the Company prior to the recapitalization, and there
was no change in control as a result of the recapitalization. Thus, all indirect
and direct ownership interests in Wired Ventures, Ltd. have been converted to
direct ownership interests in Wired Ventures, Inc. The consolidated financial
statements reflect the accounting for this transaction as a combination of
companies under common control.
The Company's businesses were historically conducted in partnership and limited
liability company form, beginning with Wired Partners in 1992, and continuing
through Wired USA Ltd., a California limited partnership (from its formation in
January 1993 to January 1994) and Wired Ventures, Ltd., a California limited
partnership (from its formation in January 1994 to May 1996). From January 1994
to May 1996, all businesses were conducted by Wired Ventures, Ltd. Wired
Ventures, Inc. (via Wired Ventures, Ltd.) maintained a majority interest in
HotWired Ventures LLC, a California limited liability company (from its
formation in January 1995 through May 1996), and in May 1996 acquired the
remaining minority interest (see Note 4). Wired Holdings Inc. and Wired USA Ltd.
had no operations, operating assets, or operating liabilities.
The Company's significant subsidiaries as of June 30, 1996 can be summarized as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WIRED VENTURES,
INC.
COMPANY LEGAL FORM OWNERSHIP %
------- --------- -------------
<S> <C> <C>
Wired Magazine Group, Inc........... California Limited Liability Company 100%
HotWired Inc........................ California Limited Liability Company 100%
Wired UK............................ United Kingdom Unlimited Company 100%
</TABLE>
- --------------------------------------------------------------------------------
Wired Magazine Group, Inc. publishes Wired magazine, which is sold on newsstands
and through subscriptions. HotWired Inc. publishes editorial material on the
World Wide Web through its HotWired network of online content sites. Wired UK
publishes a local edition of Wired magazine in the United Kingdom, which is sold
on newsstands and through subscriptions.
Liquidity
The Company has incurred recurring losses from operations since inception and as
of June 30, 1996, has working capital of approximately $300,000 and a tangible
net worth of approximately $2.8 million. The Company has secured additional
financing subsequent to June 30, 1996 in the form of a line of credit facility
(see Note 12). Management believes that this financing, combined with a number
of cost and growth control measures, would be sufficient to fund operations for
the next twelve months. Management further believes, however, that achievement
of the Company's growth goals will require additional financing.
F-9
<PAGE> 75
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
Pro Forma Balance Sheet
In May 1996, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission (SEC) permitting Wired to
sell shares of its common stock in connection with a proposed initial public
offering (IPO). If the offering is consummated under the terms presently
anticipated, all the currently outstanding shares of preferred stock will
convert to 16,211,516 shares of common stock upon closing of the IPO. The
conversion of the preferred stock has been reflected in the accompanying pro
forma balance sheet as of June 30, 1996.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries. Minority interest represents the
minority participants' share of the equity of HotWired Ventures LLC through May
1996.
All material intercompany balances and transactions have been eliminated in
consolidation.
Revenue Recognition
Revenue from the sale of advertising space in magazines is recognized at the
time the issue is circulated.
Proceeds from subscriptions are recognized as revenue over the terms of the
subscriptions, generally one to two years, upon commencement of subscription
services. Subscriptions expiring within one year are included as a current
liability and the portion of the subscriptions in excess of one year are
classified as a noncurrent liability.
Sales to newsstand distributors are recognized as revenue in the month of
distribution, net of an allowance for the return of unsold magazines based upon
historical newsstand sales. In the event that actual net sales differ from
estimates, adjustments are made in subsequent months. Historically, these
adjustments have not been significant.
Revenue from the sale of online advertising is recognized over the period
advertisements are displayed, provided that no significant Company obligations
remain and collection of the resulting receivable is probable. Company
obligations typically include guarantees of minimum numbers of page views, or
times that the page containing the advertisement is viewed by users. To the
extent minimum guaranteed page views are not met, the Company defers recognition
of the corresponding revenues until guaranteed page view levels are achieved.
Cash received in advance for online advertising is classified as deferred
revenue and is recognized as revenue over the time the advertisements are
displayed.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123 will be effective for
fiscal years beginning after December 15, 1995, and will require that the
Company either recognize in its consolidated financial statements costs related
to its employee stock-based compensation plans, such as
F-10
<PAGE> 76
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
stock option and stock purchase plans, or make pro forma disclosures of such
costs in a footnote to the financial statements.
The Company expects to continue to use the intrinsic value based method of
Accounting Principles Board Opinion No. 25, as allowed under SFAS No. 123, to
account for all of its employee stock-based compensation plans. Therefore, in
its consolidated financial statements for fiscal 1996, the Company will make the
required pro forma disclosures in a footnote to the consolidated financial
statements. SFAS No. 123 is not expected to have a material effect on the
Company's consolidated results of operations or financial position.
Cash and Cash Equivalents
Cash and cash equivalents consist of amounts held with banks with original
maturities of 90 days or less. As of December 31, 1995, the Company had no
significant cash investments subject to the provisions of SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to a concentration
of credit risk consist of cash and cash equivalents and accounts receivable. The
Company holds cash in deposit accounts with various major banks. The Company's
accounts receivable are principally with trade advertisers and newsstand
distributors. The Company generally does not require collateral. Wired's five
primary newsstand distributors accounted for substantially all of the Company's
newsstand revenue and receivables. The Company has historically been dependent
on these five distributors for newsstand revenues and has outsourced its
printing and distribution activities, on which all magazine revenue is
dependent. The Company contracts with all such parties on a month to month
basis.
Deferred Production Costs
Deferred production costs are comprised of those expenses incurred to produce
magazines which have yet to be released. These costs normally consist of
expenses associated with content, editorial, design, photography, art and
production of Wired magazine, and are deferred for approximately one month.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on the
straight-line basis over an estimated useful life of three years for equipment
and three years for leasehold improvements. Maintenance and repairs are charged
to expense as incurred.
Goodwill and Intangibles
Goodwill represents the excess of the acquisition cost of the minority interest
in HotWired Ventures LLC over the fair value of the net assets acquired and is
being amortized on a straight-line basis over three years. Other intangibles
primarily represents purchased technology, which is being amortized on a
straight-line basis over three years.
Promotion Costs
AICPA Statement of Position 93-7 requires that the Company defer the costs of
direct mail promotions to the extent that they are expected to result in
additional subscription revenues in
F-11
<PAGE> 77
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
excess of incremental fulfillment costs. As the Company estimates that its
incremental fulfillment costs are in excess of its additional subscription
revenue, these costs have been expensed as incurred. Direct mail promotion costs
totaled $11,154, $1,602,323, and $5,674,000, in 1993, 1994, and 1995,
respectively.
Nonmonetary Transactions
Agreements to exchange advertising in Wired magazine and the HotWired network of
online content sites for equipment or services are recorded at the estimated
fair value of the equipment or service.
Foreign Currency Translation
The functional currency of the Company's foreign operations is the U.S. dollar.
All monetary assets and liabilities are translated at the current rate at the
end of the period; nonmonetary assets and liabilities are translated at
historical rates; revenues and expenses are translated at average exchange rates
in effect during the period. Translation and transaction gains and losses have
not been material in any of the periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
Wired accounts for income taxes under the asset and liability method of
accounting. Under the asset and liability method, deferred tax assets and
liabilities are recognized based on the future tax consequences attributable to
differences between the financial statement carrying amount of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of
changes in tax rates is recognized in income in the period that includes the
enactment date.
Prior to the recapitalization discussed in Note 1, Wired consisted of an S
corporation and several partnerships and limited liability companies for federal
income tax purposes. As such, income was taxed at the individual shareholder or
partner level. Accordingly, tax expense in the accompanying statements of
operations for the years ended December 31, 1993, 1994, and 1995 only includes
the state minimum franchise taxes. The accompanying pro forma net loss data for
the year ended December 31, 1995, and the six months ended June 30, 1996,
reflect provisions for taxes on a pro forma basis, using the asset and liability
method, as if Wired had been a C corporation since the beginning of those
respective periods, fully subject to federal and state income taxes.
Other than state minimum franchise tax liabilities, no pro forma income taxes
have been reflected in the pro forma net loss data for the year ended December
31, 1995, or for the six month period ended June 30, 1996, due to the current
period losses.
F-12
<PAGE> 78
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
Pro Forma Net Loss Per Share
Pro forma net loss per share is computed based on the weighted average number of
shares of common stock outstanding and common equivalent shares from stock
options (under the treasury stock method, if dilutive) and preferred stock
outstanding (on an "as if converted" basis, even if antidilutive), giving effect
to the recapitalization as though it had occurred at the beginning of the
earliest period presented. In accordance with certain SEC Staff Accounting
Bulletins, such computations include all common and common equivalent shares
(using the treasury stock method) and preferred shares (on an "as if converted"
basis) issued within 12 months of the offering date as if they were outstanding
for all periods presented using the anticipated IPO price.
In accordance with APB No. 15, net loss per share has been supplementally
computed assuming the issuance as of the beginning of each period presented of a
sufficient number of shares of common stock in the offerings to permit repayment
of the Company's revolving credit facility with the net proceeds thereof. The
resulting supplemental net loss per share amounts for the year ended December
31, 1995 and the six months ended June 30, 1996 would have been $(0.37) and
$(1.99), respectively.
Interim Financial Statements
The accompanying unaudited consolidated financial statements as of June 30, 1996
and for the six months ended June 30, 1995 and 1996 have been prepared on
substantially the same basis as the audited consolidated financial statements
and include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the consolidated financial information set
forth therein.
(3) BALANCE SHEET AND STATEMENT OF OPERATIONS COMPONENTS
Accounts Receivable
Accounts receivable are recorded net of allowances for potential credit losses,
estimated newsstand returns, and other charges. Accounts receivable as of
December 31, 1994 and 1995 are summarized as follows (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
----- -----
<S> <C> <C>
Magazine:
Advertising, less allowances of $463 and $767, respectively............... $ 798 $1,869
Newsstand, less allowances of $1,544 and $1,774, respectively............. 621 549
Subscription.............................................................. 510... 219
Online:
Advertising, less allowances of $15 and $23, respectively................. 269 434
---------------
$2,198.. $3,071
---------------
</TABLE>
- --------------------------------------------------------------------------------
F-13
<PAGE> 79
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
Property and Equipment
Property and equipment as of December 31, 1994 and 1995 consisted of the
following (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
--- -----
<S> <C> <C>
Leasehold improvements..................................................... $301 $ 561
Computer and communications equipment...................................... 569 2,136
Other...................................................................... 29 71
----------------
899 2,768
Less accumulated depreciation and amortization............................. 108 552
----------------
$791 $2,216
----------------
</TABLE>
- --------------------------------------------------------------------------------
Depreciation and amortization expense for property and equipment for the years
ended December 31, 1994 and 1995 was $87,491 and $444,953, respectively.
Magazine Revenue
Magazine revenue for the years ended December 31, 1993, 1994, and 1995 and for
the six month periods ended June 30, 1995 and 1996 are summarized as follows (in
thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------- ----------------
1993 1994 1995 1995 1996
----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
Advertising.................................... $1,589 $4,524 $14,756 $5,441 $ 8,434
Subscriptions.................................. 381 1,930 4,940 2,308 3,578
Newsstand sales, net........................... 958 2,114 2,896 1,382 1,582
Mailing lists and other........................ -- 265 721 411 916
-----------------------------------------------
$2,928 $8,833 $23,313 $9,542 $14,510
-----------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Online Advertising Revenue
Online advertising revenue consists of revenue from selling advertisements to
corporate sponsors which are placed in content sections.
(4) BUSINESS COMBINATIONS
Wired UK
Wired UK was formed in 1994. The Company contributed intellectual property in
exchange for a 50% interest and Guardian Media Group plc (Guardian), a United
Kingdom corporation, contributed cash of approximately $216,000 for its 50%
interest. Wired UK had no material results of operations prior to 1995.
In July 1995, Ventures purchased Guardian's 50% interest in Wired UK.
Accordingly, the net assets of Wired UK have been included in the accompanying
consolidated balance sheet as of December 31, 1995.
F-14
<PAGE> 80
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
The Company recorded this acquisition using step acquisition accounting, in
accordance with Accounting Research Bulletin No. 51, by including the joint
venture in its consolidated financial statements as though it had been acquired
at the beginning of 1995, and reduced its net loss by the $854,000 of
preacquisition losses attributable to Guardian's 50% interest up to the date of
acquisition. The pro forma combined results of operations for the year ended
December 31, 1995, as if the acquisition had occurred at the beginning of that
year, would have reflected no change in consolidated total revenues and would
have reflected an increase in the consolidated net loss of $854,000 ($0.05 per
share). This effect is included in the pro forma combined results of operations
presented below.
The fair value of assets and liabilities acquired generally approximated
historical cost, except for the forgiveness of approximately $270,000 of a note
balance as part of the acquisition agreement. The note bears no interest and,
therefore, was discounted by approximately $370,000 to its present value of
approximately $1,200,000, based on a rate of 9%. After effecting the forgiveness
and discounting of the loan, the purchase price of $80 was equal to the fair
value of the assets and liabilities acquired.
HotWired Ventures LLC
In May 1996, the Company purchased the minority interest in HotWired Ventures
LLC in exchange for approximately 1.2 million shares of Series A preferred
stock. The Company has accounted for this transaction using the purchase method,
and accordingly, the operating results of HotWired Ventures LLC previously
attributable to minority interests have been included in the consolidated
financial statements from the date of acquisition.
The value of the stock was allocated as follows (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Fair value of net tangible assets acquired......................................... $ 371
Research and development in-process................................................ 20,500
Purchased technology and goodwill, net of deferred income taxes.................... 3,982
------
$24,853
------
</TABLE>
- --------------------------------------------------------------------------------
The amounts allocated to purchased technology and other intangibles, net of
deferred taxes, are being amortized over three years. The research and
development in-process was written off and charged to operations in the second
quarter of 1996.
The following pro forma combined results of operations for the year ended
December 31, 1995 and the six months ended June 30, 1996 are presented as if the
business combination with HotWired Ventures LLC had occurred at the beginning of
the period (HotWired Ventures LLC had no significant operations prior to 1995).
The charge associated with in-process research and development has not been
reflected in the following pro forma summary as it is non-recurring. The pro
forma summary also reflects the acquisition of Wired UK (see above) as if the
acquisition had occurred at the beginning of 1995. The pro forma summary does
not necessarily
F-15
<PAGE> 81
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
reflect the results of operations as they would have been if the Company, the
minority interest in HotWired Ventures LLC, and Wired UK had constituted a
single entity during such periods.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED
1995 JUNE 30, 1996
----------- ---------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
Total revenues........................................... $25,255 $ 15,628
------------------------------------
Net loss................................................. $ (9,113) $(15,709)
------------------------------------
Net loss per share....................................... $ (0.52) $ (0.92)
------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(5) NOTE PAYABLE AND LINE OF CREDIT
Note Payable
Wired UK has a note payable with a stated value of L1,000,000 (approximately
$1,600,000) to Guardian (see Note 4), which is due in July 1998, bears no
interest, and has an estimated present value of approximately $1,200,000. The
note is payable on demand with a stated interest rate of 5% in the event of
certain changes in ownership or certain transactions with Guardian. In the event
that the Company enters into certain joint venture transactions in Continental
Europe, Guardian has the right to convert its loan to equity of the new joint
venture.
Line of Credit
The Company maintains a $6,500,000 line of credit collateralized by all of the
Company's magazine-related tangible and intangible assets. The line bears an
interest rate of adjusted LIBOR plus 3.25% (9% as of December 31, 1995) and
expires on September 30, 2000. The line of credit prescribes that $5,000,000
thereof may be used only to increase Wired magazine's subscription base. The
remaining $1,500,000 may be used only to repay the note payable to Guardian by
Wired UK (see Note 4). The outstanding balance on the line of credit was
$1,500,000 and $5,000,000 at December 31, 1995 and June 30, 1996, respectively.
The proceeds of the financing were used to finance certain direct mail promotion
costs of Wired magazine. The Company was not in compliance with certain
nonfinancial covenants as of December 31, 1995 and certain nonfinancial and
financial covenants as of June 30, 1996. Accordingly, the obligation has been
classified as a current liability.
(6) INCOME TAXES
Tax expense recorded in the accompanying historical consolidated financial
statements represents state minimum franchise taxes of approximately $1,600,
$18,000, $9,000 and $9,000 for the years ended December 31, 1993, 1994, and 1995
and the six months ended June 30, 1996, respectively.
Prior to the recapitalization discussed in Note 1, Wired consisted of an S
corporation and several partnerships and limited liability companies. As a
result of the recapitalization, Wired is now taxed as a C corporation.
F-16
<PAGE> 82
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
The pro forma provisions for income taxes reflect the tax expense that would
have been reported if Wired had been a C corporation. The components of pro
forma income taxes are as follows (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
---------------- ------------------
<S> <C> <C>
Pro forma income taxes:
Current:
Federal......................................... $ -- $ --
State........................................... 9 9
-----------------------------------------
Total pro forma tax expense................ $ 9 $ 9
-----------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The following tabulation reconciles the statutory corporate federal income tax
benefit (computed by multiplying Wired's loss before income taxes by 34%) to
Wired's pro forma income tax expense (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
--------------- -----------------
<S> <C> <C>
Pro forma expected income tax benefit............. $(2,209) $(11,795)
State taxes, net of federal effect................ 9 9
In-process research and development charge........ -- 6,970
Unutilized net operating losses................... 2,209 4,825
-------------------------------------------
Pro forma tax expense.................... $ 9 $ 9
-------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions
of the pro forma deferred tax assets as of December 31, 1995 are presented below
(in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Pro forma deferred tax assets:
Reserves and accruals........................... $ 754
Deferred revenue................................ 1,650
Capitalized production costs.................... 188
Net operating loss carryforwards................ 2,364
Property and equipment.......................... 103
------
Total gross pro forma deferred tax assets....... 5,059
Valuation allowance............................. (5,059)
------
Net pro forma deferred tax assets........ $ --
------
</TABLE>
- --------------------------------------------------------------------------------
(7) STOCKHOLDERS' EQUITY
Preferred Stock
Each share of Series A and B preferred stock is convertible into common stock at
the exchange rate in effect at the time of conversion and is subject to
appropriate adjustment for common stock splits, stock dividends, and similar
transactions. Conversion is automatic upon a majority vote of the holders of
preferred stock or upon the closing of a public offering of common stock.
F-17
<PAGE> 83
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
Each holder of Series A and B preferred stock is entitled to the number of votes
equal to the number of shares of common stock into which such preferred stock is
convertible.
Each holder of preferred stock is entitled to receive, when and as declared by
the Board, noncumulative dividends at the annual rate of $0.80 per share of
Series A preferred stock and $1.60 per share of Series B preferred stock in
preference and priority to any payment of any dividend on common stock. Each
holder of preferred stock will participate pro rata on dividends paid on the
common stock.
In the event of liquidation, the holders of Series B preferred stock are
entitled to a per share liquidation preference equal to $20.00, plus all
declared and unpaid dividends, after which all Series A preferred stock are
entitled to a per share liquidation preference equal to $20.00, plus all
declared but unpaid dividends.
There are no redemption or sinking fund provisions applicable to preferred
stock.
In January 1996, the Company issued equity interests which represented
approximately 74,000 shares of Series A preferred stock to certain of its
employees, and recorded deferred compensation expense of approximately $790,000,
based on their deemed fair value. This amount is being amortized over the
vesting period of the Company's repurchase rights to such shares, which is based
upon the employees continuing employment with the Company.
The Company repurchased approximately 226,000 and 176,000 shares of Series A
preferred stock in December 1995 and January 1996, respectively, at a total cost
of approximately $4,000 and $296,000, respectively.
1996 Equity Incentive Plan
In March 1996, the Board adopted the 1996 Equity Incentive Plan ("1996 Equity
Plan") and reserved 3,000,000 shares of common stock for issuance under the 1996
Equity Plan. In May 1996, the Board reserved an additional 1,250,000 shares of
common stock for issuance under the 1996 Equity Plan. The Company's stockholders
approved the 1996 Equity Plan in May 1996. The 1996 Equity Plan provides for the
grant of stock options and stock bonuses and the issuance of restricted stock by
the Company to its employees, officers, directors and consultants. In the second
quarter of 1996, the Company issued options for the purchase of an aggregate of
approximately 1.4 million shares of common stock pursuant to the plan at prices
varying between $11.90 and $20. In addition, the Company issued options for the
purchase of an aggregate of approximately 700,000 shares of common stock outside
of the plan at a price of $2. The options generally vest to the extent of 25%
upon the first anniversary of the employee hire date and an additional 1/36 of
the unvested shares vest ratably over the following 36 months. As of June 30,
1996, there were options for the purchase of an aggregate of approximately 2.1
million shares of common stock outstanding (at prices ranging from $2 to $20) of
which options to purchase approximately 700,000 shares were vested. Options are
generally exercisable on the date of grant, with shares subject to repurchase
provisions to the extent options are exercised prior to vesting.
The Company recorded $9.1 million in deferred compensation expense in the second
quarter of 1996 for the difference between the grant price and the deemed fair
value of the common stock underlying certain options. The deferred compensation
will be amortized over the vesting period of the individual options, generally
four years. The Company recorded $5.9 million in
F-18
<PAGE> 84
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
amortization of compensation expense related to such options in the six months
ended June 30, 1996.
1996 Non-Employee Director Stock Option Plan
In May 1996, the Board of Directors adopted (and in July 1996, the stockholders
approved) the 1996 Non-Employee Director Stock Option Plan (the "Directors'
Plan"). The Directors' Plan provides for the grant of nonstatutory stock options
to non-employee directors of the Company. The total number of shares of Common
Stock reserved under the Directors' Plan is 50,000.
(8) EMPLOYEE BENEFIT PLANS
Retirement and Savings Program
The salary deferral "401(k)" plan allows employees to defer up to 20% of their
salary subject to certain limitations. The Company may make discretionary
contributions to the plan, however, no employer contributions have been made
since inception.
(9) COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases certain office space and office equipment under noncancelable
operating leases with terms exceeding one year. Future minimum lease payments
under noncancelable operating leases as of December 31, 1995 are as follows (in
thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -----------
<S> <C> <C>
1996................................................................................ $ 738
1997................................................................................ 984
1998................................................................................ 962
1999................................................................................ 936
2000 and thereafter................................................................. 5,847
-----
$9,467
-----
</TABLE>
- --------------------------------------------------------------------------------
Net rental expense under operating leases for the years ended December 31, 1993,
1994, and 1995 were $29,463, $70,038, and $238,931, respectively.
Legal Matters
Wired and its subsidiaries are involved in a number of claims arising in the
ordinary course of business. Wired and its subsidiaries believe these matters
will be resolved without material adverse effect on the Company's or its
subsidiaries' financial position, results of operations or cash flows.
F-19
<PAGE> 85
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
(10) RELATED PARTY TRANSACTIONS
In November 1993, the Company received a noninterest bearing convertible loan
from AMPI for $500,000. This loan was converted to capital upon formation of
Wired Ventures, Ltd. in January 1994.
During 1993, Wired USA Ltd. received two loans. The first loan of $50,000 earned
interest at the rate of 6% per annum and was payable to a relative of the
editor/publisher. The $50,000 loan was repaid in 1994 subsequent to the
formation of Wired Ventures, Ltd. The second loan of $275,000 earned interest at
the rate of 10% per annum and was payable to a partner of Wired USA Ltd. As part
of the formation of Wired Ventures, Ltd. in 1994, $184,676 of this loan was
converted to capital and the remaining principal of $90,324 was repaid.
(11) INDUSTRY SEGMENT AND GEOGRAPHIC AREA SEGMENT INFORMATION
The Company's major operations are in magazine production and distribution and
in the publication of online editorial material on the World Wide Web (comprised
of the operations of Hot Wired Ventures LLC and its predecessor entity). The
Company's television production and book publishing operations as of December
31, 1995 do not represent significant operations.
Revenues, operating loss, identifiable assets, depreciation and amortization,
and capital expenditures pertaining to the major industries in which the Company
operates are presented below (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAGAZINE ONLINE CONSOLIDATED
-------- ------ ----------
<S> <C> <C> <C>
1995
Revenues................................................... $23,313 $ 1,942 $ 25,255
Operating loss............................................. (5,734 ) (2,199) (7,933)
Identifiable assets........................................ 7,498 5,893 13,218
Depreciation and amortization.............................. 336 134 470
Capital expenditures....................................... 788 721 1,509
1994
Revenues................................................... $ 8,833 $ 348 $ 9,181
Operating loss............................................. (3,505 ) (32) (3,537)
Identifiable assets........................................ 4,699 412 5,111
Depreciation and amortization.............................. 72 15 87
Capital expenditures....................................... 544 144 688
1993
Revenues................................................... $ 2,928 $ -- $ 2,928
Operating loss............................................. (1,024 ) -- (1,024)
Identifiable assets........................................ 1,859 -- 1,859
Depreciation and amortization.............................. 18 -- 18
Capital expenditures....................................... 53 -- 53
</TABLE>
- --------------------------------------------------------------------------------
Intersegment transactions have not been significant to date.
Consolidated revenues derived from foreign based operations totaled
approximately $988,000 for the year ended December 31, 1995. Operating loss,
identifiable assets, depreciation and amortization and capital expenditures for
foreign based operations as of or for the year ended December 31, 1995 were $2.6
million, $472,000, $61,000 and $311,000, respectively. There were no foreign
based operations in 1993 and 1994.
F-20
<PAGE> 86
WIRED VENTURES, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
(12) SUBSEQUENT EVENTS
Reverse Stock Split
In September 1996, the Board of Directors authorized, subject to stockholder
approval, a one-for-two reverse split of all of the Company's series of
preferred and common stock. All references in the consolidated financial
statements to number of shares and per share amounts have been retroactively
restated to reflect the decreased number of shares outstanding.
Conversion Provisions of Series B Preferred Stock
In September 1996, the Board of Directors authorized, and the requisite majority
of the stockholders of the Company approved, an amendment to the Certificate of
Incorporation which provides for the automatic conversion of Series B preferred
stock to common stock upon the completion of a public offering of common stock.
The exchange ratio will be equal to the ratio of the liquidation preference, or
$20.00 per share, to the IPO price per share. The effect of the amendment has
been reflected in the pro forma balance sheet included in the consolidated
financial statements.
Option Repricing
In September 1996, the Company repriced options for the purchase of an aggregate
of approximately 1.8 million shares of common stock pursuant to the 1996 Equity
Incentive Plan. Such options originally were issued at prices which ranged from
$11.90 to $20 and were reissued at prices ranging from $10 to $12. The options
generally vest to the extent of 25% upon the first anniversary of the employee
hire date and an additional 1/36 of the unvested shares vest ratably over the
following 36 months. No compensation expense was recorded as a result of the
option repricing.
Financing Commitment
On September 26, 1996, the Company secured a commitment from a bank under which
the bank will make available to the Company a line of credit facility of $10
million. The commitment expires on November 15, 1996 in the event that closing
of this facility does not occur. The line will bear an interest rate of LIBOR
plus 4% or the prime rate plus 2%, at the option of the Company, and expires on
December 15, 1997. On December 31, 1996 or in the event of the Company's
noncompliance with certain financial covenants or the Company's completion of an
IPO, the interest rate will increase to 18%. In the event of any other default,
including late payment, the interest rate will increase by an additional 2%.
Beginning January 1, 1997, the Company will pay an interest rate of 1.25% per
month on the unused balance of the line of credit facility, unless it is
otherwise cancelled or unavailable. The agreement prescribes that the first $5
million of the line of credit facility be used to repay the Company's existing
short-term bank debt of $5 million. The remaining $5 million may be used to fund
operating expenses. Outstanding borrowings under the line of credit will be
secured by all tangible and intangible assets of the Company.
F-21
<PAGE> 87
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the Company
has agreed to sell to each of the U.S. Underwriters named below, and each of
such U.S. Underwriters, for whom Goldman, Sachs & Co. and Robertson, Stephens &
Company LLC are acting as representatives, has severally agreed to purchase from
the Company, the respective number of shares of Common Stock set forth opposite
its name below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
--------- ------------
<S> <C>
Goldman, Sachs & Co. ...............................................
Robertson, Stephens & Company LLC...................................
--------
Total..................................................... 3,800,000
--------
</TABLE>
- --------------------------------------------------------------------------------
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the international offering
(the "International Underwriters") providing for the concurrent offer and sale
of 950,000 shares of Common Stock in an international offering outside the
United States. The offering price and aggregate underwriting discounts and
commissions per share for the two offerings are identical. The closing of the
offering made hereby is a condition to the closing of the international
offering, and vice versa. The representatives of the International Underwriters
are Goldman Sachs International and Robertson, Stephens & Company LLC.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
a part of the distribution of the shares offered as a part of the international
offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of Common Stock (a) in the United
States or to any U.S. persons or (b) to any person who it believes intends to
reoffer, resell or deliver the shares in the United States or to any U.S.
persons, and
U-1
<PAGE> 88
(ii) cause any dealer to whom it may sell such shares at any concession to agree
to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
The Company has granted the U.S. Underwriters an option, exercisable for 30 days
after the date of this Prospectus, to purchase up to an aggregate of 570,000
additional shares of Common Stock solely to cover over-allotments, if any. If
the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
3,800,000 shares of Common Stock offered. The Company has granted the
International Underwriters a similar option exercisable up to an aggregate of
142,500 additional shares of Common Stock.
The Company and its stockholders have agreed, during the period beginning from
the date of this Prospectus and continuing to and including the date 180 days
after the date of this Prospectus, not to offer, sell, or otherwise dispose of
any securities of the Company (other than pursuant to employee stock option
plans existing, or on the conversion or exchange of convertible or exchangeable
securities outstanding, on the date of the Prospectus) that are substantially
similar to the shares of Common Stock or that are convertible or exchangeable
into securities that are substantially similar to the shares of Common Stock,
without the prior written consent of Goldman, Sachs & Co. See "Shares Eligible
for Future Sale."
The representatives of the Underwriters have informed the Company that they do
not expect sales to accounts over which the Underwriters exercise discretionary
authority to exceed five percent of the total number of shares of Common Stock
offered by them.
Prior to this offering, there has been no public market for the Common Stock.
The initial public offering price will be negotiated between the Company and the
representatives of the U.S. Underwriters and International Underwriters. Among
the factors to be considered in determining the initial public offering price of
the Common Stock, in addition to prevailing market conditions, will be the
Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management and
the consideration of the above factors in relation to market valuation of
companies in related businesses.
The Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol "WWWW", subject to official notice of issuance.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
U-2
<PAGE> 89
[PICTURE OF AWARD] [PICTURE OF AWARD]
WIRED MAGAZINE THE HOTWIRED NETWORK
WINNER OF THE WINNER OF THE
NATIONAL MAGAZINE NATIONAL INFORMATION
AWARDS FOR: INFRASTRUCTURE AWARD
GENERAL EXCELLENCE, 1994 BEST ARTS AND
ENTERTAINMENT SITE
DESIGN, 1996 ON THE INTERNET
AWARDED BY THE
AMERICAN SOCIETY OF AWARDED JULY 12, 1995,
MAGAZINE EDITORS WASHINGTON DC
1996 1996
BEST DIGITAL MAGAZINE BEST SITE OF THE YEAR
Digital Hollywood Awards Digital Hollywood Awards
1995 1995
BEST DIGITAL MAGAZINE BEST OF DIGITAL HOLLYWOOD
Digital Hollywood Awards Digital Hollywood Awards
EDITORIAL EXCELLENCE FLUX: ONE OF THE TOP 10 SITES
Folio Magazine Entertainment Weekly
Magazine
1993
START-UP OF THE YEAR AWARD 1994
Ad Week Magazine ONLINE MAGAZINE OF THE YEAR
Advertising Age Magazine
BEST IN MULTIMEDIA
Japanese Multimedia
Gran Prix
<PAGE> 90
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
PAGE
Prospectus Summary 3
Risk Factors 6
The Company 17
Use of Proceeds 18
Dividend Policy 18
Dilution 19
Capitalization 20
Selected Consolidated Financial Data 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 22
Business 30
Management 47
Certain Transactions 53
Principal Stockholders 56
Description of Capital Stock 57
Shares Eligible for Future Sale 59
Legal Matters 60
Experts 60
Change in Accountants 60
Additional Information 61
Index to Consolidated Financial Statements F-1
Underwriting U-1
Through and including , 1996 (the 25th day after the date of this
Prospectus), all dealers effecting transactions in the Common Stock, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
4,750,000 SHARES
WIRED VENTURES, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
[WIRED LOGO]
GOLDMAN, SACHS & CO.
ROBERTSON, STEPHENS & COMPANY
Representatives of the Underwriters
<PAGE> 91
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY THE SHARES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. THERE ARE RESTRICTIONS ON THE OFFER AND SALE OF THE SHARES IN THE
UNITED KINGDOM. ALL APPLICABLE PROVISIONS OF THE FINANCIAL SERVICES ACT 1986 AND
THE PUBLIC OFFERS OF SECURITIES REGULATIONS 1986 WITH RESPECT TO ANYTHING DONE
BY ANY PERSON IN RELATION TO THE SHARES, IN, FROM OR OTHERWISE INVOLVING THE
UNITED KINGDOM MUST BE COMPLIED WITH. SEE "UNDERWRITING". IN THE PROSPECTUS,
REFERENCES TO "DOLLARS", "U.S.$" AND "$" ARE TO UNITED STATES DOLLARS.
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1996
4,750,000 SHARES
[WIRED LOGO]
WIRED VENTURES, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
- --------------------------------------------------------------------------------
Of the 4,750,000 shares of Common Stock offered, 950,000 shares are being
offered hereby in an international offering outside the United States and
3,800,000 shares are being offered in a concurrent United States offering. The
initial public offering price and the aggregate underwriting discount per share
will be identical for both offerings. See "Underwriting".
All of the shares of Common Stock offered hereby are being sold by Wired
Ventures, Inc.(the "Company"). Prior to the offerings, there has been no public
market for the Common Stock of the Company. It is currently estimated that the
initial public offering price will be between $12.00 and $14.00 per share. For
factors to be considered in determining the initial public offering price, see
"Underwriting".
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol "WWWW", subject to official notice of issuance.
THIS INTERNATIONAL PROSPECTUS IS INTENDED FOR USE ONLY IN CONNECTION WITH OFFERS
AND SALES OF COMMON STOCK OUTSIDE THE UNITED STATES AND IS NOT TO BE SENT OR
GIVEN TO ANY PERSON WITHIN THE UNITED STATES. THE COMMON STOCK OFFERED HEREBY IS
NOT BEING REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 FOR THE PURPOSE OF
SALES OUTSIDE THE UNITED STATES.
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share $ $ $
Total(3) $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting".
(2) Before deducting estimated expenses of $1,300,000 payable by the
Company.
(3) The Company has granted the Underwriters an option for 30 days to
purchase up to an additional 712,500 shares at the initial public
offering price per share, less the underwriting discount, to cover
over-allotments. If such option is exercised in full, the total initial
public offering price, underwriting discount and proceeds to Company
will be $ , $ , and $ , respectively. See
"Underwriting".
The shares offered hereby are offered severally by the International
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that certificates for the shares will be ready for delivery in New York, New
York on or about October , 1996, against payment therefor in immediately
available funds.
GOLDMAN SACHS INTERNATIONAL ROBERTSON, STEPHENS & COMPANY
The date of this Prospectus is , 1996.
<PAGE> 92
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the Company
has agreed to sell to each of the International Underwriters named below, and
each of such International Underwriters, for whom Goldman Sachs International
and Robertson, Stephens & Company LLC are acting as representatives, has
severally agreed to purchase from the Company, the respective number of shares
of Common Stock set forth opposite its name below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
--------- ------------
<S> <C>
Goldman Sachs International.....................................
Robertson, Stephens & Company LLC...............................
-------
Total................................................. 950,000
-------
</TABLE>
- --------------------------------------------------------------------------------
Under the terms and conditions of the Underwriting Agreement, the International
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The International Underwriters propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession of $ per share. The International Underwriters
may allow, and such dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the representatives.
The Company has entered into an underwriting agreement (the "U.S. Underwriting
Agreement") with the underwriters of the U.S. offering (the "U.S. Underwriters")
providing for the concurrent offer and sale of 3,800,000 shares of Common Stock
in a U.S. offering in the United States. The offering price and aggregate
underwriting discounts and commissions per share for the two offerings are
identical. The closing of the offering made hereby is a condition to the closing
of the U.S. offering, and vice versa. The representatives of the U.S.
Underwriters are Goldman, Sachs & Co. and Robertson, Stephens & Company LLC.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters has agreed that, as a part of the distribution of the shares
offered hereby and subject to certain exceptions, it will offer, sell or deliver
the shares of Common Stock, directly or indirectly, only in the United States of
America (including the States and the District of Columbia), its territories,
its possessions and other areas subject to its jurisdiction (the "United
States") and to U.S. persons, which term shall mean, for purposes of this
paragraph: (a) any individual who is a resident of the United States or (b) any
corporation, partnership or other entity organized in or under the laws of the
United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters named herein has agreed pursuant to the Agreement
Between that, as a part of the distribution of the shares offered as a part of
the international offering, and subject to certain exceptions, it will (i) not,
directly or indirectly, offer, sell or deliver shares of Common Stock (a) in the
United States or to any U.S. persons or (b) to any person who it believes
intends to reoffer, resell or deliver the shares in the United States or to any
U.S. persons, and (ii) cause any dealer to whom it may sell such shares at any
concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually
U-1
<PAGE> 93
agreed. The price of any shares so sold shall be the initial public offering
price, less an amount not greater than the selling concession.
The Company has granted the International Underwriters an option, exercisable
for 30 days after the date of this Prospectus, to purchase up to an aggregate of
142,500 additional shares of Common Stock solely to cover over-allotments, if
any. If the International Underwriters exercise their over-allotment option, the
International Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of shares
to be purchased by each of them, as shown in the foregoing table, bears to the
950,000 shares of Common Stock offered. The Company has granted the U.S.
Underwriters a similar option to purchase up to an aggregate of 570,000
additional shares of Common Stock.
The Company and its stockholders have agreed, during the period beginning from
the date of this Prospectus and continuing to and including the date 180 days
after the date of this Prospectus, not to offer, sell, or otherwise dispose of
any securities of the Company (other than pursuant to employee stock option
plans existing, or on the conversion or exchange of convertible or exchangeable
securities outstanding, on the date of the Prospectus) that are substantially
similar to the shares of Common Stock or that are convertible or exchangeable
into securities that are substantially similar to the shares of Common Stock,
without the prior written consent of Goldman, Sachs & Co. See "Shares Eligible
for Future Sale."
Each International Underwriter has also agreed that (a) it has not offered or
sold, and will not offer or sell, in the United Kingdom, by means of any
document, any shares of Common Stock other than to persons whose ordinary
business it is to buy or sell shares of debentures, whether as principal or
agent, or in circumstances which do not constitute an offer to the public within
the meaning of the Companies Act 1985 of Great Britain, (b) it has complied, and
will comply with, all applicable provisions of the Financial Services Act of
1986 of Great Britain with respect to anything done by it in relation to the
shares of Common Stock in, from or otherwise involving the United Kingdom, and
(c) it has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issuance of the
shares of Common Stock to a person who is of a kind described in Article 9(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1988 (as amended) of Great Britain or is a person to whom the document may
otherwise lawfully be issued or passed on.
Buyers of shares of Common Stock offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practice of the country
of purchase in addition to the initial public offering price.
The representatives of the Underwriters have informed the Company that they do
not expect sales to accounts over which the Underwriters exercise discretionary
authority to exceed five percent of the total number of shares of Common Stock
offered by them.
Prior to this offering, there has been no public market for the Common Stock.
The initial public offering price will be negotiated between the Company and the
representatives of the U.S. Underwriters and the International Underwriters.
Among the factors to be considered in determining the initial public offering
price of the Common Stock, in addition to prevailing market conditions, will be
the Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management and
the consideration of the above factors in relation to market valuation of
companies in related businesses.
The Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol "WWWW", subject to official notice of issuance.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
U-2
<PAGE> 94
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
PAGE
Prospectus Summary 3
Risk Factors 6
The Company 17
Use of Proceeds 18
Dividend Policy 18
Dilution 19
Capitalization 20
Selected Consolidated Financial Data 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 22
Business 30
Management 47
Certain Transactions 53
Principal Stockholders 56
Description of Capital Stock 57
Shares Eligible for Future Sale 59
Legal Matters 60
Experts 60
Change in Accountants 60
Additional Information 61
Index to Consolidated Financial Statements F-1
Underwriting U-1
Through and including , 1996 (the 25th day after the date of this
Prospectus), all dealers effecting transactions in the Common Stock, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
4,750,000 SHARES
WIRED VENTURES, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
[WIRED LOGO]
GOLDMAN, SACHS INTERNATIONAL
ROBERTSON, STEPHENS & COMPANY
Representatives of the Underwriters
<PAGE> 95
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the shares of Common Stock being registered. All the amounts shown are
estimates except for the SEC registration fee, the NASD filing fee and the
Nasdaq National Market application fee.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SEC Registration fee...................................... $ 28,254
NASD filing fee........................................... 8,694
Nasdaq National Market application fee.................... 17,500
Blue Sky qualification fee and expenses................... 7,500
Printing and engraving expenses........................... 200,000
Legal fees and expenses................................... 300,000
Accounting fees and expenses.............................. 350,000
Transfer agent and registrar fees......................... 10,000
Directors and officers insurance premium.................. 250,000
Miscellaneous............................................. 128,052
----------
Total........................................... $1,300,000
----------
</TABLE>
- --------------------------------------------------------------------------------
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law authorizes a court to award
or a corporation's Board of Directors to grant indemnification to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. The Registrant's Restated
Certificate and Restated Bylaws provide for mandatory indemnification of its
directors and permissive indemnification of officers, employees and other agents
to the maximum extent permitted by the Delaware General Corporation Law. The
Registrant has entered into indemnification agreements with its directors and
officers, a form of which is attached as Exhibit 10.1 hereto and incorporated
herein by reference. The indemnification agreements provide the Registrant's
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law. The Company is also in the process of
obtaining directors and officers insurance to insure its directors and officers
against certain liabilities under the Securities Laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its incorporation in March 1996, the Registrant has sold and issued the
following unregistered securities:
(a) On May 28, 1996, the Company issued 30,500,000 shares of its Series
A Preferred Stock to the equity owners of Wired Holdings Inc., Wired USA
Ltd., Wired Ventures, Ltd. and HotWired Ventures LLC, including Louis
Rossetto, Jane Metcalfe, Advance Magazine Publishers, Inc., Jackson Living
Trust dtd July 19, 1992, Nicholas Negroponte, H. William Jesse, Jr.,
Lawrence Wilkinson, Andrew Anker, Rex Ishibashi and Jeffrey Simon in
exchange for their interests therein.
(b) On May 28, 1996, the Company issued one share of Common Stock to
each of Jane Metcalfe and Louis Rossetto for $10.00 in cash per share.
(c) On May 28, 1996, the Company issued 1,250,000 shares of its Series B
Preferred Stock to 10 investors, including Advance Magazine Publishers,
Inc., for $10.00 in cash per share.
(d) On September 25, 1996, the Company issued one share of Common Stock
to each of Louis Rossetto and Jane Metcalfe for $5.00 in cash per share.
II-1
<PAGE> 96
All of such shares of Preferred Stock and Common Stock were subject to a
one-for-two reverse stock split effected in September 1996.
The securities described in the transaction described in paragraph (a) above
were exempt from registration under the Securities Act by virtue of Section
3(a)(10) thereunder in that they were issued in exchange for bona fide
outstanding securities and the terms and conditions of such issuance and
exchange were approved, after a hearing upon the fairness of such terms and
conditions upon which all persons to whom the Registrant proposed to issue
securities in such exchange had the right to appear, by the California
Commissioner of Corporations.
The sale and issuance of securities in the transactions described in paragraphs
(b) and (c) were deemed to be exempt from registration under the Securities Act
by virtue of Section 4(2) or Regulation D promulgated thereunder as transactions
not involving a public offering. The purchasers in each case represented their
intention to acquire the securities for investment only and not with a view to
the distribution thereof. Appropriate legends are affixed to the stock
certificates issued in such transactions. All recipients either received
adequate information about the Registrant or had access, through employment or
other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ ---------------------
<C> <S>
1.1a Form of Underwriting Agreement (U.S. Version)
1.1b Form of Underwriting Agreement (International Version)
2.1* Form of Exchange Agreement, dated as of May 28, 1996, among the
Registrant and the holders of its Series A Preferred Stock
3.1 Amended and Restated Certificate of Incorporation of the Registrant
3.2* Bylaws of the Registrant
3.3 Amended and Restated Certificate of Incorporation to be effective upon
completion of the offering
4.1 Reference is made to Exhibits 3.1 through 3.3
4.2 Specimen stock certificate
4.3* Form of Investor Rights Agreement, dated May 28, 1996, among the
Registrant and certain of its stockholders
5.1 Opinion of Cooley Godward LLP
10.1* Form of Indemnification Agreement between the Registrant and each of
its executive officers and directors
10.2* 1996 Equity Incentive Plan, together with forms of agreements to be
used thereunder
10.3* 1996 Non-Employee Director Stock Option Plan, together with form of
agreement to be used thereunder
10.4a* Letter of Agreement, Loan Note and Related Guaranty, dated as of July
22, 1995, among the Registrant, Wired World LLC, Wired New York, Wired
UK, Guardian Media Group, Karadean Limited, Guardian Magazines Limited
and Guardian Newspapers Limited
10.4b Agreement, Substitution Loan Note and Substitution Guaranty, dated as
of June 28, 1996, among the Registrant, Wired World LLC, Wired New
York, Wired UK, Guardian Media Group, Karadean Limited, Guardian
Magazines Limited and Guardian Newspapers Limited
10.5+* License Agreement, dated as of May 30, 1994, between the Registrant and
Dohosha Publishing Co., Ltd.
10.6+* Letter of Intent, dated as of April 5, 1996, between HotWired Ventures
LLC and Inktomi Corporation
</TABLE>
II-2
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ ---------------------
<C> <S>
10.7+* Agreement, dated as of November 5, 1992, as amended on August 2, 1994,
April 11, 1995, and May 22, 1996, between the Registrant and
International Circulation Distributors - The Hearst Corporation
10.8+* Master Agreement for Neodata Services, dated as of June 20, 1994,
between the Registrant and Neodata Services, Inc.
10.9* Real Property Lease, dated as of May 20, 1994, between the Registrant
and 500 Third Street Associates
10.10* Real Property Lease, dated as of November 15, 1995, between the
Registrant and GORR Partners, LLC
10.11+ Letter Agreement, dated as of June 14, 1996, between the Registrant and
MSNBC Cable Channel, L.L.C.
10.12 Employment Agreement, dated as of October 12, 1995, between HotWired
Ventures LLC and Jeffrey Simon, as supplemented by Letter Agreement,
dated June 20, 1996, between the Registrant and Jeffrey Simon
10.13 Real Property Lease, dated as of June 21, 1996, between HotWired, Inc.
and GORR Partners, LLC
11.1 Statement re: Computation of Pro Forma Net Loss Per Share
16.1* Letter from Coopers & Lybrand LLC
21.1 Subsidiaries of the Registrant
23.1 Form of Report on Financial Statement Schedule and Consent of
Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1* Power of Attorney. Reference is made to Page II-4.
27.1 Financial Data Schedule
</TABLE>
- --------------------------------------------------------------------------------
* Previously filed as an exhibit to the Registration Statement.
+ Confidential treatment requested.
(b) FINANCIAL STATEMENT SCHEDULES.
Schedule II -- Valuation and Qualifying Accounts -- Page S-1.
All other schedules are omitted because they are not required, they are not
applicable or the information is already included in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the provisions described in Item 14 or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE> 98
The undersigned Registrant hereby undertakes that: (1) for purposes of
determining any liability under the Act, the information omitted from the form
of prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of the
registration statement as of the time it was declared effective, and (2) for the
purpose of determining any liability under the Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City and County of
San Francisco, State of California, on the 30th day of September, 1996.
WIRED VENTURES, INC.
By: Louis Rossetto*
- ---------------------------------------------
Louis Rossetto
Chief Executive Officer and Chair
of the Board
(Principal Executive Officer)
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Louis
Rossetto and Jeff Simon as his true and lawful attorney-in-fact and agent, each
acting alone, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this Registration Statement
on Form S-1, and to any registration statement filed under Rule 462 under the
Securities Act of 1933, and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
-------- --- ----
<S> <C> <C>
Louis Rossetto* Chief Executive September 30, 1996
- -------------------------------------- Officer and Chair of
Louis Rossetto the Board (Principal
Executive Officer)
/s/ Jeffrey Simon Chief Financial September 30, 1996
- -------------------------------------- Officer and
Jeffrey Simon Secretary (Principal
Financial and
Accounting Officer)
Jane Metcalfe* President and September 30, 1996
- -------------------------------------- Director
Jane Metcalfe
H. William Jesse, Jr.* Director September 30, 1996
- --------------------------------------
H. William Jesse, Jr.
/s/ Lawrence Director September 30, 1996
Wilkinson
- --------------------------------------
Lawrence Wilkinson
*By: /s/ Jeffrey Simon
- --------------------------------------
Jeffrey Simon, Attorney-in-Fact
</TABLE>
- --------------------------------------------------------------------------------
II-5
<PAGE> 100
SCHEDULE II
WIRED VENTURES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING CHARGED TO END
ACCOUNT DESCRIPTION OF PERIOD OPERATIONS DEDUCTIONS OF PERIOD
----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Magazine advertising
Allowance for doubtful accounts.... $ -- $ 168 $ 22 $ 146
Newsstand and single copy
Allowance for newsstand returns.... -- 767 367 400
-------------------------------------------------------
$ -- $ 935 $ 389 $ 546
-------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
Magazine advertising
Allowance for doubtful accounts.... $ 146 $ 482 $ 165 $ 463
Online advertising
Allowance for doubtful accounts.... -- 15 -- 15
Newsstand and single copy
Allowance for newsstand returns.... 400 1,480 336 1,544
-------------------------------------------------------
$ 546 $1,977 $ 501 $2,022
-------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
Magazine advertising
Allowance for doubtful accounts.... $ 463 $ 304 $ -- $ 767
Online advertising
Allowance for doubtful accounts.... 15 8 -- 23
Newsstand and single copy
Allowance for newsstand returns.... 1,544 2,030 1,800 1,774
-------------------------------------------------------
$2,022 $2,342 $1,800 $2,564
-------------------------------------------------------
</TABLE>
S-1
<PAGE> 101
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
WIRED VENTURES, INC.
------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 102
EXHIBIT INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- --------------------- ----------
<C> <S> <C>
1.1a Form of Underwriting Agreement (U.S. Version)
1.1b Form of Underwriting Agreement (International Version)
2.1* Form of Exchange Agreement, dated as of May 28, 1996, among
the Registrant and the holders of its Series A Preferred Stock
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.2* Bylaws of the Registrant
3.3 Amended and Restated Certificate of Incorporation to be
effective upon completion of the offering
4.1 Reference is made to Exhibits 3.1 through 3.3
4.2 Specimen stock certificate
4.3* Form of Investor Rights Agreement, dated May 28, 1996, among
the Registrant and certain of its stockholders
5.1 Opinion of Cooley Godward LLP
10.1* Form of Indemnification Agreement between the Registrant and
each of its executive officers and directors
10.2* 1996 Equity Incentive Plan, together with forms of agreements
to be used thereunder
10.3* 1996 Non-Employee Director Stock Option Plan, together with
form of agreement to be used thereunder
10.4a* Letter of Agreement, Loan Note and Related Guaranty, dated as
of July 22, 1995, among the Registrant, Wired World LLC, Wired
New York, Wired UK, Guardian Media Group, Karadean Limited,
Guardian Magazines Limited and Guardian Newspapers Limited
10.4b Agreement, Substitution Loan Note and Substitution Guaranty,
dated as of June 28, 1996, among the Registrant, Wired World
LLC, Wired New York, Wired UK, Guardian Media Group, Karadean
Limited, Guardian Magazines Limited and Guardian Newspapers
Limited
10.5+* License Agreement, dated as of May 30, 1994, between the
Registrant and Dohosha Publishing Co., Ltd.
10.6+* Letter of Intent, dated as of April 5, 1996, between HotWired
Ventures LLC and Inktomi Corporation
10.7+* Agreement, dated as of November 5, 1992, as amended on August
2, 1994, April 11, 1995, and May 22, 1996, between the
Registrant and International Circulation Distributors - The
Hearst Corporation
10.8+* Master Agreement for Neodata Services, dated as of June 20,
1994, between the Registrant and Neodata Services, Inc.
10.9* Real Property Lease, dated as of May 20, 1994, between the
Registrant and 500 Third Street Associates
10.10* Real Property Lease, dated as of November 15, 1995, between
HotWired, Inc. and GORR Partners, LLC
10.11+ Letter Agreement, dated as of June 14, 1996, between the
Registrant and MSNBC Cable Channel, L.L.C.
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- --------------------- ----------
<C> <S> <C>
10.12 Employment Agreement, dated as of October 12, 1995, between
HotWired Ventures LLC and Jeffrey Simon, as supplemented by
Letter Agreement dated June 20, 1996, between Registrant and
Jeffrey Simon
10.13 Real Property Lease, dated as of June 21, 1996, between the
Registrant and GORR Partners, LLC
11.1 Statement re: Computation of Pro Forma Net Loss Per Share
16.1* Letter from Coopers & Lybrand LLC
21.1 Subsidiaries of the Registrant
23.1 Form of Report on Financial Statement Schedule and Consent of
Independent Auditors
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1
24.1* Power of Attorney. Reference is made to Page II-4
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed as an exhibit to the Registration Statement.
+ Confidential treatment requested.
<PAGE> 1
EXHIBIT 1.1(a)
WIRED VENTURES, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
Underwriting Agreement
(U.S. Version)
, 1996
Goldman, Sachs & Co.,
Robertson, Stephens & Company LLC
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Wired Ventures, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
3,800,000 shares (the "Firm Shares") and, at the election of the Underwriters,
up to 570,000 additional shares (the "Optional Shares") of Common Stock, par
value $0.001 per share, ("Stock") of the Company (the Firm Shares and the
Optional Shares that the Underwriters elect to purchase pursuant to Section 2
hereof being collectively called the "Shares").
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of 1,092,500
shares of Stock (the "International Shares"), including the overallotment option
thereunder, through arrangements with certain underwriters outside the United
States (the "International Underwriters"), for whom Goldman Sachs International
and Robertson, Stephens & Company LLC are acting as lead managers. Anything
herein or therein to the contrary notwithstanding, the respective closings under
this Agreement and the International Underwriting Agreement are hereby expressly
made conditional on one another. The Underwriters hereunder and the
International Underwriters are simultaneously entering into an Agreement between
U.S. and International Underwriting Syndicates (the "Agreement between
Syndicates") which provides, among other things, for the transfer of shares of
Stock between the two syndicates. Two forms of prospectus are to be used in
connection with the offering and sale of shares of Stock contemplated by the
foregoing, one relating to the Shares hereunder and the other relating to the
International Shares. The latter form of prospectus will be identical to the
former except for certain substitute pages as included in the registration
statement and amendments thereto as mentioned below. Except as used in Sections
2, 3, 4, 9 and 11 herein, and except as the context may otherwise require,
references hereinafter to the Shares shall include all the shares of Stock which
may be sold pursuant to either this Agreement or the International Underwriting
Agreement, and references herein to any prospectus whether in preliminary or
final form, and whether as amended or supplemented, shall include both the U.S.
and the international versions thereof.
1. The Company represents and warrants to, and agrees with, each
of the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-4739)
(the "Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the
<PAGE> 2
"Commission"); the Initial Registration Statement and any post-effective
amendment thereto, each in the form heretofore delivered to you, and, excluding
exhibits thereto, to you for each of the other Underwriters, have been declared
effective by the Commission in such form; other than a registration statement,
if any, increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended (the "Act"), which became effective upon filing, no other document with
respect to the Initial Registration Statement has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of the Initial
Registration Statement, any post-effective amendment thereto or the Rule 462(b)
Registration Statement, if any, has been issued and no proceeding for that
purpose has been initiated or threatened by the Commission (any preliminary
prospectus included in the Initial Registration Statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Act, is hereinafter called a "Preliminary Prospectus"; the
various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and including the
information contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and
deemed by virtue of Rule 430A under the Act to be part of the Initial
Registration Statement at the time it was declared effective or part of the Rule
462(b) Registration Statement, if any, at such time as it became or hereafter
becomes effective, each as amended at the time such part of the Initial
Registration Statement became effective or such part of the Rule 462(b)
Registration Statement, if any, became or hereafter becomes effective, are
hereinafter collectively called the "Registration Statement"; and such final
prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is
hereinafter called the "Prospectus");
(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material respects to
the requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto, and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements included in
the Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the respective
dates as of which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock or long-term debt
of the Company or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
general affairs,
-2-
<PAGE> 3
management, financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus;
(e) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such qualification,
or is subject to no material liability or disability by reason of the failure to
be so qualified in any such jurisdiction; and each subsidiary of the Company has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation;
(g) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description of the Stock contained in the
Prospectus; and all of the issued shares of capital stock of each subsidiary of
the Company have been duly and validly authorized and issued, are fully paid and
non-assessable and (except for directors' qualifying shares) are owned directly
or indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims;
(h) The Shares to be issued and sold by the Company to the
Underwriters hereunder and under the International Underwriting Agreement have
been duly and validly authorized and, when issued and delivered against payment
therefor as provided herein and in the International Underwriting Agreement,
will be duly and validly issued and fully paid and non-assessable and will
conform to the description of the Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company hereunder
and under the International Underwriting Agreement and the compliance by the
Company with all of the provisions of this Agreement and the International
Underwriting Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or violation
of any of the terms or provisions of, or constitute, except with respect to the
Company's credit facility with Signet Bank pursuant to an agreement dated
November 16, 1995 by and among certain of the Company's predecessors and Signet
Bank (the "Signet Bank Line"), which bank line shall be fully paid and
terminated immediately after the Closing, a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or assets of
the Company or any of its subsidiaries is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or
By-laws of the Company or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the Shares or
the consummation by the Company of the transactions contemplated by this
Agreement and the International Underwriting Agreement, except the registration
under the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required
-3-
<PAGE> 4
under state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters and the International
Underwriters;
(j) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which it is a party or by which it or
any of its properties may be bound;
(k) Except as disclosed in the Prospectus, the Company owns or
possesses the licenses or other rights to use all patents, trademarks, service
marks, trade names, copyrights, technology, know-how and trade secrets necessary
to conduct the business now or proposed to be conducted by the Company as
described in the Prospectus, and except as disclosed in the Prospectus, neither
the Company nor any of its subsidiaries has received any notice of infringement
of or conflict with (or knows of such infringement of or conflict with) asserted
rights of others with respect to any patents, trademarks, service marks, trade
names, copyrights, technology, know-how or trade secrets, which, singly or in
the aggregate, if the subject of any unfavorable decision, ruling or finding,
would have a material adverse effect on the current or future consolidated
financial position, stockholders' equity or results of operations of the Company
and its subsidiaries, considered as one enterprise; and, except as disclosed in
the Prospectus, to the Company's knowledge, the discoveries, inventions,
products or processes of the Company referred to in the Prospectus do not
infringe or conflict with any right or patent of any third party, or any
discovery, invention, product or process which is the subject of a patent
application filed by any third party;
(l) The Company has obtained any permits, consents and
authorizations required to be obtained by it under applicable federal, state,
local and foreign laws or regulations in order to conduct its business as
described in the Prospectus, including, but not limited to, those under laws or
regulations relating to the protection of the environment or concerning the
handling, storage, disposal or discharge of toxic materials (collectively,
"Environmental Laws"), and any such permits, consents and authorizations remain
in full force and effect. The Company is in compliance with the Environmental
Laws in all material respects, and there is no pending or, to the Company's
knowledge, threatened, action or proceeding against the Company or any of its
subsidiaries alleging violations of the Environmental Laws;
(m) The costs and liabilities, if any, associated with
Environmental Laws on the business, operations and properties of the Company
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
permit, license or approval, any related constraints on operating activities and
any potential liabilities to third parties) would not, singly or in the
aggregate, have a material adverse effect on the Company, taken as a whole;
(n) There is no legal or beneficial owner of any securities of
the Company who has any rights, not effectively satisfied or waived, to require
registration of any shares of capital stock of the Company in connection with
the filing of the Registration Statement;
(o) The statements set forth in the Prospectus under the
caption "Description of Capital Stock," insofar as they purport to constitute a
summary of the terms of the Stock and under the caption "Underwriting," insofar
as they purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
(p) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of its
subsidiaries is the subject which, if determined adversely to the Company or any
of its subsidiaries, would individually or in the aggregate have a material
adverse effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the
-4-
<PAGE> 5
Company and its subsidiaries; and, to the best of the Company's knowledge, no
such proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(q) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company" or an
entity "controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(r) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes;
(s) KPMG Peat Marwick LLP, who have certified certain
financial statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(t) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences; and
(u) With respect to the Reorganization (as that term is
defined in the Registration Statement and Prospectus), the Company further
represents and warrants (i) that the Reorganization has been duly and validly
authorized by the Board of Directors, managing member(s) or general partner(s),
as applicable, of the Company, Wired Holding Inc., Wired USA Ltd., Wired
Ventures, Ltd., and Hotwired Ventures LLC (collectively, the "Reorganization
Entities"), and by the record holders of sufficient ownership interests in each
Reorganization Entity to properly effect the Reorganization, in each case in
accordance with the respective charter documents of, and laws applicable to,
each Reorganization Entity; (ii) the Reorganization requires no action by or in
respect of, or filing with, any governmental body, agency, official or authority
other than such actions and/or filings with which compliance has been fully and
timely effected; (iii) that the Reorganization did not (A) contravene or
constitute a default under or give rise to a right of termination, cancellation
or acceleration of any right or obligation of, or to a loss of any benefit to
which, any Reorganization Entity is entitled under (1) any provision of
applicable law or regulation, (2) the respective charter documents of each
Reorganization Entity, (3) any material agreement, contract, plan, lease,
arrangement or commitment to which any Reorganization Entity is party; or (4)
any judgment, injunction, order, decree, administrative interpretation, award or
other instrument binding upon any Reorganization Entity or their respective
properties; or (B) result in the creation or imposition of any material lien on
any asset of any Reorganization Entity; and (iv) that the Reorganization did not
result in or create with respect to Reorganization Entity any liability for
state or federal income tax.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $_______________, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying such number
of Optional Shares by a fraction, the numerator of which is the maximum number
of Optional Shares which such Underwriter is entitled to purchase as set forth
-5-
<PAGE> 6
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to
purchase at their election up to 660,000 Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., for the account of such Underwriter, against payment by or
on behalf of such Underwriter of the purchase price therefor by wire transfer or
certified or official bank check or checks, payable to the order of the Company
in federal (same day) funds. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of Goldman, Sachs & Co., 85 Broad Street, New York, New
York 10004 (the "Designated Office"). The time and date of such delivery and
payment shall be, with respect to the Firm Shares, 9:30 a.m., New York time, on
___________, 1996 or such other time and date as Goldman, Sachs & Co. and the
Company may agree upon in writing, and, with respect to the Optional Shares,
9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co. in the
written notice given by Goldman, Sachs & Co. of the Underwriters' election to
purchase such Optional Shares, or such other time and date as Goldman, Sachs &
Co. and the Company may agree upon in writing. Such time and date for delivery
of the Firm Shares is herein called the "First Time of Delivery," such time and
date for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery," and each such time and date for
delivery is herein called a "Time of Delivery."
(b) The documents to be delivered at each Time of Delivery by
or on behalf of the parties hereto pursuant to Section 7 hereof, including the
cross receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(i) hereof, will be delivered at the offices
of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California
94304 (the "Closing Location"), and the Shares will be delivered at the
Designated Office, all at such Time of Delivery. A meeting will be held at the
Closing Location at 3:00 p.m., New York time, on the New York Business Day next
preceding such Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus prior to
the last Time of Delivery which shall be disapproved
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<PAGE> 7
by you promptly after reasonable notice thereof; to advise you, promptly after
it receives notice thereof, of the time when any amendment to the Registration
Statement has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish you with
copies thereof; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or suspending any
such qualification, promptly to use its best efforts to obtain the withdrawal of
such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York time, on the New York
Business Day next succeeding the date of this Agreement and from time to time,
to furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months after
the time of issue of the Prospectus in connection with the offering or sale of
the Shares and if at such time any event shall have occurred as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such period to amend or
supplement the Prospectus in order to comply with the Act, to notify you and
upon your request to prepare and furnish without charge to each Underwriter and
to any dealer in securities as many copies as you may from time to time
reasonably request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such compliance, and in
case any Underwriter is required to deliver a prospectus in connection with
sales of any of the Shares at any time nine months or more after the time of
issue of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as you
may request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon
as practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c) under
the Act), an earnings statement of the Company and its subsidiaries (which need
not be audited) complying with Section 11(a) of the Act and the rules and
regulations thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the Prospectus,
not to offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder and under the International Underwriting Agreement any securities of
the Company that are substantially similar to the Shares, including but not
limited to any securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than (i) pursuant to equity incentive plans existing on, or
upon the conversion or exchange of convertible or exchangeable securities
outstanding as of, the date of this Agreement or (ii) in connection with any
acquisition of or strategic alliance with another party provided that (1) such
shares, when aggregated with any other shares issued pursuant to this clause
(ii), represent less than twenty percent (20%) of the Company's outstanding
shares of Common Stock as
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<PAGE> 8
of the date hereof including the Shares sold in the initial public offering of
the Shares, (2) the acquisition or strategic alliance be effected pursuant to a
transaction agreement providing (A) that the recipients of any securities of the
Company issued pursuant such an acquisition or strategic alliance agree to be
bound by lock-up restrictions substantially similar to the agreements to be
entered into by the stockholders of the Company pursuant to Section 7(k) below
in form and substance satisfactory to the Underwriters, (B) that certificates
representing any securities of the Company issued pursuant to such acquisition
or strategic alliance bear restrictive legends referring to the lock-up
provisions contained in the transaction agreement, and (C) that appropriate
stop-transfer instructions with respect to any securities of the Company issued
pursuant to such acquisition or strategic alliance be supplied to the Company's
stock transfer agent, and (3) that the Company shall not waive any lock-up
provision included in a transaction agreement pursuant to this Section 5(e) with
respect to any transfer by any securityholder without the prior written consent
of Goldman, Sachs & Co.). The Company hereby further agrees that during the
period ending 180 days after the date of the Prospectus, it will not waive,
amend or further alter any lockup provision contained in any agreement between
the Company and any securityholder of the Company without the prior written
consent of Goldman, Sachs & Co. on behalf of the Underwriters;
(f) To furnish to its stockholders as soon as practicable
after the end of each fiscal year an annual report (including a balance sheet
and statements of income, stockholders' equity and cash flows of the Company and
its consolidated subsidiaries certified by independent public accountants) and,
as soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), consolidated summary financial information of
the Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of
the Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of
the Shares pursuant to this Agreement and the International Underwriting
Agreement in the manner specified in the Prospectus under the caption "Use of
Proceeds";
(i) To use its best efforts to list for quotation the Shares
on the National Association of Securities Dealers Automated Quotations National
Market ("NASDAQ");
(j) To file with the Commission such reports on Form SR as may
be required by Rule 463 under the Act;
(k) If the Company elects to rely upon Rule 462(b), the
Company shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of
this Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act; and
(l) The Company, within two days of the Closing, shall pay in
full all amounts owed under the Signet Bank line, and shall terminate such bank
line.
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<PAGE> 9
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the International Underwriting
Agreement, the Agreement between Syndicates, the Selling Agreement, the Blue Sky
Memorandum, closing documents (including any compilations thereof) and any other
documents in connection with the offering, purchase, sale and delivery of the
Shares; (iii) all expenses in connection with the qualification of the Shares
for offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey;
(iv) all fees and expenses in connection with listing the Shares on NASDAQ; (v)
the filing fees incident to, and the fees and disbursements of counsel for the
Underwriters in connection with, securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the Shares;
(vi) the cost of preparing stock certificates; (vii) the cost and charges of any
transfer agent or registrar; and (viii) all other costs and expenses incident to
the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section. It is understood, however, that,
except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 p.m.,
Washington, D.C. time, on the date of this Agreement; no stop order suspending
the effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Wilson Sonsini Goodrich & Rosati, P.C., counsel for the
Underwriters, shall have furnished to you such written opinion or opinions (a
draft of each such opinion is attached as Annex II(a) hereto), dated such Time
of Delivery, with respect to the matters covered in paragraphs (i), (ii), (vii),
(xi), and the last paragraph of subsection (c) below as well as such other
related matters as you may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to enable
them to pass upon such matters;
(c) Cooley Godward LLP, counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is attached as
Annex II(b) hereto), dated such Time of Delivery, in form and substance
satisfactory to you to the effect that:
(i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the State of Delaware, with the requisite corporate power to own its
property and assets and to conduct its business as described in the
Prospectus;
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<PAGE> 10
(ii) the Company has authorized capital stock as set
forth in the Prospectus under the captions "Capitalization" and
"Description of Capital Stock" as of the dates stated therein and all
of the issued shares of capital stock of the Company have been duly and
validly authorized and issued and are fully paid and nonassessable; the
Shares have been duly authorized, and upon issuance and delivery
against payment therefor in accordance with the terms of the
Agreements, will be validly issued, outstanding, fully paid and
nonassessable and will conform in all material respects to the
description of the Company's Common Stock contained in the Prospectus
under the caption "Description of Capital Stock";
(iii) the Company has been duly qualified as a
foreign corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in the United States
in which it owns or leases properties or conducts any business so as to
require such qualification and where any statutory fines or penalties
or any corporate disability imposed for the failure to qualify would
materially and adversely affect the Company, its assets, financial
condition or operations;
(iv) each of HotWired, Inc., HardWired, Inc. and
Wired Television, Inc. has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware; each of Wired Magazine Group, Inc., and Wired New York has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of California; Wired World,
L.L.C., has been duly formed under the Delaware Limited Liability
Company Act of 1992, as amended, and is validly existing as a limited
company in good standing under the laws of the State of Delaware; and
Wired UK has been duly formed and is validly existing as an unlimited
company in good standing under the laws of the United Kingdom;
(v) to the best of such counsel's knowledge, the
Company does not own, directly or indirectly, any corporation,
association or entity other than (a) HotWired, Inc., a Delaware
corporation; (b) HardWired, Inc., a Delaware corporation; (c) Wired
Magazine Group, Inc., a California corporation (d) Wired Television,
Inc., a Delaware corporation; (e) Wired New York, a California
corporation; (f) Wired World, L.L.C., a Delaware limited liability
company; and (g) Wired UK, a United Kingdom unlimited company
(collectively, the "Subsidiaries"); the Company owns of record,
directly or indirectly, all of the outstanding equity interests in each
of the Subsidiaries, and to the best of such counsel's knowledge, owns
such interests free and clear of all material liens, encumbrances,
equities or claims; and all of such equity interests have been duly and
validly authorized and issued and are not assessable without the
consent of the holders thereof;
(vi) to the best of such counsel's knowledge, there
are no legal or governmental proceedings pending to which the Company
or any of the Subsidiaries is a party or of which any property of the
Company or any of the Subsidiaries is the subject that, if determined
adversely to the Company or any of the Subsidiaries, might result,
either individually or in the aggregate, in any material adverse effect
on the assets, financial condition, or operations of the Company and
the Subsidiaries, taken as a whole; and, to the best of such counsel's
knowledge, no such proceedings have been overtly threatened against the
Company or any of its Subsidiaries by any governmental authorities or
others;
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<PAGE> 11
(vii) this Agreement and the International
Underwriting Agreement have been duly and validly authorized, executed
and delivered by the Company;
(viii) the issuance and sale of the Shares, the
compliance by the Company with all of the provisions of this Agreement
and the International Underwriting Agreement and the consummation of
the transactions contemplated hereby and thereby do not constitute and
will not result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any material agreement
known to such counsel to which the Company or any of the Subsidiaries
is a party or by which any of them is bound or to which any of the
property or assets of the Company or any of the Subsidiaries is
subject, nor will such action result in any violation of (a) the
Certificate of Incorporation or Bylaws of the Company; (b) any
governmental statute, rule or regulation applicable to the Company or
any of the Subsidiaries (other than under the Act and state securities
or "blue sky" statutes); or (c) any order, writ, judgment, injunction,
decree, determination or award that has been entered against the
Company or any of the Subsidiaries and of which such counsel is aware,
the violation or contravention of which would materially and adversely
affect the Company and the Subsidiaries, taken as a whole, and their
assets, financial condition or operations, taken as a whole;
(ix) no consents, approvals, authorizations or orders
of, or filings, registrations and qualifications with, any court of
governmental agency or body in the United States are required for the
issuance and sale of the Shares or consummation by the Company of the
other transactions contemplated hereby and by the International
Underwriting Agreement, except registration of the Shares under the Act
and such consents, approvals, authorizations or orders of, and filings,
registrations and qualifications with any court or governmental agency
or body as may be required under state securities or "blue sky" laws in
connection with the purchase and distribution of the Shares by the
Underwriters and the International Underwriters;
(x) to the best of such counsel's knowledge, the
Company is not in violation of its Certificate of Incorporation or
Bylaws;
(xi) such counsel has reviewed the information in the
Prospectus under the caption "Description of Capital Stock," to the
extent that it constitutes a summary of matters of law or legal
conclusions, and has concluded that it is in all material respects
accurate;
(xii) the Reorganization was duly and validly
authorized by the Board of Directors, managing member(s) or general
partner(s), as applicable, of the Company, Wired Holdings Inc., Wired
USA Ltd., Wired Ventures, Ltd. and HotWired Ventures LLC (each, a
"Reorganization Entity"), and by the record holders of sufficient
ownership interests in each Reorganization Entity, to the extent
necessary to effect the Reorganization, in each case in accordance with
the Certificate of Incorporation and Bylaws, partnership agreement or
operating agreement, as applicable, of each Reorganization Entity as
then in effect; all consents, approvals, authorizations or orders of,
and filings, registrations and qualifications with, any regulatory
authority or governmental body in the United States required for the
consummation by the Reorganization Entities of the Reorganization were
made or obtained; and the consummation of the Reorganization by the
Reorganization Entities did not constitute a breach or violation of any
of the terms or provisions of, or constitute a default under, or result
in a right
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<PAGE> 12
of termination, cancellation, acceleration of any right or obligation
or loss of benefit under any material agreement known to such counsel
to which any Reorganization Entity was a party or by which any of them
was then bound or to which any of the property or assets of any
Reorganization Entity was then subject, nor did such action result in
any violation of (a) the Certificate of Incorporation and Bylaws,
partnership agreement or operating agreement, as applicable, of any
Reorganization Entity as then in effect; (b) any governmental statute,
rule or regulation then applicable to the Reorganization Entities; or
(c) any order, writ, judgment, injunction, decree, determination or
award that had then been entered against any Reorganization Entity and
of which such counsel is aware, the violation or contravention of which
would have materially and adversely affected the Company and the
Subsidiaries, taken as a whole, and their assets, financial condition
or operations, taken as a whole;
(xiii) the Company is not an "investment company," as
such term is defined in Section 3 of the Investment Company Act of
1940, as amended;
(xiv) the Registration Statement and the Prospectus,
and any further amendments and supplements thereto made by the Company
and the Subsidiaries prior to the date hereof (other than the financial
statements and related schedules and other financial data contained
therein, as to which such counsel need express no opinion) comply as
to form in all material respects with the requirements of the Act and
the rules and regulations thereunder; and
(xv) the leases for the real property and buildings
containing the Company's principal facilities in San Francisco,
California are valid, subsisting and enforceable, assuming that the
lessor under each such lease had and has full right, power and
authority to enter into and to perform its obligations under such
lease, and with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property
and buildings by the Company and the Subsidiaries, but subject, as to
enforcement, to applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws of general applicability
affecting creditors' rights and to general equity principles and to
limitations on availability of equitable relief, including specific
performance.
Such counsel shall also state that, in connection with the preparation
of the Registration Statement and the Prospectus, they have participated in
conference with officers and other representatives of the Company and with its
certified public accountants, as well as with representatives of the
Underwriters, the International Underwriters and their counsel; and that at such
conferences, the contents of the Registration Statement and the Prospectus and
related matters were discussed. Although such counsel need not have
independently verify or confirm, and may assume no responsibility for the
accuracy or completeness of the statements contained in the Registration
Statement or the Prospectus, except as set forth in the opinions in subsections
(ii) and (xi) above, such counsel shall state that nothing has come to their
attention that has caused them to believe that (a) as of the effective date of
the Registration Statement, the Registration Statement (other than the financial
statements and other financial data contained therein and related schedules, as
to which such counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or (b) as of
its date and such Time of Delivery, the Prospectus (other than the financial
statements and related schedules and other financial data contained therein, as
to which such counsel need express no opinion) contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
required to
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<PAGE> 13
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading and such counsel
does not know of any amendment to the Registration Statement required to be
filed or of any contracts or other documents of a character required to be filed
as an exhibit to the Registration Statement or required to be described in the
Registration Statement or the Prospectus which are not filed or described as
required.
(d) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the effective
date of any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time of Delivery, KPMG
Peat Marwick LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory to you,
to the effect set forth in Annex I hereto (the executed copy of the letter
delivered prior to the execution of this Agreement is attached as Annex I(a)
hereto and a draft of the form of letter to be delivered on the effective date
of any post-effective amendment to the Registration Statement and as of each
Time of Delivery is attached as Annex I(b) hereto);
(e) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus, and (ii) since the
respective dates as of which information is given in the Prospectus there shall
not have been any change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in Clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(f) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities by any "nationally
recognized statistical rating organization", as that term is defined by the
Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such
organization shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the Company's
debt securities;
(g) On or after the date hereof there shall not have occurred
any of the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on NASDAQ; (ii) a
suspension or material limitation in trading in the Company's securities on
NASDAQ; (iii) a general moratorium on commercial banking activities declared by
either Federal or New York or California State authorities; or (iv) the outbreak
or escalation of hostilities involving the United States or the declaration by
the United States of a national emergency or war, if the effect of any such
event specified in this Clause (iv) in the judgment of the Representatives makes
it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the terms and
in the manner contemplated in the Prospectus;
(h) The Shares to be sold at such Time of Delivery shall have
been duly listed for quotation on the NASDAQ;
(i) The Company shall have furnished or caused to be furnished
to you at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and warranties of
the Company herein at and as of such Time of Delivery, as to the performance by
the Company of all of its obligations hereunder to be performed at or prior to
such Time
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<PAGE> 14
of Delivery, as to the matters set forth in subsections (a) and (e) of this
Section and as to such other matters as you may reasonably request;
(j) The Company shall have complied with the provisions of
Section 5(c) hereof with respect to the furnishing of prospectuses on the New
York Business Day next succeeding the date of this Agreement; and
(k) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from the officers, directors and stockholders of
the Company substantially to the effect set forth in Subsection 5(e) hereof.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the
Company against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense
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<PAGE> 15
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering of the Shares
purchased under this Agreement (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
subsection (d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall
be in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
any Underwriter within the meaning of the Act; and the obligations
-15-
<PAGE> 16
of the Underwriters under this Section 8 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company and to
each person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Company that you have
so arranged for the purchase of such Shares, or the Company notifies you that it
has so arranged for the purchase of such Shares, you or the Company shall have
the right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, then the
Company shall have the right to require each non-defaulting Underwriter to
purchase the number of shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate number of
all the Shares to be purchased at such Time of Delivery, or if the Company shall
not exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or
Underwriters, then this Agreement (or, with respect to the Second Time of
Delivery, the obligations of the Underwriters to purchase and of the Company to
sell the Optional Shares) shall thereupon terminate, without liability on the
part of any non-defaulting Underwriter or the Company, except for the expenses
to be borne by the Company and the Underwriters as provided in Section 6 hereof
and the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if
-16-
<PAGE> 17
for any other reason, any Shares are not delivered by or on behalf of the
Company as provided herein, the Company will reimburse the Underwriters through
you for all out-of-pocket expenses approved in writing by you, including fees
and disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Shares not so delivered,
but the Company shall then be under no further liability to any Underwriter
except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder
shall be in writing, and if to the Underwriters shall be delivered or sent by
mail, telex or facsimile transmission to you as the representatives in care of
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Attention:
Registration Department; and if to the Company shall be delivered or sent by
mail, telex or facsimile transmission to the address of the Company set forth in
the Registration Statement, Attention: Secretary; provided, however, that any
notice to an Underwriter pursuant to Section 8(c) hereof shall be delivered or
sent by mail, telex or facsimile transmission to such Underwriter at its address
set forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
-17-
<PAGE> 18
If the foregoing is in accordance with your understanding, please sign
and return to us one for the Company and each of the Representatives plus one
for each counsel counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters (U.S. Version), the form of which shall be submitted to the Company
for examination upon request, but without warranty on your part as to the
authority of the signers thereof.
Very truly yours,
Wired Ventures, Inc.
By:_____________________________________
Name:
Title:
Accepted as of the date hereof at
San Francisco, California:
Goldman, Sachs & Co.
Robertson, Stephens & Company LLC
By:_______________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-18-
<PAGE> 19
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
<S> <C> <C> <C>
Goldman, Sachs & Co.
Robertson, Stephens & Company LLC
------------- --------------
Total 4,400,000 660,000
========== =======
</TABLE>
<PAGE> 20
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the Act and
the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and included
in the Prospectus or the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the Act and the
related published rules and regulations thereunder; and, if applicable, they
have made a review in accordance with standards established by the American
Institute of Certified Public Accountants of the unaudited consolidated interim
financial statements, selected financial data, pro forma financial information,
financial forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such letter, as
indicated in their reports thereon, copies of which have been separately
furnished to the representatives of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of the
unaudited condensed consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included in the Prospectus,
including without limitation the six quarters in the period ended June 30, 1996,
as indicated in their reports thereon copies of which have been separately
furnished to the Representatives and on the basis of specified procedures
including inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations, nothing
came to their attention that caused them to believe that the unaudited condensed
consolidated financial statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the related
published rules and regulations;
(iv) The unaudited selected financial information with respect
to the consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees with the
corresponding amounts (after restatements where applicable) in the audited
consolidated financial statements for such five fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to believe
that this information does not conform in all material respects with the
disclosure requirements of Items 301, 302, 402 and 503(d), respectively, of
Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards, consisting
of a reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company and its subsidiaries, inspection of the minute books
of the Company and its subsidiaries since the date of the latest audited
financial statements included in the Prospectus, inquiries of officials of the
Company and its subsidiaries responsible for financial and accounting matters
and such other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of
income, consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the related published
rules and regulations, or (ii) any material modifications should be made to the
unaudited condensed
<PAGE> 21
consolidated statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in conformity
with generally accepted accounting principles;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial statements from
which such data and items were derived, and any such unaudited data and items
were not determined on a basis substantially consistent with the basis for the
corresponding amounts in the audited consolidated financial statements included
in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any unaudited condensed
financial statements referred to in Clause (A) and any unaudited income
statement data and balance sheet items included in the Prospectus and referred
to in Clause (B) were not determined on a basis substantially consistent with
the basis for the audited consolidated financial statements included in the
Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
published rules and regulations thereunder or the pro forma adjustments have not
been properly applied to the historical amounts in the compilation of those
statements;
(E) as of a specified date not more than five days
prior to the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock upon exercise
of options and stock appreciation rights, upon earn-outs of performance shares
and upon conversions of convertible securities, in each case which were
outstanding on the date of the latest financial statements included in the
Prospectus) or any increase in the consolidated long-term debt of the Company
and its subsidiaries, or any decreases in consolidated net current assets or
stockholders' equity or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case as
compared with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described in such
letter; and
(F) for the period from the date of the latest
financial statements included in the Prospectus to the specified date referred
to in Clause (E) there were any decreases in consolidated net revenues or
operating profit or the total or per share amounts of consolidated net income or
other items specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with the comparable
period of the preceding year and with any other period of corresponding length
specified by the Representatives, except in each case for decreases or increases
which the Prospectus discloses have occurred or may occur or which are described
in such letter; and
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not constituting
an examination in accordance with generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified by
the Representatives, which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus, or in Part II
of, or in exhibits and schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts, percentages and
financial information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
-2-
<PAGE> 1
EXHIBIT 1.1(b)
WIRED VENTURES, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
------------------------------
Underwriting Agreement
(International Version)
, 1996
Goldman Sachs International
Robertson, Stephens & Company LLC
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman Sachs International
Peterborough Court,
133 Fleet Street,
London EC4A 2BB, England
Ladies and Gentlemen:
Wired Ventures, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
950,000 shares (the "Firm Shares") and, at the election of the Underwriters,
up to 142,500 additional shares (the "Optional Shares") of Common Stock, par
value $0.001 per share, ("Stock") of the Company (the Firm Shares and the
Optional Shares that the Underwriters elect to purchase pursuant to Section 2
hereof being collectively called the "Shares").
It is understood and agreed to by all parties that the Company in
concurrently entering into an agreement (the "U.S. Underwriting Agreement")
providing for the sale by the Company of up to a total of 4,370,000 shares of
Stock (the "U.S. Shares"), including the overallotment option thereunder,
through arrangements with certain underwriters in the United States (the "U.S.
Underwriters"), for whom Goldman, Sachs & Co. and Robertson, Stephens & Company
LLC are acting as representatives. Anything herein or therein to the contrary
notwithstanding, the respective closings under this Agreement and the U.S.
Underwriting Agreement are hereby expressly made conditional on one another. The
Underwriters hereunder and the U.S. Underwriters are simultaneously entering
into an Agreement between U.S. and International Underwriting Syndicates (the
"Agreement between Syndicates") which provides, among other things, for the
transfer of shares of Stock between the two syndicates and for consultation by
the Lead Managers hereunder with Goldman, Sachs & Co. prior to exercising the
rights of the Underwriters under Section 7 hereof. Two forms of prospectus are
to be used in connection with the offering and sale of shares of Stock
contemplated by the foregoing, one relating to the Shares hereunder and the
other relating to the U.S. Shares. The latter form of prospectus will be
identical to the former except for certain substitute pages as included in the
registration statement and amendments thereto as mentioned below. Except as used
in Sections 2, 3, 4, 9 and 11 herein, and except as the context may otherwise
require, references hereinafter to the Shares shall include all the shares of
Stock which may be sold pursuant to either this Agreement or the U.S.
Underwriting Agreement, and references herein to any prospectus whether in
preliminary or final form, and whether as amended or supplemented, shall include
both the U.S. and the international versions thereof.
In addition, this Agreement incorporates by reference certain provisions
from the U.S. Underwriting Agreement (including the related definitions of
terms, which are also used elsewhere herein) and, for purposes of applying the
same, references (whether in these precise words or their
<PAGE> 2
equivalent) in the incorporated provisions to the "Underwriters" shall be to the
Underwriters hereunder, to the "Shares" shall be to the Shares hereunder as just
defined, to "this Agreement" (meaning therein the U.S. Underwriting Agreement)
shall be to this Agreement (except where this Agreement is already referred to
or as the context may otherwise require) and to the representatives of the
Underwriters or to Goldman, Sachs & Co. shall be to the addressees of this
Agreement and to Goldman Sachs International ("GSI"), and, in general, all such
provisions and defined terms shall be applied mutatis mutandis as if the
incorporated provisions were set forth in full herein having regard to their
context in this Agreement as opposed to the U.S. Underwriting Agreement.
1. The Company hereby makes with the Underwriters the same
representations, warranties and agreements as are set forth in Section 1 of the
U.S. Underwriting Agreement, which Section is incorporated herein by this
reference.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $_______________, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying such number
of Optional Shares by a fraction, the numerator of which is the maximum number
of Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 142,500 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by GSI of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus and in the forms of Agreement among
Underwriters (International Version) and Selling Agreements, which have been
previously submitted to the Company by you. Each Underwriter hereby makes to and
with the Company the representations and agreements of such Underwriter as a
member of the selling group contained in Sections 3(d) and 3(e) of the form of
Selling Agreements.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as GSI may request upon at least forty-eight hours' prior notice to the
Company shall be delivered by or on behalf of the Company to GSI, for the
account of such Underwriter, against payment by or on behalf of such Underwriter
of the purchase price therefor by wire transfer or certified or official bank
check or checks, payable to the order of the Company in federal (same day)
funds. The Company will cause the certificates representing the Shares to be
made available for checking and packaging at least twenty-four hours prior to
the Time of Delivery (as defined below) with respect thereto at the office of
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 (the "Designated
Office"). The time and date of such delivery and payment
-2-
<PAGE> 3
shall be, with respect to the Firm Shares, 9:30 a.m., New York time, on
___________, 1996 or such other time and date as GSI and the Company may agree
upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York
time, on the date specified by GSI in the written notice given by GSI of the
Underwriters' election to purchase such Optional Shares, or such other time and
date as GSI and the Company may agree upon in writing. Such time and date for
delivery of the Firm Shares is herein called the "First Time of Delivery," such
time and date for delivery of the Optional Shares, if not the First Time of
Delivery, is herein called the "Second Time of Delivery," and each such time and
date for delivery is herein called a "Time of Delivery."
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 of the U.S. Underwriting
Agreement, including the cross receipt for the Shares and any additional
documents requested by the Underwriters pursuant to Section 7(i) of the U.S.
Underwriting Agreement, will be delivered at the offices of Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
such Time of Delivery. A meeting will be held at the Closing Location at 3:00
p.m., New York time, on the New York Business Day next preceding such Time of
Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 4, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company hereby makes to and with the Underwriters the same
agreements as are set forth in Section 5 of the U.S. Underwriting Agreement,
which Section is incorporated herein by this reference.
6. The Company and the Underwriters hereby agree with respect to certain
expenses on the same terms as are set forth in Section 6 of the U.S.
Underwriting Agreement, which Section is incorporated herein by this reference.
7. Subject to the provisions of the Agreement between Syndicates, the
obligations of the Underwriters hereunder shall be subject, in their discretion,
at each Time of Delivery, to the condition that all representations and
warranties and other statements of the Company herein are, at and as of such
Time of Delivery, true and correct, the condition that the Company shall have
performed all of its obligations hereunder theretofore to be performed, and the
additional conditions identical to those set forth in Section 7 of the U.S.
Underwriting Agreement, which Section is incorporated herein by this reference.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through GSI expressly for use therein.
-3-
<PAGE> 4
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through GSI expressly
for use therein; and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering of the Shares
purchased under this Agreement (before deducting expenses) received by the
Company bear to the total underwriting discounts and
-4-
<PAGE> 5
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (d),
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Company that you have
so arranged for the purchase of such Shares, or the Company notifies you that it
has so arranged for the purchase of such Shares, you or the Company shall have
the right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each
-5-
<PAGE> 6
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through GSI for all out-of-pocket expenses
approved in writing by GSI, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by GSI on behalf of you as the representatives of the
Underwriters.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of GSI,
Peterborough Court, 133 Fleet Street, London EC4A 2BB, England, Attention:
Equity Capital Markets, Telex No. 94012185, Facsimile Transmission No. (071)
774-1550; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary, Facsimile Transmission No. (415)
222-6209; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by GSI upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right
-6-
<PAGE> 7
under or by virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
-7-
<PAGE> 8
If the foregoing is in accordance with your understanding, please sign and
return to us one for the Company and one for each of the Co-Lead Managers or
Lead Managing Underwriters plus one for each counsel counterparts hereof, and
upon the acceptance hereof by you, on behalf of each of the Underwriters, this
letter and such acceptance hereof shall constitute a binding agreement between
each of the Underwriters and the Company. It is understood that your acceptance
of this letter on behalf of each of the Underwriters is pursuant to the
authority set forth in a form of Agreement among Underwriters (International
Version), the form of which shall be submitted to the Company for examination
upon request, but without warranty on your part as to the authority of the
signers thereof.
Very truly yours,
Wired Ventures, Inc.
By:
--------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman Sachs International
Robertson, Stephens & Company LLC
By:
------------------------------------
(Attorney-in-Fact)
On behalf of each of the Underwriters
-8-
<PAGE> 9
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ---------
<S> <C> <C>
Goldman Sachs International
Robertson, Stephens & Company LLC
--------- -------
950,000 142,500
Total
========= =======
</TABLE>
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
WIRED VENTURES, INC.
Jane Metcalfe and Jeff Simon hereby certify that:
1. The original name of this corporation is Wired Ventures, Inc. and
the date of filing of the original Certificate of Incorporation of this
corporation with the Secretary of State of the State of Delaware is March 29,
1996.
2. They are the duly elected and acting President and Secretary,
respectively, of Wired Ventures, Inc., a Delaware corporation.
3. The Certificate of Incorporation of this corporation is hereby
amended and restated to read as follows:
"I.
The name of this corporation is Wired Ventures, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is Nine East Loockerman Street, City of Dover, County of Kent, and the
name of the registered agent of the corporation in the State of Delaware at such
address is the National Registered Agents, Inc.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares that the corporation is authorized to issue is One Hundred Ten Million
(110,000,000) shares. Sixty Million (60,000,000) shares will be Common Stock,
each having a par value of one-tenth of one
<PAGE> 2
cent ($.001). Fifty Million (50,000,000) shares will be Preferred Stock, each
having a par value of one-tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions, of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series will be
decreased in accordance with the foregoing sentence, the shares constituting
such decrease will resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
C. Thirty Million Five Hundred Thousand (30,500,000) of the authorized
shares of Preferred Stock are hereby designated "Series A Preferred Stock" (the
"Series A Preferred") and Four Million Five Hundred Thousand (4,500,000) of the
authorized shares of Preferred Stock are hereby designated "Series B Preferred
Stock" (the "Series B Preferred").
D. The rights, preferences, privileges, restrictions of, and other
matters relating to, the Series A Preferred and the Series B Preferred are as
follows:
1. DIVIDEND RIGHTS. Holders of Series B Preferred, prior to
and in preference to the holders of Series A Preferred or Common Stock, will be
entitled to receive, when and as declared by the Board of Directors, but only
out of funds that are legally available therefor, noncumulative cash dividends
at the rate of Eighty Cents ($.80) per annum on each outstanding share of Series
B Preferred (as adjusted for any stock dividends, combinations or splits with
respect to such shares). After payment of the full dividend preference of the
Series B Preferred, holders of Series A Preferred, prior to and in preference to
the holders of Common Stock, will be entitled to receive, when, as and if
declared by the Board of Directors, but only of funds that are legally available
therefor, noncumulative cash dividends at the rate of Eighty Cents ($0.80) per
annum on each outstanding share of Series A Preferred (as adjusted for any stock
dividends, combinations or splits with respect to such shares).
2. VOTING RIGHTS.
(a) Except as required by law or as provided in this
Section 2, the Series A Preferred and Series B Preferred will vote together with
the Common Stock, and not as a separate class, at any annual or special meeting
of stockholders, and may act by written consent in the same manner as the Common
Stock. In either case, each holder of shares of Series A Preferred or Series B
Preferred will be entitled to such number of votes as will be equal to the
number of whole shares of Common Stock into which such holder's aggregate number
of shares of Series A Preferred and Series B Preferred are convertible (pursuant
to
2.
<PAGE> 3
Section 4 hereof) immediately after the close of business on the record date
fixed for such meeting or the effective date of such written consent.
(b) SEPARATE VOTE OF SERIES B PREFERRED. For so long as at
least One Hundred Thousand (100,000) shares of Series B Preferred (subject to
adjustment for any stock split, reverse stock split or other similar event
affecting the Series B Preferred) remain outstanding, in addition to any other
vote or consent required herein or by law, the vote or written consent of the
holders of at least a majority of the outstanding Series B Preferred shall be
necessary for effecting or validating the following actions:
(1) Any amendment, alteration or repeal of any
provision of the Certificate of Incorporation or the Bylaws of the Company
(including any filing of a Certificate of Designation) that affects adversely
the voting powers, preferences or other special rights or privileges,
qualifications, limitations or restrictions of the Series B Preferred; or
(2) Any authorization or any designation, whether by
reclassification or otherwise, of any new class or series of stock or any other
securities convertible into equity securities of the Company ranking on a parity
with or senior to the Series B Preferred in right of redemption, liquidation
preference, voting or dividends or any increase in the authorized or designated
number of any such new class or series.
3. LIQUIDATION RIGHTS. Upon any liquidation, dissolution or
winding up of the corporation, whether voluntary or involuntary:
(a) The holders of Series B Preferred will be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the corporation to the holders of the Series A Preferred or the
Common Stock by reason of their ownership thereof, the sum of (1) Ten Dollars
($10.00) per share of Series B Preferred, as adjusted for any stock dividends,
combinations, splits or the like, then held by them and (2) all declared but
unpaid dividends on each such share of Series B Preferred then held by them. If
the assets of the corporation are insufficient to make payment in full to all
holders of Series B Preferred, then such assets will be distributed among the
holders of Series B Preferred at the time outstanding, ratably in proportion to
the full amounts to which they would otherwise be respectively entitled.
(b) After the payment of the full liquidation preference of
the Series B Preferred as set forth in Section 3(a) above, the holders of Series
A Preferred will be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the corporation to the
holders of the Common Stock by reason of their ownership thereof, the sum of (1)
Ten Dollars ($10.00) per share of Series A Preferred, as adjusted for any stock
dividends, contributions, splits or the like, then held by them and (2) all
declared but unpaid dividends on each such share of Series A Preferred then held
by them. If the remaining assets of the corporation are insufficient to make
payment in full to all holders of Series A Preferred, then such assets will be
distributed among the holders of Series A Preferred at the time outstanding,
ratably in proportion to the full amounts to which they would otherwise be
entitled.
3.
<PAGE> 4
(c) After the payment of the full liquidation preferences
of the Series A Preferred and Series B Preferred as set forth in Sections 3(a)
and 3(b) above, the holders of the Common Stock will receive the remaining
assets.
4. CONVERSION RIGHTS.
The holders of the Series A Preferred and Series B
Preferred will have the following rights with respect to the conversion of the
Series A Preferred and Series B Preferred into shares of Common Stock:
(a) OPTIONAL CONVERSION. Subject to and in compliance with
the provisions of this Section 4, any shares of Series A Preferred and Series B
Preferred may, at the option of the holder, be converted at any time into
fully-paid and nonassessable shares of Common Stock. The number of shares of
Common Stock to which a holder of Series A Preferred will be entitled upon
conversion will be the product obtained by multiplying the "Series A Conversion
Rate" then in effect (determined as provided in Section 4(c)) by the number of
shares of Series A Preferred being converted. The number of shares of Common
Stock to which a holder of Series B Preferred will be entitled upon conversion
will be the product obtained by multiplying the "Series B Conversion Rate" then
in effect (determined as provided in Section 4(c)) by the number of shares of
Series B Preferred being converted.
(b) AUTOMATIC CONVERSION.
(1) Each share of Series A Preferred and Series B
Preferred will automatically be converted into shares of Common Stock, based on
the then-effective Series A Conversion Price and Series B Conversion Price,
respectively, at any time upon the affirmative vote of the holders of a majority
of the outstanding shares of Series A Preferred or the holders of a majority of
the outstanding Series B Preferred, respectively, or immediately upon the
closing of a firmly-underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock for the account of the corporation. Upon such
automatic conversion, any declared and unpaid dividends will be paid in
accordance with the provisions of Section 4(e).
(2) Upon the occurrence of either event specified in
paragraph (1) above, the outstanding shares of Series A Preferred and Series B
Preferred, as the case may be, will be converted automatically without any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the corporation or its transfer
agent; provided, however, that the corporation will not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such conversion
unless the certificates evidencing such shares of Series A Preferred and Series
B Preferred, respectively, are either delivered to the corporation or its
transfer agent as provided below, or the holder notifies the corporation or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the corporation to indemnify the
corporation from any loss incurred by it in connection with such certificates.
Upon the occurrence of such automatic conversion of the Series A Preferred and
Series B Preferred, the holders of Series A Preferred
4.
<PAGE> 5
and Series B Preferred will surrender the certificates representing such shares
at the office of the corporation or any transfer agent for the Series A
Preferred or the Series B Preferred, as the case may be. Thereupon, there will
be issued and delivered to such holder promptly at such office and in its name
as shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series A Preferred and Series B Preferred surrendered were convertible on the
date on which such automatic conversion occurred, and the corporation will
promptly pay in cash or, at the option of the corporation, Common Stock (at the
Common Stock's fair market value determined by the Board as of the date of such
conversion), or, at the option of the corporation, both, all declared and unpaid
dividends on the shares of Series A Preferred and Series B Preferred being
converted, to and including the date of such conversion.
(c) CONVERSION RATE. The conversion rate in effect at any
time for conversion of the Series A Preferred (the "Series A Conversion Rate")
will be the quotient obtained by dividing Ten Dollars ($10.00) by the "Series A
Conversion Price," calculated as provided in Section 4(d). The conversion rate
in effect at any time for conversion of the Series B Preferred (the "Series B
Conversion Rate") will be the quotient obtained by dividing Ten Dollars ($10.00)
by the "Series B Conversion Price," calculated as provided in Section 4(d).
(d) CONVERSION PRICE. The conversion price for the Series A
Preferred and the Series B Preferred will initially be Ten Dollars ($10.00) (the
"Series A Conversion Price") and Ten Dollars ($10.00) (the "Series B Conversion
Price"), respectively. Such initial Series A Conversion Price and Series B
Conversion Price will be adjusted from time to time in accordance with this
Section 4. All references to the Series A Conversion Price and Series B
Conversion Price herein will mean the Series A Conversion Price and Series B
Conversion Price, respectively, as so adjusted.
(e) MECHANICS OF CONVERSION. Each holder of Series A
Preferred or Series B Preferred who desires to convert the same into shares of
Common Stock pursuant to this Section 4 will surrender the certificate or
certificates therefor, duly endorsed, at the office of the corporation or any
transfer agent for the Series A Preferred or Series B Preferred, as the case may
be, and will give written notice to the corporation at such office that such
holder elects to convert the same. Such notice will state the number of shares
of Series A Preferred or Series B Preferred, as the case may be, being
converted. Thereupon, the corporation will promptly issue and deliver at such
office to such holder a certificate or certificates for the number of shares of
Common Stock to which such holder is entitled and will promptly pay in cash or,
to the extent sufficient funds are not then legally available therefor, in
Common Stock (at the Common Stock's fair market value determined by the Board of
Directors as of the date of such conversion), any declared and unpaid dividends
on the shares of Series A Preferred or Series B Preferred, as the case may be,
being converted. Such conversion will be deemed to have been made at the close
of business on the date of such surrender of the certificates representing the
shares of Series A Preferred or Series B Preferred, as the case may be, to be
converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion will be treated for all purposes as the record
holder of such shares of Common Stock on such date.
5.
<PAGE> 6
(f) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
corporation at any time or from time to time after the date that the first share
of Series A Preferred or Series B Preferred is issued (the "Original Issue
Date") effects a subdivision of the outstanding Common Stock, the Series A
Conversion Price and Series B Conversion Price in effect immediately before that
subdivision will be proportionately decreased. Conversely, if the corporation at
any time or from time to time after the Original Issue Date combines the
outstanding shares of Common Stock into a smaller number of shares, the Series A
Conversion Price and Series B Conversion Price in effect immediately before the
combination will be proportionately increased. Any adjustment under this Section
4(f) will become effective at the close of business on the date the subdivision
or combination becomes effective.
(g) ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND
DISTRIBUTIONS. If the corporation at any time or from time to time after the
Original Issue Date makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, in each such event the Series A
Conversion Price and Series B Conversion Price that are then in effect will be
decreased as of the time of such issuance or, in the event such record date is
fixed, as of the close of business on such record date, by multiplying the
Series A Conversion Price or the Series B Conversion Price, as the case may be,
then in effect by a fraction (1) the numerator of which is the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and (2) the
denominator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution; provided, however, that if such
record date is fixed and such dividend is not fully paid or if such distribution
is not fully made on the date fixed therefor, the Series A Conversion Price and
the Series B Conversion Price will be recomputed accordingly as of the close of
business on such record date and thereafter the Series A Conversion Price and
the Series B Conversion Price will be adjusted pursuant to this Section 4(g) to
reflect the actual payment of such dividend or distribution.
(h) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If
the corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the corporation other than shares of Common Stock, in each such event provision
will be made so that the holders of the Series A Preferred and Series B
Preferred will receive upon conversion thereof, in addition to the number of
shares of Common Stock receivable thereupon, the amount of other securities of
the corporation which they would have received had their Series A Preferred and
Series B Preferred been converted into Common Stock on the date of such event
and had they thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by them as
aforesaid during such period, subject to all other adjustments called for during
such period under this Section 4 with respect to the rights of the holders of
the Series A Preferred and Series B Preferred or with respect to such other
securities by their terms.
6.
<PAGE> 7
(i) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If at any time or from time to time after the Original Issue Date
the Common Stock issuable upon the conversion of the Series A Preferred or
Series B Preferred is changed into the same or a different number of shares of
any class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or a reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section 4 or in Section 3(c)), in any such event each holder
of Series A Preferred or Series B Preferred, as the case may be, will have the
right thereafter to convert such stock into the kind and amount of stock and
other securities and property receivable upon such recapitalization,
reclassification or other change by holders of the maximum number of shares of
Common Stock into which such shares of Series A Preferred or Series B Preferred,
as the case may be, could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein or with respect to such other securities or property by the
terms thereof.
(j) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time after the Original Issue Date there
is a capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of shares
provided for elsewhere in this Section 4 or in Section 3(c)), as a part of such
capital reorganization, provision will be made so that the holders of the Series
A Preferred and Series B Preferred will thereafter be entitled to receive upon
conversion of the Series A Preferred or Series B Preferred, as the case may be,
the number of shares of stock or other securities or property of the corporation
to which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, subject to
adjustment in respect of such stock or securities by the terms thereof. In any
such case, appropriate adjustment will be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of Series
A Preferred and Series B Preferred after the capital reorganization to the end
that the provisions of this Section 4 (including adjustment of the Series A
Conversion Price and the Series B Conversion Price then in effect and the number
of shares issuable upon conversion of the Series A Preferred and the Series B
Preferred) will be applicable after that event and be as nearly equivalent as
practicable.
(k) SALE OF SHARES BELOW SERIES B CONVERSION PRICE.
(1) If at any time or from time to time after the
Original Issue Date, the Company issues or sells, or is deemed by the express
provisions of this Section 4(k) to have issued or sold, Additional Shares of
Common Stock (as hereinafter defined), other than as a dividend or other
distribution on any class of stock as provided in Section 4(g) above, and other
than a subdivision or combination of shares of Common Stock as provided in
Section 4(f) above, for an Effective Price (as hereinafter defined) less than
the then effective Series B Conversion Price, then and in each such case the
then existing Series B Conversion Price will be reduced, as of the opening of
business on the date of such issue or sale, to a price determined by multiplying
the Series B Conversion Price by a fraction (A) the numerator of which will be
(1) the number of shares of Common Stock deemed outstanding (as defined below)
immediately prior to such issue or sale, plus (2) the number of shares of Common
Stock that the aggregate
7.
<PAGE> 8
consideration received (as defined in subsection (k)(2)) by the Company for the
total number of Additional Shares of Common Stock so issued would purchase at
such Series B Conversion Price, and (B) the denominator of which will be the
number of shares of Common Stock deemed outstanding (as defined below)
immediately prior to such issue or sale plus the total number of Additional
Shares of Common Stock so issued. For the purposes of the preceding sentence,
the number of shares of Common Stock deemed to be outstanding as of a given date
will be the sum of (A) the number of shares of Common Stock actually
outstanding, (B) the number of shares of Common Stock into which the then
outstanding shares of Series A Preferred and Series B Preferred could be
converted if fully converted on the day immediately preceding the given date,
and (C) the number of shares of Common Stock that could be obtained through the
exercise or conversion of all other rights, options and convertible securities
on the day immediately preceding the given date.
(2) For the purpose of making any adjustment required
under this Section 4(k), the consideration received by the Company for any issue
or sale of securities will (A) to the extent it consists of cash, be computed at
the net amount of cash received by the Company after deduction of any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Company in connection with such issue or sale but without deduction of
any expenses payable by the Company, (B) to the extent it consists of property
other than cash, be computed at the fair value of that property as determined in
good faith by the Board of Directors, and (C) if Additional Shares of Common
Stock, Convertible Securities (as hereinafter defined) or rights or options to
purchase either Additional Shares of Common Stock or Convertible Securities are
issued or sold together with other stock or securities or other assets of the
Company for a consideration that covers both, be computed as the portion of the
consideration so received that may be reasonably determined in good faith by the
Board of Directors to be allocable to such Additional Shares of Common Stock,
Convertible Securities or rights or options.
(3) For the purpose of the adjustment required under
this Section 4(k), if the Company issues or sells any rights or options for the
purchase of, or stock or other securities convertible into, Additional Shares of
Common Stock (such convertible stock or securities being herein referred to as
"Convertible Securities") and if the Effective Price of such Additional Shares
of Common Stock is less than the Series B Conversion Price then in effect, in
each case the Company will be deemed to have issued at the time of the issuance
of such rights or options or Convertible Securities the maximum number of
Additional Shares of Common Stock issuable upon exercise or conversion thereof
and to have received as consideration for the issuance of such shares an amount
equal to the total amount of the consideration, if any, received by the Company
for the issuance of such rights or options or Convertible Securities, plus, in
the case of such rights or options, the minimum amounts of consideration, if
any, payable to the Company upon the exercise of such rights or options, plus,
in the case of Convertible Securities, the minimum amounts of consideration, if
any, payable to the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion
thereof; provided that if in the case of Convertible Securities the minimum
amounts of such consideration cannot be ascertained, but are a function of
antidilution or similar protective clauses, the Company shall be deemed to have
received the
8.
<PAGE> 9
minimum amounts of consideration without reference to such clauses; provided
further that if the minimum amount of consideration payable to the Company upon
the exercise or conversion of rights, options or Convertible Securities is
reduced over time or on the occurrence or non-occurrence of specified events
other than by reason of antidilution adjustments, the Effective Price will be
recalculated using the figure to which such minimum amount of consideration is
reduced; provided further that if the minimum amount of consideration payable to
the Company upon the exercise or conversion of such rights, options or
Convertible Securities is subsequently increased, the Effective Price will be
again recalculated using the increased minimum amount of consideration payable
to the Company upon the exercise or conversion of such rights, options or
Convertible Securities. No further adjustment of the Series B Conversion Price,
as adjusted upon the issuance of such rights, options or Convertible Securities,
will be made as a result of the actual issuance of Additional Shares of Common
Stock on the exercise of any such rights or options or the conversion of any
such Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire without
having been exercised, the Series B Conversion Price as adjusted upon the
issuance of such rights, options or Convertible Securities will be readjusted to
the Series B Conversion Price that would have been in effect had an adjustment
been made on the basis that the only Additional Shares of Common Stock so issued
were the Additional Shares of Common Stock, if any, actually issued or sold on
the exercise of such rights or options or rights of conversion of such
Convertible Securities, and such Additional Shares of Common Stock, if any, were
issued or sold for the consideration actually received by the Company upon such
exercise, plus the consideration, if any, actually received by the Company for
the granting of all such rights or options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted, plus the consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion of such Convertible Securities,
provided that such readjustment shall not apply to prior conversions of Series B
Preferred.
(4) "Additional Shares of Common Stock" means all
shares of Common Stock issued by the Company or deemed to be issued pursuant to
this Section 4(k), whether or not subsequently reacquired or retired by the
Company other than (A) shares of Common Stock issued upon conversion of the
Series A Preferred or Series B Preferred; (B) up to Six Million (6,000,000)
shares of Common Stock and/or options, warrants or other Common Stock purchase
rights, and the Common Stock issued pursuant to such options, warrants or other
rights (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like) after the Original Issue Date to employees,
officers or directors of, or consultants or advisors to the Company or any
subsidiary pursuant to stock purchase or stock option plans or other
arrangements that are approved by the Board; and (C) shares of Common Stock
issued pursuant to the exercise of options, warrants or convertible securities
outstanding as of the Original Issue Date. The "Effective Price" of Additional
Shares of Common Stock means the quotient determined by dividing the total
number of Additional Shares of Common Stock issued or sold, or deemed to have
been issued or sold by the Company under this Section 4(k), into the aggregate
consideration received, or deemed to have been received by the Company for such
issue under this Section 4(k), for such Additional Shares of Common Stock.
9.
<PAGE> 10
(5) Notwithstanding and in lieu of the adjustments to
the Series B Conversion Price otherwise set forth in this Section 4(k), in the
event the Company issues shares of Common Stock upon the closing of its initial
firmly-underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Company (the "Initial Public
Offering") for a per share price to the public that is less than the applicable
Series B Conversion Price in effect on the date of and immediately prior to such
Initial Public Offering, then and in such event the Series B Conversion Price
shall be reduced, concurrently with the closing of such Initial Public Offering,
to a price equal to the per share price to the public for such shares issued in
the Initial Public Offering.
(l) ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT. In each case of
an adjustment or readjustment of the Series A Conversion Price or the Series B
Conversion Price for the number of shares of Common Stock or other securities
issuable upon conversion of the Series A Preferred or the Series B Preferred,
the corporation, at its expense, will compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and will mail such certificate, by first class mail,
postage prepaid, to each registered holder of Series A Preferred or Series B
Preferred, as the case may be, at the holder's address as shown in the
corporation's books. The certificate will set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (1) the Series A Conversion
Price and Series B Conversion Price at the time in effect, and (2) the type and
amount, if any, of other property that at the time would be received upon
conversion of the Series A Preferred and the Series B Preferred.
(m) NOTICES OF RECORD DATE. Upon (1) any taking by the
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (2) any capital reorganization of the
corporation, any reclassification or recapitalization of the capital stock of
the corporation, any merger or consolidation of the corporation with or into any
other corporation, or any transfer of all or substantially all the assets of the
corporation to any other person, or any voluntary or involuntary dissolution,
liquidation or winding up of the corporation, the corporation will mail to each
holder of Series A Preferred and Series B Preferred at least twenty (20) days
prior to the record date specified therein a notice specifying (1) the date on
which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (2) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (3) the date, if any, that is to be fixed as to when the holders of record
of Common Stock (or other securities) will be entitled to exchange their shares
of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
(n) FRACTIONAL SHARES. No fractional shares of Common Stock
will be issued upon conversion of Series A Preferred or Series B Preferred. All
shares of Common
10.
<PAGE> 11
Stock (including fractions thereof) issuable upon conversion of more than one
share of Series A Preferred or Series B Preferred by a holder thereof will be
aggregated for purposes of determining whether the conversion would result in
the issuance of any fractional share. If, after the aforementioned aggregation,
the conversion would result in the issuance of any fractional share, the
corporation will, in lieu of issuing any fractional share, pay cash equal to the
product of such fraction multiplied by the Common Stock's fair market value (as
determined by the Board) on the date of conversion.
(o) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
corporation will at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred and Series B Preferred, such
number of its shares of Common Stock as will from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred and
Series B Preferred. If at any time the number of authorized but unissued shares
of Common Stock is not sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred and Series B Preferred, the
corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as will be sufficient for such purpose.
(p) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of the Series A Preferred or
Series B Preferred will be deemed given upon the earlier of actual receipt or
seventy-two (72) hours after the same has been deposited in the United States
mail, by certified or registered mail, return receipt requested, postage
prepaid, and addressed to each holder of record at the address of such holder
appearing on the books of the corporation.
(q) PAYMENT OF TAXES. The corporation will pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Series A Preferred and Series B Preferred, excluding any
tax or other charge imposed in connection with any transfer involved in the
issue and delivery of shares of Common Stock in a name other than that in which
the shares of Series A Preferred and Series B Preferred so converted were
registered.
5. NO REISSUANCE. No share or shares of Series A Preferred or
Series B Preferred acquired by the corporation by reason of redemption,
purchase, conversion or otherwise will be reissued, and all such shares will
acquire the status of undesignated shares of Preferred Stock.
V.
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
11.
<PAGE> 12
A. 1. The management of the business and the conduct of the
affairs of the corporation will be vested in its Board of Directors. The number
of directors which will constitute the whole Board of Directors will be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
directors will be elected at each annual meeting of stockholders for a term of
one year. Each director will serve until his successor is duly elected and
qualified or until his death, resignation or removal. No decrease in the number
of directors constituting the Board of Directors will shorten the term of any
incumbent director.
3. Subject to the rights of the holders of any series of
Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (a) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock") or (b) without cause by the affirmative vote of the holders
of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of
all the then-outstanding shares of the Voting Stock.
4. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, will,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships will be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence will hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor will have been elected and qualified.
B. 1. Subject to paragraph (h) of Section 42 of the Bylaws, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of
all of the then-outstanding shares of the Voting Stock. The Board of Directors
will also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.
3. No action will be taken by the stockholders of the
corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws and following the closing of the initial public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock to the
public, no action will be taken by the stockholders by written consent.
12.
<PAGE> 13
4. Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (a) the Chairman of the Board of
Directors, (b) the Chief Executive Officer, (c) the Board of Directors pursuant
to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), or (d) by the holders of the shares entitled to cast
not less that ten percent (10%) of the votes at the meeting, and will be held at
such place, on such date, and at such time as the Board of Directors will fix.
5. Advance notice of stockholder nominations for the election
of directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation will be given in the manner provided in the
Bylaws of the corporation.
VI.
A. A director of the corporation will not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (3) under Section 174 of the Delaware General Corporation Law,
or (4) for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is amended after approval by
the stockholders of this Article to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director will be eliminated or limited to the fullest extent permitted by
the Delaware General corporation Law, as so amended.
B. Any repeal or modification of this Article VI will be prospective
and will not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, will be required to alter, amend or repeal Articles V, VI and
VII."
13.
<PAGE> 14
4. This Amended and Restated Certificate of Incorporation has been duly
approved by the Board of Directors of this Corporation.
5. This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware by the Board of Directors and
stockholders of the Corporation.
IN WITNESS WHEREOF, Wired Ventures, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by the President and the
Secretary in San Francisco, California this 27th day of September, 1996.
WIRED VENTURES, INC.
By: /s/ Jane Metcalfe
----------------------------
Jane Metcalfe
President
ATTEST:
By: /s/ Jeff Simon
-----------------------
Jeff Simon
Secretary
14.
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
WIRED VENTURES, INC.
Jane Metcalfe and Jeff Simon hereby certify that:
1. The original name of this corporation is Wired Ventures, Inc. and
the date of filing of the original Certificate of Incorporation of this
corporation with the Secretary of State of the State of Delaware is March 29,
1996.
2. They are the duly elected and acting President and Secretary,
respectively, of Wired Ventures, Inc., a Delaware corporation.
3. The Certificate of Incorporation of this corporation is hereby
amended and restated to read as follows:
"I.
The name of this corporation is Wired Ventures, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is Nine East Loockerman Street, City of Dover, County of Kent, and the
name of the registered agent of the corporation in the State of Delaware at such
address is the National Registered Agents, Inc.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares that the corporation is authorized to issue is Eighty-Two Million Five
Hundred Thousand (82,500,000) shares. Seventy-Five Million (75,000,000) shares
will be Common Stock, each having a par value of one-tenth of one cent ($.001).
Seven Million Five Hundred Thousand (7,500,000) shares will be Preferred Stock,
each having a par value of one-tenth of one cent ($.001).
<PAGE> 2
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions, of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series will be
decreased in accordance with the foregoing sentence, the shares constituting
such decrease will resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. 1. The management of the business and the conduct of the
affairs of the corporation will be vested in its Board of Directors. The number
of directors which will constitute the whole Board of Directors will be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
directors will be elected at each annual meeting of stockholders for a term of
one year. Each director will serve until his successor is duly elected and
qualified or until his death, resignation or removal. No decrease in the number
of directors constituting the Board of Directors will shorten the term of any
incumbent director.
3. Subject to the rights of the holders of any series of
Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (a) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock") or (b) without cause by the affirmative vote of the holders
of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of
all the then-outstanding shares of the Voting Stock.
4. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, will,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships will be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director
2.
<PAGE> 3
elected in accordance with the preceding sentence will hold office for the
remainder of the full term of the director for which the vacancy was created or
occurred and until such director's successor will have been elected and
qualified.
B. 1. Subject to paragraph (h) of Section 42 of the Bylaws, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of
all of the then-outstanding shares of the Voting Stock. The Board of Directors
will also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.
3. No action will be taken by the stockholders of the
corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws.
4. Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (a) the Chairman of the Board of
Directors, (b) the Chief Executive Officer, (c) the Board of Directors pursuant
to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), or (d) by the holders of the shares entitled to cast
not less that ten percent (10%) of the votes at the meeting, and will be held at
such place, on such date, and at such time as the Board of Directors will fix.
5. Advance notice of stockholder nominations for the election
of directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation will be given in the manner provided in the
Bylaws of the corporation.
VI.
A. A director of the corporation will not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (3) under Section 174 of the Delaware General Corporation Law,
or (4) for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is amended after approval by
the stockholders of this Article to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director will be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article VI will be prospective
and will not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
3.
<PAGE> 4
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, will be required to alter, amend or repeal Articles V, VI and
VII."
4. This Amended and Restated Certificate of Incorporation has been duly
approved by the Board of Directors of this corporation.
5. This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware by the Board of Directors and
stockholders of the corporation.
IN WITNESS WHEREOF, Wired Ventures, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by the President and the
Secretary in San Francisco, California this _______ day of _______, 1996.
WIRED VENTURES, INC.
By:_____________________________________
Jane Metcalfe
President
ATTEST:
By:__________________________
Jeff Simon
Secretary
4.
<PAGE> 1
Exhibit 4.2
(SEAL) (LOGO) (SEAL)
THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, MA & NEW YORK, NEW YORK
CUSIP 97652G101
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $0.001, OF
WIRED VENTURES, INC.
transferable on the books of the Corporation by the record holder hereof, in
person or by duly authorized attorney upon surrender of this certificate
properly endorsed. This Certificate is not valid until countersigned by the
Transfer Agent and Registrar. Witness the facsimile seal of the corporation and
the facsimile signatures of its duly authorized officers.
DATED:
CHIEF FINANCIAL OFFICER PRESIDENT TRANSFER AGENT AND
REGISTRAR
<PAGE> 1
Exhibit 5.1
[COOLEY GODWARD LLP LETTERHEAD]
September 27, 1996
Wired Ventures, Inc.
520 Third Street, Fourth Floor
San Francisco, CA 94107
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Wired Ventures, Inc. (the "Company") of a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission"), including a prospectus to be filed with
the Commission pursuant to Rule 424(b) of Regulation C promulgated under the
Securities Act of 1933, as amended (the "Prospectus"), and the underwritten
public offering of up to 5,462,500 shares of the Company's Common Stock (the
"Common Stock").
In connection with this opinion, we have (i) reviewed the Company's Certificate
of Incorporation and Bylaws and the originals, or copies certified to our
satisfaction, of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below, and (ii) assumed that the shares of the
Common Stock will be sold to the Underwriters at a price established by the
Pricing Committee of the Board of Directors of the Company.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid and
nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
By: /s/ KENNETH L. GUERNSEY
----------------------------
Kenneth L. Guernsey
<PAGE> 1
EXHIBIT 10.4(b)
AGREEMENT
THIS AGREEMENT is made the 28th day of June 1996 between WIRED VENTURES,
Inc., a Delaware corporation whose principal place of business is at 520 Third
Street, San Francisco, California 94107-1427, USA ("WVI"); and WIRED UK, an
unincorporated company registered in England and Wales (registered number
2972399) whose registered office is at 200 Aldersgate Street, London EC1A 4JJ
(the "Company"); and WIRED NEW YORK, a California corporation whose registered
office is at 520 Third Street, San Francisco, California 94107, USA, ("Wired New
York"); and WIRED WORLD L.L.C., a Delaware limited liability company whose
principal place of business is at 520 Third Street, San Francisco, California
94107, USA, ("Wired Investments"); and GUARDIAN MEDIA GROUP PLC, a company
registered in England and Wales (registered number 00094531) whose registered
office is at 164 Deansgate, Manchester M60 2RR, England (the "Guardian"); and
KARADEAN LIMITED, a company registered in England and Wales (registered number
2922019) whose registered office is at 164 Deansgate, Manchester M60 2RR,
England ("Guardian Investments"); and GUARDIAN MAGAZINES LIMITED, a company
registered in England and Wales (registered number 02830739 whose registered
office is at 164 Deansgate, Manchester M60 2RR, England ("GML"); and GUARDIAN
NEWSPAPERS LIMITED, a company registered in England and Wales (registered number
00908396) whose registered office is at 164 Deansgate, Manchester M60 2RR,
England ("GNL").
WHEREAS:
A. The Guardian, Guardian Investments, GML, GNL, Wired Ventures, Ltd.,
Wired World L.L.C., the Company and Wired New York entered into a Letter of
Agreement dated 22 July 1995 (the "Original Agreement"), a copy of which is
attached hereto marked "A."
B. WVI executed a Substitution Agreement dated 28 May 1996 (the
"Substitution Agreement"), a copy of which is attached hereto marked "B," under
which it agreed to assume the obligations of Wired Ventures, Ltd., under, inter
alia, the Original Agreement.
C. This Agreement is intended to reflect and effect the assumption of
obligations as are referred to in Recital B above. This Agreement takes effect
in addition to, inter alia, the Original Agreement.
IT IS AGREED:
1. In consideration of the Guardian consenting to the transactions in
May/June 1996 to restructure the ownership of the Wired Businesses (the
"Restructuring") without accelerating payment under the terms of the Original
Loan Note dated 22 July 1995 and consenting to the related dissolution of Wired
Ventures, Ltd., the parties to this Agreement have agreed to enter into this
Agreement in addition to the Original Agreement.
2. Wired UK, Wired New York, Wired World L.L.C., the Guardian, Guardian
Investments, GML and GNL accept the liability of WVI upon the Original Agreement
in place
1.
<PAGE> 2
of the liability of Wired Ventures, Ltd. and agree to be bound by the terms of
the Original Agreement as if WVI were named in the Original Agreement as a party
in place of Wired Ventures, Ltd.
3. WVI agrees to be bound by and to perform the terms of the Original
Agreement in every way as if it were an original party to the Original Agreement
in place of Wired Ventures, Ltd.
4. In particular, the parties agree that WVI is bound by and agrees to
perform and to assume all liabilities for all of the obligations of Wired
Ventures, Ltd., a California limited partnership, as set forth in the Original
Agreement. Without limiting the generality of the foregoing, the parties
specifically agrees as follows:
4.1 The Company and WVI will deliver to the Guardian a copy of the
Substitution Loan Note duly executed on behalf of both the Company and WVI and a
copy of the Substitution Guaranty duly executed on behalf of WVI.
4.2. The Guardian will deliver to WVI a copy of the Substitution Loan
Note and of the Substitution Guaranty duly executed on behalf of the Guardian.
4.3 The Guardian Debts defined in clause 4.1 of the Original Agreement
will in future be owed on the terms of the Substitution Loan Note.
4.4 WVI agrees to be bound by, to perform and to assume all liabilities
for all of the obligations of Wired Ventures, Ltd under the Shareholders
Agreement dated 5 October 1994 referred to in clause 6.1(b) of the Original
Agreement, as if WVI were named in the Original Agreement as a party in place of
Wired Ventures, Ltd. and as if WVI had itself been a party to that Shareholders
Agreement in place of Wired Ventures, Ltd. insofar as those obligations are
still existing and have not been canceled or otherwise terminated pursuant to
clause 6.1(a) of the Original Agreement.
4.5 WVI and the WVI Group will not (and will procure that their
employees and officers will not) misrepresent their association with the
Guardian Group and will be bound by the confidentiality provisions in Clause 15
of the Original Agreement.
4.6 This Agreement, the Original Agreement, the Substitution Agreement,
the Substitution Loan Note, and the Substitution Guaranty and any documents
referred to therein constitute the entire agreement and supersede any previous
agreements between the parties relating to the subject matter of this Agreement.
For the avoidance of doubt, each of the Original Loan Note and the Original
Guaranty is hereby terminated and cancelled upon the execution and effectiveness
of each of this Agreement and both the Substitution Loan Note and the
Substitution Guaranty of even date herewith. No party hereto has relied upon any
representation, warranty or covenant in entering into this Agreement save as
expressly set out herein and in the other documents referred to in this clause
and in the Certificates.
2.
<PAGE> 3
4.7 (a) WVI covenants to the Guardian that the description of the
Restructuring of the Wired Businesses as given by WVI and its advisers to the
Guardian (and a copy of which is attached hereto marked "C") is true and
accurate and fairly reflect the relevant group structure under the Restructuring
of the Wired Businesses.
(b) WVI represents and warrants to the Guardian that both Jane
Metcalfe and Louis Rossetto are directors of WVI and that one or both of Jane
Metcalfe and Louise Rossetto hold in aggregate between them in excess of 25 per
cent, of the outstanding common stock (assuming full conversion of the preferred
stock) of WVI.
4.8 It is the intention of WVI and/or the WVI Group to create other
editions of Wired Magazine in Continental Europe and to raise capital to do so,
and to encourage the participation of the Guardian in such business ventures.
(a) In the event that WVI and/or the WVI Group establishes (an
"Establishment") a material publishing interest in Continental Europe with local
parties of the relevant country in Wired Magazine through any entity other than
an entity incorporated or resident in the United States of America ("Wired
Europe"), then WVI will promptly notify the Guardian, and WVI will seek an
investment from the Guardian in Wired Europe on terms and in an amount
acceptable to WVI. Wired Europe shall not offer an investment opportunity to a
UK newspaper publisher without offering the Guardian the opportunity to invest
on the same terms. If any investment of the type described in this clause 4.8(a)
is made, the aggregate amount of all such investment will not exceed
Pound Sterling 1,000,000 (unless the Guardian and WVI agree otherwise).
(b) In the event that WVI makes an Offer, the Guardian may accept
the offer in full within 30 days of receipt thereof, failing which the Offer
will be deemed rejected.
(c) The provisions of this clause 4.8 shall have effect from
Completion, as defined in the Original Agreement, and shall terminate upon the
earlier of 22 July 1998 and retirement of the Substitution Loan Note.
4.9 WVI agrees to indemnify Guardian Investments against any costs or
liabilities (including by way of taxation, wherever arising) Guardian
Investments or any other member of the Guardian Group may incur as a result of
it being the Company, rather than Wired World L.L.C., which acquires the Company
Share from Guardian Investments (the "Company Share" being the one Share
acquired by the Company from Guardian Investments under the Original Agreement).
4.10 The Company and WVI and the WVI Group agree that, should any
member of the Guardian Group be able and wish in the future to submit a claim
for group relief in respect of Guardian Investments' 50% investment in the
Company (a "Claim"), the Company and WVI and the WVI Group will give all
necessary co-operation to such member by way of
3.
<PAGE> 4
provision of relevant information and signing of any requisite consent in
respect of any such Claim in respect of the 50% investment provided that:
(a) the Guardian will procure that the relevant member of the
Guardian withdraws any claim to the extent that it has not been unconditionally
agreed by the Inland Revenue by 31 December 1996 and that the members of the
Guardian Group will not make any Claims after that date;
(b) The Guardian will promptly pay in case to the Company 80% of the
amount of any successful Claim net of reasonable third party expenses (whether
the benefit of the Claim is provided to the Guardian in cash or by tax credit or
otherwise).
4.11 WVI will pay promptly upon demand the reasonable legal and
accounting fees incurred by the Guardian Group, as defined in the Original
Agreement, relating to the negotiation, preparation and execution by the
Guardian Group of this Agreement, the Conditional Consent, the Substitution
Agreement, the Substitution Loan Note, and the Substitution Guaranty, and
otherwise to ensure the substitution of WVI and/or WVI Group (as appropriate in
the context of this Agreement) in the agreements referred to herein in place of
Wired Ventures, Ltd. In connection with submitting a request for payment of such
legal and accounting fees, the Guardian will provide WVI and detailed statements
of such fees and WVI will promptly pay such fees upon the execution of this
Agreement and the Substitution Loan Note and Substitution Guaranty.
5. DEFINITIONS.
Various definitions used in this Agreement but not defined herein shall
have the meanings given to them in the Original Agreement but incorporating all
necessary changes to reflect the substitution in the Original Agreement of WVI
or WVI Group (as appropriate in the context of this Agreement) in place of Wired
Ventures, Ltd.
In addition, in this Agreement the following words shall have the
following meanings (unless the context requires otherwise):
"Certificates" means both the certificate issued by Wired Ventures,
Ltd. and WVI dated 28 May 1996, a copy of which is attached hereto marked "D,"
and the certificate issued by WVI of even date herewith relating to the
financial worth of WVI;
"Conditional Consent" means the consent to the Restructuring of the
Wired Businesses upon the conditions set out in the document signed by the
Guardian dated 28 May 1996, a copy of which is attached hereto marked "E";
"Original Loan Note" means the Pound Sterling 1,000,000 loan note
issued by the Company in favour of the Guardian dated 22 July 1995, which loan
note is hereby terminated and cancelled upon the execution and effectiveness of
each of this Agreement, the Substitution Loan Note and the Substitution
Guaranty, a copy of which Original Loan Note is attached hereto marked "F";
4.
<PAGE> 5
"Original Guaranty" means the guaranty given by Wired Ventures, Ltd. in
favour of the Guardian dated 22 July 1995, which guaranty is hereby terminated
and cancelled upon the execution and effectiveness of each of this Agreement,
the Substitution Guaranty and the Substitution Loan Note, a copy of which
Original Guaranty is attached hereto marked "G";
the "Restructuring" means the transaction to restructure the ownership
of the Wired Businesses as set out in the document attached hereto and marked
"C";
"Substitution Guaranty" means the guaranty of even date herewith by WVI
in favour of the Guardian;
"Substitution Loan Note" means the Pound Sterling 1,000,000 loan note
of even date herewith from the Company in favour of the Guardian;
"Wired Businesses" means all businesses, companies, partnerships and
other entities through which any of the business of the WVI Group (and formerly
of Wired Ventures, Ltd.) is conducted;
"WVI Group" means WVI and all its subsidiaries, subsidiary
undertakings and associated and affiliated companies and partnerships together
with any holding company of WVI from time to time.
6. NOTICES.
6.1 A notice under or in connection with this Agreement or the Original
Agreement shall be in writing and shall be delivered personally or sent by fax
or courier service to the party due to receive the notice, at its address set
out in this Agreement or another address specified by that party by written
notice to the others.
6.2 In the absence of evidence of earlier receipt, a notice or other
communication is deemed given:
(a) if delivered personally, when left at the address referred to below;
(b) if sent by courier service, two days after dispatch;
(c) if sent by fax at 9.30 a.m. (local time of the recipient) on the next
business day (in the location of the recipient) following completion of its
transmission.
7. GOVERNING LAW, JURISDICTION
7.1 This Agreement is governed by, and shall be construed in accordance
with, English law.
5.
<PAGE> 6
7.2 The parties irrevocably submit to the non-exclusive jurisdiction of
the courts of England to hear and decide any suit, action or proceedings, and to
settle any disputes, which may arise out of or in connection with this Agreement
(respectively, "Proceedings" and "Disputes").
7.3 Process by which any Proceedings are begun in England may be served on
WVI or any other member of the WVI Group and/or Wired New York and/or Wired
World L.L.C. by being delivered to the Company at the registered office of the
Company from time to time in each case marked for the attention of the chief
executive in accordance with clause 6.2. Nothing contained in this clause 7.3
affects the right to serve process in another manner permitted by law.
8. COUNTERPARTS
8.1 This Agreement may be executed in any number of counterparts each of
which when executed and delivered is an original, but all the counterparts
together constitute the same document.
6.
<PAGE> 7
Executed as a deed and delivered by :
Signed: /s/ N. Canetty-Clarke/ Signed: /s/ Jane Metcalfe
---------------------- --------------------
/s/ A. V. Townsend Name: Jane Metcalfe
---------------------- -----------------------
Name: N. Canetty-Clarke/ Position: President
------------------------ -------------------
A. V. Townsend
------------------------
Position: Finance Director/
--------------------
Company Secretary
GUARDIAN MEDIA GROUP PLC WIRED VENTURES, INC.
(registered no. 00094531) ("WVI")
("THE GUARDIAN") a Delaware corporation
164 Deansgate 520 Third Street
Manchester San Francisco
M60 2RR California 94107-1427
England USA
fax: 0161 832 0155 fax: 415 222 6229
Signed: /s/ J.C. Markwick/ Signed: /s/ Jane Metcalfe
--------------------- --------------------
/s/ P.J. Naismith Name: Jane Metcalfe
--------------------- ----------------------
Name: J.C. Markwick/ Position: Manager
----------------------- ------------------
P.J. Naismith
-----------------------
Position: CEO/Director
-------------------
KARADEAN LIMITED WIRED WORLD L.L.C.
(registered no. 2922019) ("WIRED INVESTMENTS")
("GUARDIAN INVESTMENTS") a Delaware limited liability company
164 Deansgate 520 Third Street
Manchester San Francisco
M60 2RR California 94107
England USA
fax: 0161 832 0155 fax: 415 222 6229
7.
<PAGE> 8
Signed: /s/ C. Marland/ Signed: /s/ Jane Metcalfe/
------------------------ ---------------------------
/s/ P.J. Naismith /s/ Todd Sotkiewicz
------------------------ ---------------------------
Name: C. Marland/P.J. Naismith Name: Jane Metcalfe/Todd Sotkiewicz
-------------------------- -----------------------------
Position: Managing Director/ Position: Director/Secretary
---------------------- -------------------------
Director and Secretary
----------------------
GUARDIAN MAGAZINES LIMITED EXECUTED AS A DEED BY WIRED UK
(registered no. 02830739) (registered no. 2972399)
("GML") ("THE COMPANY")
164 Deansgate 520 Third Street
Manchester San Francisco
M60 2RR California 94107 USA
England
fax: 0161 837 0651 fax: 415 222 6229
Signed: /s/ J.C. Markwick/ Signed: /s/ Jane Metcalfe
------------------------ --------------------------
/s/ P.J. Naismith Name: Jane Metcalfe
------------------------ ----------------------------
Name: J.C. Markwick/P.J. Naismith Position: President
-------------------------- ------------------------
Position: Director/Director
----------------------
GUARDIAN NEWSPAPERS LIMITED WIRED NEW YORK
(registered no. 00908396) ("WIRED NEW YORK")
("GNL") a California corporation
164 Deansgate 520 Third Street
Manchester San Francisco
M60 2RR California 94107
England USA
fax: 0171 837 0651 fax: 415 222 6229
8.
<PAGE> 9
SUBSTITUTION LOAN NOTE
WIRED UK
(INCORPORATED IN ENGLAND WITH UNLIMITED LIABILITY
REGISTERED NUMBER 2972399)
<TABLE>
<S> <C>
Issue Date: 22 July 1995 Issue Price: Tranche A: Pound Sterling 350,000
Repayment Date: 22 July 1998 Tranche B: Pound Sterling 650,000
------------------------
Total: Pound Sterling 1,000,000
</TABLE>
WHEREAS:
A. Wired Ventures Ltd., a California limited partnership, entered into
a Loan Note dated 22 July 1995 (the "Original Loan Note"), a copy of
which is attached hereto marked "A".
B. Wired Ventures, Inc., a Delaware corporation, ("WVI"), executed a
Substitution Agreement dated 28 May 1996 under which it agreed to
assume the obligations of Wired Ventures, Ltd. under, inter alia,
the Original Loan Note.
C. This Substitution Loan Note is intended to reflect and effect the
assumption of obligations as are referred to in Recital B above.
D. This Substitution Loan Note is entered into in consideration of
Guardian Media Group plc (registered number 0094531) (the
"Noteholder") consenting to the transactions in May/June 1996 to
restructure the ownership of the Wired Businesses (the
"Restructuring") without accelerating payment under the Original
Loan Note and consenting to the related dissolution of Wired
Ventures, Ltd.
IT IS AGREED:
1. For value received, Wired UK ("the Company") promises to pay the
Noteholder the sum of one million pounds sterling (Pound Sterling
1,000,000) in accordance with this Substitution Loan Note. This
Substitution Loan Note is issued in two tranches - Tranche A in the sum of
Pound Sterling 350,000 and Tranche B in the sum of Pound Sterling 650,000,
totalling Pound Sterling 1,000,000. Both Tranche A and Tranche B rank pari
passu in all respects and all rights or obligations in respect of this
Substitution Loan Note will apply pro rata to the two tranches.
2.1 If any Principal Sum is outstanding on the Repayment Date, the
Company shall repay the Principal Sum on the Repayment Date, but no
interest shall be payable.
1.
<PAGE> 10
2.2. [This clause has been deliberately left blank.]
2.3 The Company shall promptly repay the Principal Sum (without
interest) in the event that Jane Metcalfe and/or Louis Rossetto:
(a) does not at any point, or ceases to, serve on the Board of
Directors of WVI; or
(b) Jane Metcalfe and Louis Rossetto do not at any point, or cease
to, hold in aggregate between them in excess of 25 per cent,
of the outstanding common stock (assuming full conversion of
the preferred stock) of WVI.
2.4 In the event that, prior to the Repayment Date, the Noteholder
purchases securities of Wired Europe (as defined in clause 4.8 of
the Agreement), the Company shall simultaneously repay (without
interest) the Principal Sum or such lesser amount as may equal the
amount of such investment. The parties acknowledge that the Company
will not be a party to or a participant in the negotiations
regarding any such transaction.
2.5 In the event that, prior to the Repayment Date, WVI makes a Pari
Passu Offer (as defined in the Original Agreement) which is
rejected, the Company shall promptly repay the Principal Sum or such
lesser amount as may equal the amount of investment offered pursuant
to such Pari Passu Offer, together with interest payable in
accordance with clause 2.7 hereof. The parties acknowledge that any
decision whether to make a Pari Passu Offer will be made by WVI in
its sole discretion, and the Company will not participate in any way
in any such decision.
2.6 In the event that, prior to the Repayment Date, Wired Ventures makes
a Non Pari Passu Offer (as defined in the Original Agreement) which
is rejected, the Company shall promptly repay the Principal Sum or
such lesser amount as may equal the amount of investment offered
pursuant to such Non Pari Passu Offer, together with interest
payable in accordance with clause 2.7 hereof unless the Noteholder
elects not to accept prepayment by notice in writing within 30 days
of receipt of the Non Pari Passu Offer. The parties acknowledge that
any decision whether to make a Non Pari Passu Offer will be made by
WVI in its sole discretion, and the Company will not participate in
any way in any such decision.
2.7 Interest payable under clauses 2.5 or 2.6 hereof shall accrue from
(and including) the Issue Date to (and excluding) the date of
repayment at the rate of 5% per annum (compounded with annual rests
on each anniversary of the Issue Date) and shall be payable after
deduction of tax (if applicable).
2.8 The "PRINCIPAL SUM" means the principal amount (if any) owing from
time to time under this Substitution Loan Note.
2.
<PAGE> 11
3.1 In consideration of the Noteholder agreeing to the Restructuring of
the Wired Businesses in May/June 1996 without accelerating payment
under the Original Loan Note and consenting to the related
dissolution of Wired Ventures, Ltd.; WVI irrevocably and
unconditionally guarantees to the Noteholder the due and punctual
payment by the Company of all principal and interest payable in
respect of this Substitution Loan Note. If at any time the Company
has failed to pay any sum due to the Noteholder in respect of the
Substitution Loan Note, WVI shall pay such sum due to the Noteholder
on demand. WVI's obligations under this clause 3.1 are primary
obligations and not those of a surety. If an obligation of the
Company is void, voidable or unenforceable for any reason, WVI's
obligations under this clause 3.1 are unaffected and WVI shall
perform the obligations of the Company as if it were primarily
liable for such performance.
3.2 WVI's obligations under clause 3.1 hereof are continuing obligations
and are not satisfied, discharged or affected by an intermediate
partial payment or settlement of account by or a change in the
constitution or control of, or the insolvency of, or bankruptcy,
winding up or analogous proceedings relating to, the Company.
3.3 The liability of WVI under clause 3.1 hereof is not affected by an
arrangement which the Noteholder may make with the Company or with
another person which (but for this clause 3.3) might operate to
diminish or discharge the liability of or otherwise provide a
defence to a surety.
3.4 The Noteholder may at any time as it thinks fit without reference to
WVI grant a later time for payment or grant another indulgence or
agree to an amendment, variation, waiver or release in respect of an
obligation of the Company under this Substitution Loan Note but
nothing in this clause 3.4 affects the liability of WVI under clause
3.1 hereof which shall still pay in full.
3.5 So long as the Company remains under an actual or contingent
obligation to pay any principal or interest in respect of the
Substitution Loan Note, WVI shall not exercise a right which it may
at any time have by reason of the performance of its obligations
under clause 3.1 to be indemnified by the Company, or to take the
benefit (in whole or in part and by way of subrogation or otherwise)
of any of the Noteholder's rights under this Substitution Loan Note
or in respect of the Substitution Loan Note.
3.6 The liability of WVI under clause 3.1 is not affected by the
avoidance of any assurance or payment or any release, settlement or
discharge which is given or made on the faith of any assurance or
payment, in either case under an enactment relating to bankruptcy or
insolvency of the Company or WVI.
3.7 The guarantee in this clause 3 operates in addition to the guaranty
being given on today's date by WVI to the Noteholder in a document
governed by the laws of the State of California Provided Always that
the Noteholder may not recover twice
3.
<PAGE> 12
in respect of the same liability nor shall WVI be obliged to pay in
total more than the amount of all principal and interest payable in
respect of this Substitution Loan Note.
4. The provisions of clauses 16, 18, 20, 21 and 22 of the Original
Agreement between the Company, Wired Ventures, Ltd. ("Wired
Ventures"), the Noteholder, Wired World L.L.C. ("Wired
Investments"), Wired New York, Karadean Limited, Guardian Magazines
Limited and Guardian Newspapers Limited as incorporated into and/or
amended by the Agreement of today's date referred to in clause 9
hereof apply to this Substitution Loan Note mutatis mutandis.
5. "WVI" means Wired Ventures, Inc., a Delaware corporation.
6. Neither the Company nor WVI shall have any right to set off any
liability or debt owed or alleged to be owed to either of them by
the Noteholder against any liability to the Noteholder under this
Substitution Loan Note.
7. If the Company defaults in the payment of any sum due and payable
under this Substitution Loan Note on the due date, the Company shall
pay default interest on such sum (or, as the case may be, the amount
thereof for the time being due and unpaid) to the Noteholder from
the due date to (and including) the date of actual payment
calculated at the rate per amount being the aggregate of 10% per
annum and the base rate of National Westminster Bank plc from time
to time. Such default interest will be paid after deduction of tax
(if applicable).
8.1 The benefit of this Substitution Loan Note may be assigned from time
to time to any member of the Guardian Group Provided That if a
Noteholder ceases to be a member of the Guardian Group it shall
promptly assign the benefit of this Substitution Loan Note to an
entity which is a member of the Guardian Group pending which the
rights of the Noteholder hereunder (other than this right of
assignment) shall be suspended. For the avoidance of doubt, the
"Noteholder" is deemed to mean the lawful holder of this
Substitution Loan Note from time to time.
8.2 Subject as provided in clause 8.1 hereof, a party may not assign or
transfer or purport to assign or transfer a right or obligation
under this Substitution Loan Note without first having obtained the
consent of the other parties hereto, such consent not to be
unreasonably withheld or delayed.
9. Capitalised terms used herein have the same meanings as are given to
them in the Agreement of even date herewith (the "Agreement")
between Wired Ventures, Inc., Wired UK, Guardian Media Group plc and
others.
4.
<PAGE> 13
Executed as a deed and delivered by the Company, WVI and the Noteholder on
28 June 1996.
EXECUTED AS A DEED BY
WIRED UK /s/ Jane Metcalfe
_______________________________________
Signature of director
Jane Metcalfe
_______________________________________
Name of director
/s/ Todd Sotkiewicz
_______________________________________
Signature of director/secretary
Todd Sotkiewicz
_______________________________________
Name of director/secretary
EXECUTED AS A DEED BY
WIRED VENTURES, INC.
/s/ Jane Metcalfe
_______________________________________
Signature:
Jane Metcalfe
_______________________________________
Name:
President
_______________________________________
Title:
SIGNED FOR AND ON BEHALF OF
GUARDIAN MEDIA GROUP PLC
/s/ Neil A. Canetty-Clarke
_______________________________________
Signature of Director
Neil A. Canetty-Clarke
_______________________________________
Name of director
5.
<PAGE> 14
SUBSTITUTION GUARANTY
THIS CONTINUING GUARANTY ("GUARANTY") is entered into as of June 28,
1996, by WIRED VENTURES, INC., a Delaware Corporation ("GUARANTOR"), in favour
of GUARDIAN MEDIA GROUP PLC, an English company ("NOTE HOLDER").
RECITALS
A. Wired Ventures, Ltd., a Californian limited partnership, entered
into a Guaranty in favour of Note Holder dated July 22, 1995 (the "ORIGINAL
GUARANTY") a copy of which is attached hereto marked "A."
B. Guarantor executed a Substitution Agreement dated 28 May 1996 under
which it agreed to assume the obligations of Wired Ventures, Ltd. under, inter
alia, the Original Guaranty.
C. This Substitution Guaranty is intended to reflect and effect the
assumption of obligations as are referred to in Recital B, above.
D. Concurrently herewith, Note Holder, Guarantor and Wired UK,
incorporated under the laws of England with unlimited liability ("BORROWER"),
are entering into that certain Loan Note of even date herewith (the
"SUBSTITUTION LOAN NOTE"), pursuant to which Note Holder has agreed to extend
certain financial accommodations to Borrower, subject to the terms and
conditions set forth therein and that certain Agreement of even date herewith by
and among Guarantor, Note Holder, Borrower, Guardian Magazines Limited, Karadean
Limited, Guardian Newspapers Limited, Wired World L.L.C. and Wired New York (the
"AGREEMENT").
E. In consideration of Note Holder consenting to the transactions in
May/June 1996 to restructure the ownership of the Wired Businesses (the
"RESTRUCTURING") without accelerating payment under the Original Loan Note and
consenting to the related dissolution of Wired Ventures, Ltd., Guarantor is
willing to guarantee the full payment and performance by Borrower of all of its
obligations under the Substitution Loan Note, all as set forth herein.
F. Guarantor is or will be, whether directly or through one or more
intermediary companies, the parent company of Borrower.
G. Guarantor will obtain substantial direct and indirect benefit from
the Substitution Loan Note.
AGREEMENT
NOW, THEREFORE, in order to induce Note Holder to execute the
Substitution Loan Note, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, and intending to be
legally bound, Guarantor hereby represents, warrants, covenants and agrees as
follows:
1.
<PAGE> 15
SECTION 1. DEFINITIONS. All capitalised terms used but not defined
herein shall have the meanings given to them in the Substitution Loan Note and
the Agreement of even date herewith.
SECTION 2. GUARANTY.
2.1 UNCONDITIONAL GUARANTEE OF PAYMENT. In consideration of
the foregoing, Guarantor hereby irrevocably, absolutely and unconditionally
guarantees to Note Holder the prompt and complete payment when due (whether at
stated maturity, by acceleration or otherwise) of all indebtedness of Borrower
to Note Holder created under the Substitution Loan Note (all such indebtedness
being the "Liabilities"), together with the prompt payment of all expenses,
including, without limitation, reasonable attorneys' fees, and costs incurred by
Note Holder incidental to the collection of the Liabilities. The term
"indebtedness" is used herein in its most comprehensive sense and includes any
and all advances, debts, obligations and liabilities heretofore, now or
hereafter made, incurred or created, whether voluntary or involuntary and
whether due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, and whether recovery upon such indebtedness may be
or hereafter become unenforceable. (The Liabilities and all other obligations
and covenants to be performed by Guarantor under this Substitution Guaranty
shall hereinafter be collectively referred to as the "GUARANTY OBLIGATIONS.")
2.2 EXPENSES. Guarantor agrees to pay all expenses, including,
without limitation, reasonable attorneys' fees, and costs incurred by Note
Holder in connection with the enforcement of Note Holder's rights under this
Substitution Guaranty.
2.3 JOINT AND SEVERAL LIABILITY. If any other person in
addition to Guarantor shall guarantee the payment of all or any part of the
Liabilities, all guarantors and their respective successors and assigns shall be
jointly and severally bound by the terms of this Substitution Guaranty and any
other guaranty of the Liabilities, notwithstanding any relationship or contract
of co-obligation by or among such guarantors. Note Holder's enforcement of the
Guaranty Obligations is not conditioned upon Note Holder's obtaining from any
other person a guaranty of all or any part of the Liabilities.
SECTION 3. PAYMENTS. All payments to be made by Guarantor to Note
Holder hereunder shall be made in lawful money of England, in immediately
available funds, addressed to Note Holder at 164 Deansgate, Manchester, M60 2RR
England (or such other address as Note Holder may hereafter specify to the
Guarantor), on the date due, and shall be accompanied by a notice from Guarantor
stating that such payments are made under this Substitution Guaranty.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
Guarantor hereby represents and warrants to Note Holder that:
(a) Guarantor (i) is a Delaware corporation, validly existing
and in good standing under the laws of the State of Delaware; (ii) is duly
qualified to do business and is in
2.
<PAGE> 16
good standing in every jurisdiction where the nature of its business requires it
to be so qualified (except where the failure to so qualify would not have a
material adverse effect on the Guarantor's condition, financial or otherwise, or
on Guarantor's ability to pay or perform the Guaranty Obligations); and (ii) has
all requisite power and authority to execute and deliver this Substitution
Guaranty and each other document executed and delivered by Guarantor pursuant to
the Substitution Loan Note or this Substitution Guaranty and to perform its
obligations thereunder and hereunder.
(b) The execution, delivery and performance by Guarantor of
this Substitution Guaranty (i) are within Guarantor's powers and have been duly
authorised by all necessary action; (ii) do not contravene Guarantor's
certificate of incorporation and by-laws or any law or any contractual
restriction binding on or effecting Guarantor or by which Guarantor's property
may be effected; (iii) do not require any authorisation or approval or other
action by, or any notice to or filing with, any governmental authority or any
other person under any indenture, mortgage, deed of trust, lease, agreement or
other instrument to which Guarantor is a party or by which Guarantor or any of
its property is bound except such as have been obtained or made; and (iv) do
not, except as contemplated by the Substitution Loan Note or this Substitution
Guaranty, result in the imposition or creation of any lien upon the property of
Guarantor.
(c) This Substitution Guaranty constitutes the legal, valid
and binding obligation of Guarantor, enforceable against Guarantor in accordance
with its terms, except as the enforceability thereof may be subject to or
limited by bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws relating to or affecting the rights of creditors generally.
(d) There is no action, suit or proceeding affecting Guarantor
pending or threatened before any court, arbitrator, or governmental authority,
domestic or foreign, which may have a material adverse effect on the ability of
Guarantor to perform its obligations under this Substitution Guaranty.
(e) The Guaranty Obligations are not subject to any offset or
defense against Note Holder or Borrower of any kind.
(f) The incurrence of the Guarantor's obligations under this
Substitution Guaranty will not cause the Guarantor to (i) become insolvent; (ii)
be left with unreasonably small capital for any business or transaction in which
Guarantor is presently engaged or plans to be engaged; or (iii) be unable to pay
its debts as such debts mature.
(g) Guarantor covenants, warrants, and represents to Note
Holder that all representations and warranties contained in this Substitution
Guaranty shall be true at the time of Guarantor's execution of this Substitution
Guaranty, and shall continue to be true until the Guaranty Obligations have been
paid and performed in full. Guarantor expressly agrees that any
misrepresentation or breach of any warranty whatsoever contained in this
Substitution Guaranty shall be deemed material.
3.
<PAGE> 17
SECTION 5. ABSOLUTE GUARANTY. Guarantor agrees that the liability
hereunder shall be the immediate, direct, and primary obligation of Guarantor
and shall not be contingent upon Note Holder's exercise or enforcement of any
remedy it may have against Borrower or any other person or against any security
for the Guaranty Obligations. Without limiting the generality of the foregoing,
the Guaranty Obligations shall remain in full force and effect without regard to
and shall not be impaired or affected by, nor shall Guarantor be exonerated or
discharged by, any of the following events:
(a) insolvency, bankruptcy, reorganisation, arrangement,
adjustment, composition, assignment for the benefit of creditors, death,
liquidation, winding up or dissolution of Borrower, Guarantor or any other
guarantor of the Liabilities;
(b) any limitation, discharge, or cessation of the liability
of Borrower, Guarantor or any other guarantor for the Liabilities due to any
statute, regulation or rule of law, or any invalidity or unenforceability in
whole or in part of the documents evidencing the Liabilities or any other
guaranty of the Liabilities;
(c) any merger, acquisition, consolidation or change in
structure of Borrower, Guarantor or any other guarantor of the Liabilities or
any sale, lease, transfer, or other disposition of any or all of the assets or
shares of Borrower, Guarantor or any other guarantor of the Liabilities;
(d) any assignment or other transfer, in whole or in part, of
Note Holder's interests in and rights under this Substitution Guaranty or the
Substitution Loan Note, including, without limitation, Note Holder's right to
receive payment of the Liabilities or the Guaranty Obligations, as the case may
be;
(e) any claim, defense, counterclaim or set-off, other than
that of prior performance, that Borrower, Guarantor or any other guarantor of
the Liabilities may have or assert, including, but not limited to, any defense
of incapacity or lack of corporate or other authority to execute any documents
relating to the Liabilities, the Guaranty Obligations or any collateral securing
the Guaranty Obligations;
(f) Note Holder's amendment, modification, renewal, extension,
cancellation or surrender of any agreement, document or instrument relating to
the Substitution Loan Note, the Liabilities or the Guaranty Obligations;
(g) Note Holder's exercise or non-exercise of any power, right
or remedy with respect to the Liabilities, the Guaranty Obligations, including,
but not limited to, Note Holder's compromise, release, settlement or waiver with
or of Borrower, Guarantor or any other person;
(h) Note Holder's vote, claim, distribution, election,
acceptance, action or inaction in any bankruptcy case related to the Liabilities
or the Guaranty Obligations; and
4.
<PAGE> 18
(i) any impairment or invalidity of any collateral or any
collateral securing the Guaranty Obligations or any failure to perfect any of
Note Holder's Liens thereon or therein.
SECTION 6. DUE DILIGENCE. Guarantor acknowledges that it has,
independently or and without reliance on Note Holder, made its own credit
analysis of Borrower, performed its own legal review of this Substitution
Guaranty, the Substitution Loan Note and all related documents and is not
relying on Note Holder with respect to any of the aforesaid items. Guarantor has
established adequate means of obtaining from Borrower on a continuing basis
financial and other information pertaining to Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events or circumstances which might in any way affect Guarantor's risks
hereunder, and Guarantor further agrees that Note Holder shall have no
obligation to disclose to Guarantor information or material with respect to
Borrower acquired in the course of Note Holder's relationship with Borrower.
SECTION 7. TOLLING OF STATUTE OF LIMITATIONS. Guarantor agrees that any
payment or performance of any of the Liabilities or other acts which tolls any
statute of limitations applicable to the Liabilities shall also toll the statute
of limitations applicable to Guarantor's liability under this Substitution
Guaranty.
SECTION 8. WAIVERS.
8.1 GENERAL WAIVERS. Guarantor hereby expressly waives (a)
diligence, presentment, demand for payment, protest, benefit of any statute of
limitations affecting Borrower's liability under the Substitution Loan Note or
the enforcement of this Substitution Guaranty; (b) discharge due to any
disability of Borrower; (c) any defenses of Borrower to obligations under the
Substitution Loan Note not arising under the express terms of the Substitution
Loan Note or from a material breach thereof by Note Holder which under
applicable law has the effect of discharging borrower from the Liabilities as to
which this Substitution Guaranty is sought to be enforced; (d) the benefit of
any act or omission by Note Holder which directly or indirectly results in or
aids the discharge of Borrower from any of the Liabilities by operation of law
or otherwise; (e) all notices whatsoever, including, without limitation, notice
of acceptance of this Substitution Guaranty and the incurring of the
Liabilities; and (f) any requirement that Note Holder exhaust any right, power
or remedy or proceed against Borrower or any other security for, or any other
guarantor of, or any other party liable for, any of the Liabilities, or any
portion thereof. Guarantor specifically agrees that it shall not be necessary or
required, and Guarantor shall not be entitled to require, that Note Holder (i)
file suit or proceed to assert or obtain a claim for personal judgment against
Borrower, for all or any part of the Liabilities; (ii) make any effort at
collection or enforcement of all or any part of the Liabilities from Borrower;
(iii) foreclose against or seek to realise upon any security now or hereafter
existing for all or any part of the Liabilities; (iv) file suit or proceed to
obtain or assert a claim for personal judgment against Guarantor or any other
guarantor or other party liable for all or any part of the Liabilities; (v)
exercise or assert any other right or remedy to which Note Holder is or may be
entitled in connection with the Liabilities or any security or guaranty relating
thereto to assert; or (vi) file any claim against assets of Borrower before or
as a condition of enforcing the liability of Guarantor under this Substitution
Guaranty. Without
5.
<PAGE> 19
limiting the generality of the foregoing, Guarantor expressly waives the benefit
of California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848, 2849,
2850, 2899 and 1432.
SECTION 9. CONTINUING GUARANTY. This Substitution Guaranty shall be a
continuing guaranty and shall remain in effect until the Liabilities have been
paid in full. Any other guarantors of all or any part of the Liabilities may be
released without affecting the liability of Guarantor hereunder.
SECTION 10. REINSTATEMENT. Notwithstanding any provision of the
Substitution Loan Note to the contrary, the liability of Guarantor hereunder
shall be reinstated and revived and the rights of Note Holder shall continue if
and to the extent that for any reason any payment by or on behalf of Borrower is
rescinded or must be otherwise restored by Note Holder, whether as a result of
any proceedings in bankruptcy or reorganization or otherwise, all as though such
amount had not been paid. The determination as to whether any such payment must
be rescinded or restored shall be made by Note Holder in its sole discretion:
provided, however, that if Note Holder chooses to contest any such matter at the
request of Guarantor, Guarantor agrees to indemnify and hold harmless Note
Holder form all costs and expenses (including, without limitation, reasonable
attorneys' fees) of such litigation. To the extent any payment is rescinded or
restored, the Liabilities shall be revived in full force and effect without
reduction or discharge for that payment.
SECTION 11. EVENTS OF DEFAULT.
11.1 EVENT OF DEFAULT. The occurrence of any one or more of
the following events shall constitute an "Event of Default":
(a) the occurrence of a default under or as defined
in the Substitution Loan Note; or
(b) any representation or warranty made by Guarantor
to Note Holder in this Substitution Guaranty, or in any statement, report,
financial statement or certificate delivered by Guarantor to Note Holder is not
true and correct or is misleading, in any material respect, when made or
delivered; or
(c) the commencement by Guarantor of a voluntary case
under the federal bankruptcy laws, as now constituted or hereafter amended, or
any other applicable federal or state bankruptcy, insolvency or similar law; or
the consent by Guarantor to the appointment of a receiver, liquidator, assignee,
trustee, custodian, sequestrator, agent or other similar official for Guarantor
for any substantial part of its property; or the making by Guarantor of any
assignment for the benefit of creditors; or any case or proceeding is commenced
by Guarantor for its dissolution, liquidation or termination; or the taking of
any action by or on behalf of Guarantor in furtherance of any of the foregoing;
or
(d) the filing of a petition with a court having
jurisdiction over Guarantor to commence an involuntary case for Guarantor under
the federal bankruptcy laws,
6.
<PAGE> 20
as now constituted or hereafter amended, or any other applicable federal or
state bankruptcy, insolvency or similar law; or the appointment of a receiver,
liquidator, assignee, custodian, trustee, agent, sequestrator or other similar
official for Guarantor or for any substantial part of its property; or any
substantial part of Guarantor's property is subject to any levy, execution,
attachment, garnishment or temporary protective order; or the ordering of the
dissolution, liquidation or winding up of Guarantor's affairs and the failure to
obtain the dismissal of such petition or appointment or the continuance of such
decree or order unstayed and in effect for or within a period of sixty (60) days
from the date of such filing, appointment, or entry of such order or decree.
11.2 ACCELERATION OF THE LIABILITIES. Upon and after an Event
of Default hereunder, then all or any part of the Liabilities may, at the option
of Note Holder and without demand, notice, or legal process of any kind, be
declared, and immediately shall become, due and payable.
SECTION 12. NO WAIVER; AMENDMENTS. No failure on the part of Note
Holder to exercise, no delay in exercising and no course of dealing with respect
to, any right hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law. This
Substitution Guaranty may not be amended or modified except by written agreement
between Guarantor and Note Holder, and no consent or waiver hereunder shall be
valid unless in writing and signed by Note Holder.
SECTION 13. COMPROMISE AND SETTLEMENT. No compromise, settlement,
release, renewal, extension, indulgence, change in, waiver or modification of
any of the Liabilities or the release of Guarantor or discharge of Borrower or
Guarantor from the performance of any of the Liabilities shall release or
discharge Guarantor from this Substitution Guaranty.
SECTION 14. NOTICE. Note Holder shall provide Guarantor with a copy of
any notice of default to Borrower as provided under the Loan Note; provided,
however, that the failure of Note Holder to provide such notice to Guarantor
will not exonerate Guarantor of any obligations under this Substitution
Guaranty. Except as otherwise provided herein, any notice or other communication
herein required or permitted to be given shall be in writing and may be
delivered in person, with receipt acknowledged, or sent by telex, telecopy,
computer transmission or by United States mail, registered or certified, return
receipt requested, postage prepaid and addressed as follows:
7.
<PAGE> 21
IF TO GUARANTOR: Wired Ventures, Inc.
520 Third Street
San Francisco, CA 94107-1427
USA
Attention: Jane Metcalfe
Telephone: + 1 415 222 6200
Facsimile: + 1 415 222 6229
WITH COPIES TO: Cooley Godward Castro
Huddleson & Tatum
One Maritime Plaza, 20th Floor
San Francisco, California 94111
USA
Attention: Kenneth L. Guernsey
Telephone: + 1 415 693 2000
Facsimile: + 1 415 951 3699
IF TO NOTE HOLDER: Guardian Media Group plc
164 Deansgate
Manchester
M60 2RR
England
Telephone: + 44 161 832 7200
Facsimile: + 44 161 832 0155
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, or three (3) business days after the same shall have
been deposited in the United States mail.
SECTION 15. ENTIRE AGREEMENT. This Substitution Guaranty, the
Substitution Loan Note, the Agreement if even date hereof, the Original
Agreement and the Substitution Agreement and any documents referred to therein
constitute and contain the entire agreement of the parties and supersede any and
all prior and contemporaneous agreements, negotiations, correspondence,
understandings and communications between Guarantor and Note Holder, whether
written or oral, respecting the subject matter thereof. For the avoidance of
doubt, each of the Original Loan Note and the Original Guaranty is hereby
terminated and canceled upon the execution and effectiveness of each of this
Substitution Guaranty and both the Agreement and the Substitution Loan Note of
even date herewith.
SECTION 16. SEVERABILITY. If any provision of this Substitution
Guaranty is held to be unenforceable under applicable law for any reason, it
shall be adjusted, if possible, rather than voided in order to achieve the
intent of Guarantor and Note Holder to the extent possible.
8.
<PAGE> 22
In any event, all other provisions of this Substitution Guaranty shall be deemed
valid and enforceable to the full extent possible under applicable law.
SECTION 17. SUBORDINATION OF INDEBTEDNESS. Any indebtedness or other
obligation of Borrower now or hereafter held by or owing to Guarantor is hereby
subordinated in time and right of payment to all obligations of Borrower to Note
Holder, except as such indebtedness or other obligation is permitted to be paid
under the Substitution Loan Note; and such indebtedness of Borrower to Guarantor
is assigned to Note Holder as security for this Substitution Guaranty, and if
Note Holder so requests shall be collected, enforced and received by Guarantor
in trust for Note Holder and to be paid over to Note Holder on account of the
Liabilities of Borrower to Note Holder, but without reducing or affecting in any
manner the liability of Guarantor under the other provisions of this
Substitution Guaranty. Any notes now or hereafter evidencing such indebtedness
of Borrower to Guarantor shall be marked with a legend that the same are subject
to this Substitution Guaranty and shall be delivered to Note Holder. Guarantor
shall, and Note Holder is hereby authorized to, in the name of Guarantor from
time to time, execute and file financing statements and continuation statements
and execute such other documents and take such other action as Note Holder deems
necessary or appropriate to perfect, preserve and enforce its rights hereunder.
SECTION 18. RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default, Note Holder is hereby authorised at any
time and from time to time, without notice to Guarantor (any such notice being
expressly waived by Guarantor), to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other obligations at any time owing by Note Holder or any of its affiliates to
or for the credit of the account of Guarantor against the Guaranty Obligations
of Guarantor to Note Holder now or hereafter existing irrespective of whether or
not Note Holder shall have made any demand under this Substitution guaranty or
the Substitution Loan Note and although such obligations may be unmatured. The
rights of Note Holder under this Section 18 are in addition to all other rights
and remedies (including, without limitation, other rights of set-off) which Note
Holder may have. guarantor grants to Note Holder a security interest in any and
all such deposits as security for satisfaction of the foregoing obligations.
SECTION 19. INDEMNITY. In addition to and without limiting or impairing
in any manner whatsoever Guarantor's other obligations under this Substitution
Guaranty, Guarantor agrees to indemnify the Note Holder from and against any and
all claims, losses and liabilities growing out of or resulting from this
Substitution Guaranty (including, without limitation, enforcement of this
Substitution Guaranty), except claims, losses or liabilities resulting from such
person's gross negligence or wilful misconduct.
SECTION 20. GOVERNING LAW. This Guaranty shall be binding upon and
inure to the benefit of Guarantor and Note Holder and their respective
successors and assigns, except that Guarantor shall not have the right to assign
its rights hereunder or any interest herein without the prior written consent of
Note Holder. This Guaranty shall be governed by, and construed in accordance
with, the laws of the State of California.
9.
<PAGE> 23
SECTION 21. WAIVER OF SPECIFIC RIGHTS. GUARANTOR HEREBY
IRREVOCABLY WAIVES AND RELEASES:
(a) ANY AND ALL RIGHTS IT MAY HAVE AT ANY TIME (WHETHER
ARISING DIRECTLY OR INDIRECTLY, BY OPERATION OF LAW, CONTRACT OR OTHERWISE) TO
REQUIRE THE MARSHALLING OF ANY ASSETS OF BORROWER, WHICH RIGHT OF MARSHALLING
MIGHT OTHERWISE ARISE FROM ANY SUCH PAYMENTS MADE OR OBLIGATIONS PERFORMED;
(b) ANY AND ALL RIGHTS THAT WOULD RESULT IN GUARANTOR
BEING DEEMED A "CREDITOR" UNDER THE UNITED STATES BANKRUPTCY CODE
OF BORROWER OR ANY OTHER PERSON, ON ACCOUNT OF PAYMENTS MADE OR
OBLIGATIONS PERFORMED BY GUARANTOR; AND
(c) ANY CLAIM, RIGHT OR REMEDY WHICH GUARANTOR MAY NOW HAVE OR
HEREAFTER ACQUIRE AGAINST BORROWER THAT ARISES HEREUNDER AND/OR FROM THE
PERFORMANCE BY GUARANTOR HEREUNDER INCLUDING, WITHOUT LIMITATION, ANY CLAIM,
REMEDY OR RIGHT OF SUBROGATION. REIMBURSEMENT, EXONERATION, CONTRIBUTION,
INDEMNIFICATION, OR PARTICIPATION IN ANY CLAIM, RIGHT OR REMEDY OF NOTE HOLDER
AGAINST BORROWER OR ANY COLLATERAL SECURITY WHICH NOTE HOLDER MAY NOW HAVE OR
MAY HEREAFTER ACQUIRE, WHETHER OR NOT SUCH CLAIM, RIGHT OR REMEDY ARISES IN
EQUITY, UNDER CONTRACT, BY STATUTE, UNDER COMMON LAW OR OTHERWISE.
IN WITNESS WHEREOF, Guarantor has executed and delivered this
Substitution Guaranty as of the date first written above.
GUARANTOR: Executed as a deed by
WIRED VENTURES, INC.,
a Delaware corporation
By: /s/ Jane Metcalfe
------------------------------
Printed Name: Jane Metcalfe
--------------------
Title: President
---------------------------
Accepted and Acknowledged by:
GUARDIAN MEDIA GROUP PLC
By: /s/ N.A. Canetty-Clarke
-----------------------------
Printed Name: N.A. Canetty-Clarke
-------------------
Title: Finance Director
--------------------------
10.
<PAGE> 1
EXHIBIT 10.11
[NBC LETTERHEAD]
June 14, 1996
Mr. Rex Ishibashi
Wired Ventures, Inc.
520 Third Street, 4th Floor
San Francisco, California 94107
Dear Mr. Ishibashi:
This Letter Agreement sets forth the terms and conditions of the
agreement pursuant to which Wired Ventures, Inc. ("Wired") will provide MSNBC
Cable Channel, L.L.C. ("MSNBC") and one or more of its affiliates with the
series of television programs described in more detail herein. This Letter
Agreement will be binding upon both parties as of the date set forth above and
govern the relationship created hereby.
1. Overview: MSNBC is currently scheduled to launch a full-time news and
information cable television programming service on July 15, 1996 ("MSNBC
Cable"), which will be designed to complement a full-time news and information
online computer service to be produced by an MSNBC Affiliate as defined below
("MSNBC Online"). Wired has agreed to provide a weekly half-hour contemporary
discussion program which is consistent with the proposal presented by Wired to
MSNBC on May 2, 1996 (a copy of which is attached hereto as Exhibit A)
tentatively entitled "Netizen TV" (the "Program"). MSNBC desires to have Wired
produce the Program at Wired's cost for initial airing on MSNBC Cable, all as
described more fully herein.
2. Production:
2.1 The parties agree that, on the terms and subject to the conditions
of this Letter Agreement, Wired shall create and supply to MSNBC up to *
episodes of the Program for initial television distribution on MSNBC Cable and
potential additional television distribution by * (such affiliates,
collectively, the "MSNBC Affiliates") throughout the world. MSNBC Affiliates
shall not include broadcast stations affiliated with the NBC Television Network
which are not owned in whole or in part, controlled, or managed by the National
Broadcasting Company, Inc. or any of its subsidiaries.
2.2 Wired shall deliver to MSNBC at the address set forth in Section
17, or such other address provided by MSNBC in accordance with Section 17, all
production materials necessary for MSNBC to commence distribution of each
episode of the Program. Such materials shall be in the form of videotape or any
other physical storage source acceptable to MSNBC, or shall be sent via
electronic transmission, and shall arrive at MSNBC no later than 8:00 P.M.
eastern time on the day before the day on which MSNBC intends to air such
episode of the Program. As part of such materials, Wired shall furnish to MSNBC
an accurate musical cue
- ----------------------
*Confidential treatment requested
1.
<PAGE> 2
sheet for each episode of the Program, setting forth the number, date and time
of the episode, the titles of all musical compositions used in each episode,
length of the pieces used, names of composers, lyricists, publishers, copyright
owners, the performance society or societies with which the compositions are
registered, the type of use and its context. Wired shall be responsible for
securing all synchronization and, if necessary, master use licenses that may be
required for distribution of the Program. Wired agrees that failure to deliver
such materials for any episode of the Program in accordance with this Letter
Agreement shall be deemed to be a material breach of this Letter Agreement by
Wired.
2.3 Wired shall be responsible for providing, at its sole expense, all
of the production services required to create the Program; provided, however,
that MSNBC agrees to use reasonable efforts to work with Wired to make the
facilities and resources of MSNBC and of MSNBC Affiliates available to Wired for
use in the production of the Program at the lowest rates commercially available.
MSNBC also agrees to arrange for the license of the artwork, logos and
non-restricted NBC News archival footage (the "MSNBC Material") to Wired for
inclusion in the Program at the lowest rates commercially available. Finally,
MSNBC agrees to appoint promptly after execution of this Letter Agreement one of
its employees as a program liaison who will assist Wired in obtaining the
resources of the MSNBC Affiliates as described above.
3. Broadcasting Obligations. *
4. Ownership and Use of the Program.
4.1 Except as set forth in Sections 4.2, 4.4 and 4.5 below, the parties
hereby agree that Wired shall own the Program, including but not limited to the
individual interviews and stories that make up the Program (the "Program
Materials"), and all right, title and interest therein and thereto, including,
without limitation, all copyrights and extensions and renewals thereof under
United States law, the Berne Convention, the Universal Copyright Convention and
throughout the world in perpetuity, provided that Wired hereby grants to MSNBC
(i) a perpetual, worldwide, royalty-free, exclusive license, with a right of
sublicense to MSNBC Affiliates, to reproduce, prepare derivative works,
distribute and publicly display or perform the Program in the form, or in a form
which is substantially similar to the form, in which such Program is delivered
to MSNBC via, and in connection with, any method of transmission other than
through the Internet, now or hereafter devised, which makes programs and other
audio and/or visual recordings of any length, available for viewing in a linear
predetermined presentation (e.g., broadcast television, cable television,
pay-per-view, pay television, satellite television, closed circuit television or
video-on-demand) and (ii) a perpetual, worldwide, royalty-free, non-exclusive
license, with a right of sublicense to third parties, to reproduce, prepare
derivative works, distribute and publicly display or perform excerpts and clips
from Program and the Program Materials for the purposes described in Section
4.4(i)(c).
4.2 MSNBC and the MSNBC Affiliates shall retain all of their rights and
ownership interests in any of MSNBC's and the MSNBC Affiliates' logos,
tradenames and/or trademarks which MSNBC may make available to Wired for use in
the Program as designated by MSNBC
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<PAGE> 3
in writing ("MSNBC Marks") and in any MSNBC Material which MSNBC or the MSNBC
Affiliates may make available for use in the Program as contemplated in Section
2.3. MSNBC hereby grants Wired a non-exclusive, non-transferable, royalty-free
license during the Term to use the MSNBC Marks in the Program. Wired agrees that
it shall not use the MSNBC Marks or MSNBC Materials in any manner except as
provided herein and it shall not sublicense or authorize any other person or
entity to use the MSNBC Marks, the MSNBC Materials or any footage containing the
voice or image of any MSNBC or MSNBC Affiliate television personality, without
the prior written consent of MSNBC.
4.3 Wired shall retain all of its rights and ownership interests in
Wired's logos, tradenames and/or trademarks, including Netizen TV(TM), which
Wired uses in the Program ("Wired Marks") and in the graphics provided by Wired
for use in the Program as well as the design and the "look and feel" of the
Program (the "Wired Material"). Wired hereby grants MSNBC a non-exclusive,
non-transferable, royalty-free license during the Term to use the Wired Marks
and the Wired Material as presented in the Program only. MSNBC agrees that it
shall not use the Wired Marks or Wired Material in any manner except as provided
herein and it shall not sublicense or authorize any other person or entity to
use the Wired Marks or Wired Material except as provided herein.
4.4 Except for purposes of "Interactive Delivery" (as such term is
described below in Section 4.5), MSNBC and Wired hereby agree that the parties'
rights regarding distribution and use of the Program will be as follows: (i)
MSNBC will have the right in perpetuity to air and/or distribute: (a) the
Program on MSNBC Cable an unlimited number of times throughout the world, (b)
the Program for air and/or distribution by the MSNBC Affiliates an unlimited
number of times throughout the world and (c) *; (ii) Wired will have the right
in perpetuity to air and/or distribute in any media now or hereinafter invented
any material contained within the Program which is not MSNBC Material and does
not contain MSNBC Marks; provided that *
4.5 Use of the Program and any Program Materials for purposes of
Interactive Delivery shall be permitted only as mutually agreed by the parties;
provided, however, that Wired will be free to use the Program, Program Materials
and Wired Material on its own "The Netizen" internet site *. In particular, the
parties agree to negotiate with MSNBC Online in order to find a way to use such
Program and Program Material on the MSNBC Online service or to access such
material derived from such Program and Program Material from MSNBC Online *.
"Interactive Delivery" shall mean the delivery of the Program or Program
Materials for use by an end user to a monitor or viewing screen, whereby such
delivery occurs by means of telephone lines, cable television systems, optical
fiber connections, cellular phones, satellites, wireless broadcast or other
means of transmission now known or hereafter devised, provided that the end user
has the ability to selectively manipulate the presentation to effect substantive
content changes during its uses. For purposes of clarity, it is understood that
Interactive Delivery will not include transmission of any kind other than
through the Internet, now or hereafter devised, which makes programs and other
audio and/or visual recordings of any length, available for viewing in a linear
predetermined presentation (e.g., broadcast television, cable television, pay-
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3.
<PAGE> 4
per-view, pay television, satellite television, closed circuit television or
video-on-demand) with or without selective manipulation available to the viewer.
5. Advance and Fees:
5.1 In consideration of Wired's provision of the Programs, MSNBC shall
pay Wired: (i) a non-refundable advance payment of * to be used as an up-front
payment for production of the Program, recoupable against the payments otherwise
owed by MSNBC to Wired pursuant to the terms of the next subsection, to be
payable upon execution of this Letter Agreement; and (ii), subject to the
provisions of Section 8.3, a fee of * per each completed episode of the Program
which Wired delivers to MSNBC, provided that MSNBC shall be under no obligation
to Wired to pay for any episode of the Program which MSNBC decides in its sole
discretion not to air due to Wired's failure to (i) deliver the episode on time,
(ii) meet MSNBC's standards of technical quality and program content for the
television broadcast as set forth in Section 6.4, or (iii) failure to obtain
proper music clearance for the episode. Wired shall invoice MSNBC for every
episode of the Program properly delivered hereunder, and MSNBC shall pay such
invoice no later than (30) days from the date that MSNBC receives it.
5.2 Wired agrees that it shall be responsible for making all payments
which may become due by reason of any distribution, exhibition, performance,
display, transmission, simulcast or license of the Program as authorized herein
(e.g. executory payments, or payments due under any applicable guild or union
collective bargaining agreement).
5.3 If the MSNBC Affiliates choose to air and/or distribute the
Program, MSNBC and Wired shall equally share in any license revenues received by
MSNBC arising therefrom; provided, however, that (i) MSNBC agrees that such
license revenues shall be consistent with license revenues paid by such MSNBC
Affiliates in connection with other NBC television products, (ii) MSNBC and
Wired shall mutually agree upon the license fee for any use of a full episode of
any Program by a MSNBC Affiliate within the United States pursuant to the terms
of Section 4.4(i)(b) and (iii) any costs of production which are incurred by
either MSNBC or Wired in preparing the Program for international distribution
will be deducted off-the-top prior to the splitting of such license revenues and
paid to the party providing the relevant production services.
6. Content, Editorial and Quality Control.
6.1 Except as set forth in the other provisions of this Section 6,
Wired shall be responsible for all elements of the Program and shall have
editorial control thereof.
6.2 *
6.3 MSNBC shall have the right to consult with Wired regarding the
content of the Program.
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4.
<PAGE> 5
6.4 The Program shall comply with MSNBC's obligations and legal
responsibilities and with the established broadcasting program content, business
and advertising policies of MSNBC of which Wired has been or will be advised by
MSNBC or the MSNBC Affiliates (including without limitation the NBC News Policy
and Guidelines, and NBC Broadcast Standards and Practices), and with the Rules
and Regulations of the Federal Communications Commission and any other
governmental body having jurisdiction, and that failure to comply with any of
the foregoing may render the Program unacceptable. MSNBC agrees to promptly
inform Wired of any changes to these requirements which are within the control
of MSNBC and the MSNBC Affiliates. Credits contained in the Program shall
conform to NBC Code requirements and in no event shall such credits exceed
thirty seconds (:30) in length.
6.5 MSNBC shall have the right to record any Program hereunder on its
own videotape and may make edits or alterations thereon solely in order to
insert late-breaking news announcements or to conform to time segment
requirements or to MSNBC policy, provided that such edits or alterations shall
be made in a manner which accomplishes MSNBC's purposes but alters the content
of the Program as little as possible.
6.6 If the format for any episode of the Program delivered by Wired
deviates from the general format agreed upon and Wired is unable to deliver a
corrected Program in time for air date, MSNBC may edit the Program, and Wired
will be billed for expenses incurred.
6.7 If the tape for any episode of the Program delivered by Wired, when
viewed for technical quality and accurate timings, is found to be unairable and
it is necessary to request another Program tape, Wired shall be billed for
expenses incurred by the additional viewing and timing of the replacement tape.
7. Promotion.
7.1 Wired shall furnish MSNBC with trailers, glossy prints of still
photos, synopses, casts, and other promotional material available for the proper
promotion and exploitation of the Program, if available. Wired grants to MSNBC
the right to use and license others to use the Wired Marks and the name and
likeness of, and biographical material concerning, each star and featured
performer in the Program, and fictitious persons and locales therein, for
advertising, publicity and trade purposes. Except for promotions related to the
Program itself, Wired agrees that it will not place promotional material of any
kind within the Program itself, including, but not limited to, promotional
material related to Wired's own products and services, without the prior written
consent of MSNBC.
7.2 MSNBC agrees that it shall promote and publicize the Program in a
pattern and manner which is consistent with promotion of other weekly television
programs on MSNBC Cable. Wired agrees to use its own publications and
interactive resources in a pattern and matter which are reasonably designed to
promote and publicize the Program to Wired's readers and users.
8. Term and Cancellation.
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5.
<PAGE> 6
8.1 The term of this Letter Agreement will begin on the date first set
forth above and will end *, unless earlier terminated.
8.2 Either party will have the right to cancel this Letter Agreement at
any time by giving written notice that the other party has breached a material
term or condition of this Letter Agreement and the breaching party fails to cure
such breach within fifteen (15) days from the date of the written notice.
8.3 *
9. Renewal Rights; First Look Option.
9.1 If MSNBC has so notified Wired by no later than * of its desire to
purchase additional episodes of the Program ("Additional Episodes"), NBC and
Wired shall enter into exclusive negotiations for the purchase by MSNBC of such
Additional Episodes. If, after good faith negotiations, MSNBC and Wired are
unable to reach a mutually acceptable agreement by *, Wired shall be free to
contract with a third party, subject to the provisions of this Agreement and
provided that for a period of * following the parties failure to reach an
agreement, MSNBC shall have the right to match any offer made by a third party
for such Additional Episodes.
9.2 If, at any time during the initial term of this Agreement, Wired
determines to create any new television programming (a "New Program"), Wired
shall provide to MSNBC a *
10. Representations & Warranties:
10.1 Each party represents and warrants to the other that: (a) it has
the right, power and authority to enter into this Agreement; (b) this Agreement
is a binding and valid obligation; and (c) there is no claim or cause of action
that would prevent its performance hereunder.
10.2 Wired represents and warrants to MSNBC that: (a) the materials
contained in the Program, other than the MSNBC Materials and the MSNBC Marks:
(i) are fully owned and originally created by Wired, in the public domain or
fully licensed for use by MSNBC, the MSNBC Affiliates and/or Wired in accordance
with the terms of this Letter Agreement, (ii) will not contain any material
which is libelous, slanderous, obscene or otherwise unprotected by the United
States Constitution, (iii) will be free of any claims, liens or encumbrances,
(iv) will not subject MSNBC to liability for violation of any laws, rules or
regulations, including, but not limited to, any labor or union rules or
regulations, and (v) will not violate or infringe the copyright, trademark,
tradename, patent, literary, intellectual, artistic or dramatic right, right of
publicity or privacy or any other right of any entity or person, (b) Wired has
paid or will pay all amounts due to third parties in connection with performance
of its obligations hereunder, (c) the use of the Wired Marks will not violate or
infringe the trademark, tradename or other right of anyone; and (d) the
performing rights of all musical compositions contained in the Program
(including any commercials for the Program) are (i) controlled by Broadcast
Music, Inc.,
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6.
<PAGE> 7
America Society of Composers, Authors, and Publishers, or SESAC, Inc., (ii) in
the public domain; or (iii) controlled by Wired.
10.3 MSNBC represents and warrants to Wired that the use of the MSNBC
Marks and the MSNBC Material in the Program will not violate or infringe the
copyright, trademark, tradename, patent, literary, intellectual, artistic or
dramatic right, right of publicity or privacy or any other right of anyone.
11. Indemnity and Limitation of Liability:
11.1 Wired shall indemnify and hold harmless MSNBC and the MSNBC
Affiliates, parent and subsidiary companies, each Program sponsor and its
advertising agency, and the respective officers, directors, agents and employees
of each, from and against liability, actions, claims, demands, losses or damages
(including reasonable attorney's fees and any punitive damages) caused by or
arising out of (i) the broadcast or other authorized use by MSNBC of the Program
and any or all of the material and performances contained therein, other than
the MSNBC Marks or the MSNBC Material or (ii) breach by Wired of any of its
representations and warranties contained herein. Such indemnity includes without
limitation any claim involving allegedly wrongful use of ideas or material in
the Program.
11.2 MSNBC shall indemnify and hold harmless Wired from and against
liability, actions, claims, demands, losses or damages (including reasonable
attorney's fees and any punitive damages) caused by or arising out of MSNBC's
violation of its representations and warranties contained herein. MSNBC's review
and approval of any elements, material or Program furnished by Wired shall not
constitute a waiver by MSNBC of the indemnity provided by Wired.
11.3 The indemnitor may, and if any indemnitee requests in writing, the
indemnitor shall assume the defense of any claim, demand or action and shall,
upon request by the indemnitee, allow the indemnitee to cooperate in the
defense. The indemnitee shall give prompt notice of any claim, demand or action
covered by this indemnity. If the indemnitee settles any such claim, demand or
action without the prior written consent of the indemnitor, the indemnitor shall
be released from this indemnity in that instance.
12. Insurance: In addition to Wired's indemnity, Wired shall immediately obtain
and maintain in full force and effect until the end of MSNBC's broadcasting
rights to the Program a television producer's liability (errors and omissions)
policy, issued by a reputable company approved by MSNBC and naming MSNBC as an
additional insured, insuring Wired's obligations under this agreement for at
least *. Said policy shall be primary and not excess of or contributory to any
other insurance provided for the benefit of or by MSNBC. Wired shall furnish
MSNBC with a certificate of insurance within ten (10) days after the execution
of this Letter Agreement.
13. Waiver/Modification: No modification or amendment to, or waiver of, this
Letter Agreement will be binding and valid unless it is in writing and executed
by the party against
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7.
<PAGE> 8
whom enforcement is sought. No waiver of a breach of any provision of this
Letter Agreement or of any default hereunder shall be deemed a waiver of any
other breach or default of this Letter Agreement.
14. Governing Law: This Letter Agreement will be governed by and construed in
accordance with the internal laws of the State of New York. This Letter
Agreement shall be subject to all applicable laws, rules and regulations of the
government of the United States and the State of New York and any agency
thereof.
15. Assignment: Neither party may assign any rights or delegate any obligations
under this Letter Agreement without the prior written consent of the other
party.
16. Relationship of the Parties: It is understood that this Letter Agreement
does not create any partnership, joint venture or employment relationship
between the parties, that both parties are acting as independent contractors
with respect to each other, and that none of the employees of either party shall
be deemed to be employees of the other party for any purpose. Each party shall
pay and be solely responsible for all contributions, taxes and premiums payable
under any and all applicable, laws, rules or regulations with respect to
employees.
17. Notices: All notices required to be given hereunder shall be deemed to have
been given (a) on the date of delivery when delivered in person, (b) on the date
of transmission when sent by telecopier with return confirmation of receipt, or
(c) one business after deposit with a nationally recognized overnight courier
service, to the following addresses and telecopier numbers, or such other
addresses and telecopier numbers as the parties may designate in writing: If to
Wired: Wired Ventures, Inc., 520 Third Street, 4th Floor, San Francisco,
California 94107, Attention: Rex Ishibashi, Telecopier No. (415) 222-6200 with a
copy to Cooley Godward Castro Huddleson & Tatum, One Maritime Plaza, 20th Floor,
San Francisco, California 94111, Attn: Kenneth L. Guernsey, Telecopier No.:
(415) 951-3699. If to MSNBC: MSNBC Cable Channel, L.L.C., 30 Rockefeller Plaza,
3rd Floor East, New York, NY 10112, Attn: David Corvo, with a copy to: National
Broadcasting Company, Inc., Law Department, 30 Rockefeller Plaza, 10th Floor
East, New York, NY 10112, Telecopier No.: (212) 664-2147.
18. Survival: Sections 4, 5.2, 5.3, 6, 10, 11, 12, 14 and 18 will survive the
expiration or termination of this Letter Agreement.
19. Entire Agreement: This Letter Agreement constitutes the entire agreement
between the parties hereto and supersedes all previous agreements, promises,
proposals, representations, understandings and negotiations (whether written or
oral) between the parties with respect to the subject matter hereof.
20. Force Majeure: Neither party will be liable to the other party for failure
to perform its obligations hereunder because such performance is prevented by a
"Force Majeure Event." A "Force Majeure Event" shall mean an act of God, war
(whether declared or not), riot, embargo, act of governmental or military
authority, strike, labor dispute, fire or other similar cause beyond the party's
control. Notwithstanding the foregoing, a party failing to perform because
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of a Force Majeure Event shall immediately use its best efforts to mitigate the
impact of any Force Majeure Event and commence performance.
21. Taxes. Wired shall be responsible for any and all taxes arising out of the
production and delivery of the Program to MSNBC pursuant to the terms of this
Letter Agreement and shall hold MSNBC harmless and protected from the assertion
of any such taxes by any taxing jurisdiction.
Please indicate acceptance of the foregoing terms and conditions by
signing the enclosed copy of this letter and returning it to me as soon as
possible.
Very truly yours
MSNBC Cable Channel, L.L.C.
By: /s/ Mark Harrington
---------------------------
Name: Mark Harrington
Accepted and agreed this
18th day of June, 1996
WIRED VENTURES INC.
By: /s/ Rex O. Ishibashi
------------------------
Name: Rex O. Ishibashi
Title: Vice President - Corporate and Business Development
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9.
<PAGE> 1
Exhibit 10.12
HOTWIRED VENTURES LLC
EMPLOYMENT AGREEMENT
HOTWIRED VENTURES LLC, a California limited liability company (the
"Company"), located at 520 Third Street, Fourth Floor, San Francisco, California
94107 and Jeffrey Simon ("Employee"), whose current address is 87 Hunting Ridge
Road, Stamford, CT 06903, hereby agree as follows:
1. EMPLOYMENT AND TITLE. The Company hereby agrees to employ Employee,
and Employee hereby accepts employment with the Company, such employment to
commence effective November 6, 1995 ("Start Date"). Employee shall initially
serve as Vice President and Chief Financial Officer of the Company.
2. DUTIES.
(a) Employee shall be responsible for the financial and
accounting operations and functions of the Company and shall perform the duties
customarily associated with such position, as well as such duties as may be
assigned to Employee by the Company from time to time.
(b) Employee shall at all times be subject to the direction of
the Managers of the Company, to the policies established by the Company and to
the terms and conditions of such employee guidelines or manuals as the Company
distributes to its employees. Employee agrees that Employee will, to the best of
Employee's abilities, conscientiously perform all of the duties and obligations
required of Employee during the time Employee is employed by the Company.
3. EMPLOYMENT AT WILL; SEVERANCE.
(a) The Company and Employee agree that Employee is an "at
will" employee and that either party may terminate the employment relationship
at any time.
(b) If the Company terminates Employee's employment without
cause within twelve (12) months following the Start Date, Employee will receive,
as severance, continued payment of his base salary through the end of such
initial 12-month period (i.e., November 5, 1996). In addition, all accrued
vacation, unreimbursed travel and business expenses will be paid to Employee
within sixty (60) days of the effectiveness of his termination.
(c) If Employee resigns or his employment is terminated for
cause, all compensation and benefits will cease immediately; all accrued salary,
vacation, unreimbursed travel and business expenses and bonuses will be paid,
but Employee will receive no severance benefits. For purposes of this Agreement,
"cause" shall mean misconduct, including: (i) conviction of any felony or any
crime involving moral turpitude or dishonesty; (ii) participation in a fraud or
act of dishonesty against the Company; (iii) willful breach of the Company's
policies; (iv) intentional damage to the Company's property; (v) material breach
of
1.
<PAGE> 2
this Agreement or any subsequent agreement relating to the subject matter
hereof; or (vi) conduct by you which in the good faith and reasonable
determination of the Company's Managers demonstrates gross unfitness to serve.
Physical or mental disability shall not constitute "cause".
4. CASH COMPENSATION; BENEFITS. As compensation for the services to be
rendered by Employee hereunder, the Company shall initially pay Employee:
(a) A sign-on bonus in the gross amount of Fifteen Thousand
Dollars ($15,000), payable in one lump sum on the Start Date, which may be
applied toward Employee's expenses in moving his residence from Connecticut to
the San Francisco Bay Area or toward any other purpose, in Employee's
discretion. Except pursuant to this bonus, Employee shall not be compensated or
otherwise reimbursed for any relocation-related expenses.
(b) An annual salary of One Hundred Ten Thousand Dollars
($110,000), payable in arrears in equal installments twice per month, prorated
for any partial employment period, and as adjusted from time to time.
In addition, Employee will be eligible to participate in the Company's
standard employee benefits programs which include medical and dental insurance
and a 401(k) tax deferred savings plan. The Company reserves the right to modify
employee benefit programs from time to time, as deemed necessary.
5. EQUITY PARTICIPATION; VESTING.
(a) In connection with Employee's agreement hereunder, the
Company will sell to Employee six hundred ten (610) Class C membership interests
(the "Units"), representing a 0.50% subordinated profits interest in the
Company, within thirty (30) days following the Start Date (which the parties
understand and agree may be converted into an equivalent equity interest in the
event that the Company converts into a C-corporation for tax purposes, which
equity shall be subject to the terms of this Agreement and included in the
definition of "Units" hereunder), subject to Employee's execution of the
Company's standard Subscription Agreement and Employee's agreement to be bound
by the terms and conditions of the Company's Second Amended and Restated
Operating Agreement dated as of August 25, 1995 and thereby become a Member of
the Company.
(b) Beginning with November 1, 1995 (the "Vesting Commencement
Date"), Employee's rights of full ownership of the Units purchased by Employee
shall vest as follows:
<TABLE>
<CAPTION>
MONTHS OF SERVICE PERCENTAGE VESTED
<S> <C>
More than zero but less than 0%
24 months after the Vesting
Commencement Date
</TABLE>
2.
<PAGE> 3
<TABLE>
<CAPTION>
MONTHS OF SERVICE PERCENTAGE VESTED
<S> <C>
More than 24 but less than 36 25%
months after the Vesting
Commencement Date
More than 36 but less than 48 50%
months after the Vesting
Commencement Date
More than 48 but less than 60 75%
months after the Vesting
Commencement Date
More than 60 months after 100%
the Vesting Commencement
Date
</TABLE>
(c) In the event that:
(i) the Company terminates Employee's employment and a determining
factor in such termination is the purpose of avoiding the
vesting of Employee's Units;
(ii) in connection with an underwritten initial public offering,
the Company registers any of its securities with the
Securities and Exchange Commission pursuant to Section 6 of
the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder; or
(iii) any person or related group of persons (other than the
Company, Wired, or a person that directly or indirectly
controls, is controlled by, or is under common control with
the Company) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of fifty percent (50%) or
more of the total combined voting power of the Company's
outstanding securities
then, the vesting of the Units shall accelerate so that each Unit shall,
immediately prior to the effectiveness of any of the events listed in this
subparagraph 5(c), become fully vested.
6. RIGHT TO REPURCHASE UNITS. Employee may not sell, assign, transfer,
encumber, or otherwise dispose of any interest in the Units except as provided
in this Paragraph 6. The Units shall be subject to a purchase option in favor of
the Company as set forth below.
(a) OPTION TO REPURCHASE UNITS. If Employee ceases to be employed by
the Company, whether by reason of retirement, quitting or termination with or
without cause, then
3.
<PAGE> 4
the Company shall have the exclusive right and option, exercisable at any time
during a period of sixty (60) days from the date of said termination, (i) to
purchase the then non-vested Units of Employee for a price per Unit equal to the
price per Unit that the Employee originally paid for such unvested Units, and
(ii) to purchase the then vested Units for a price equal to the fair market
value of such Units. If the Company decides to exercise this option to purchase,
it shall give written notice to that effect to Employee, and the sale and
purchase shall be consummated within thirty (30) days thereafter.
(b) DETERMINATION OF FAIR MARKET VALUE OF VESTED UNITS. The
value of Employee's vested Units shall be determined by agreement between
Employee and the Company. Should the parties be unable to agree on a value or
otherwise fail to make any such determination within thirty (30) days of the
notice of exercise of the Company's option to purchase, then the period for
purchasing the Units shall be extended to include a reasonable amount of time
for appraisal and closing, and the value shall be determined by an independent
appraiser selected by both Employee and the Company. The cost of the appraisal
shall be borne equally by Employee and the Company.
(c) LAPSE OF PURCHASE OPTION. The Company's right to
repurchase Units hereunder shall lapse on November 1, 2005. After that date, if
Employee desires to sell or otherwise transfer any of Employee's Units, then
Employee shall first give written notice thereof to the Company. The notice
shall name the proposed transferee and state the number of Units to be
transferred, the proposed consideration, and all other terms and conditions of
the proposed transfer. For thirty (30) days following receipt of such notice,
the Company shall have the option to purchase all (but not less than all) of the
Units specified in the notice at the price and upon the terms set forth in such
notice. In the event of a gift, property settlement or other transfer in which
the proposed transferee is not paying the full price for the shares, the price
shall be deemed to be the fair market value of the Units as determined under
Paragraph 6(b) above.
7. COVENANT NOT TO COMPETE. Upon the termination of Employee's
employment with the Company, Employee agrees that Employee will not, directly or
indirectly, own, manage, join, control, be employed by, or participate in the
ownership, management, control of, or act as a consultant to, any business that
is competitive to the business of the Company, without first obtaining the
written consent of the Company.
The Company is currently actively involved in the production and
marketing of online publishing services. Any electronic media product which is
editorially similar to the Company's online publishing services and which
derives its revenues from the same commercial sources as the Company's
electronic media product shall be deemed competitive. As the Company actively
creates new media products, these shall also be included in the listing of
competitive activities. This covenant not to compete will continue for one (1)
year after termination from employment, and shall apply in all counties, states
and countries in which the Company or its affiliates do business.
4.
<PAGE> 5
8. TRADE SECRETS.
(a) The Company and Employee acknowledge and agree that while
Employee is employed by the Company, and in the course of performing his duties
as set forth above, Employee shall have access to and become acquainted with
information concerning the operation of the Company. This information includes,
but is not limited to, subscription and advertiser lists as well as financial,
personnel, sales, planning, artistic, editorial and other information that is
owned by the Company and regularly used in the operation of the Company's
business. This information constitutes the Company's trade secrets.
(b) Employee agrees that Employee shall not disclose any such
trade secrets, directly or indirectly, to any other person or use them in any
way, either while Employee is employed by the Company or at any other time
thereafter, except as is required in the course of Employee's employment for the
Company.
9. COMPETITIVE ACTIVITIES. Employee agrees that, while Employee is
employed by the Company, Employee will not, directly or indirectly, own, manage,
join, control, be employed by, or participate in the ownership, management,
control of, or act as a consultant to, any business that is directly competitive
to the business of the Company, without first obtaining the written consent of
the Company.
The Company is currently actively involved in the production and
marketing of online publishing services. Any electronic media product which is
editorially similar to the Company's online publishing services and which
derives its revenues from the same commercial sources as the Company's
electronic media product shall be deemed competitive. As the Company actively
creates new media products, these shall also be included in the listing of
competitive activities.
10. OWNERSHIP OF WORK PRODUCT.
(a) Employee and the Company agree that, while Employee is
employed by the Company, all intellectual properties, including but not limited
to, all art, drawings, ideas, concepts, themes, inventions, designs,
improvements, and discoveries conceived, created, developed, or written by
Employee, either individually or jointly in collaboration with others, pursuant
to this agreement, shall belong to and be the sole and exclusive property of the
Company, unless otherwise agreed to in writing by the Company.
(b) Employee and the Company further agree that all rights in
all intellectual properties prepared by Employee pursuant to this agreement,
including patent and copyrights applicable to any of the intellectual properties
described in subparagraph (a) above, shall belong exclusively to the Company,
shall constitute "works made for hire," and shall be assigned promptly by
Employee to the Company, unless otherwise agreed to in writing by the Company's
Manager. Employee agrees to assist the Company in obtaining patents on all such
inventions, designs, improvements, and discoveries that are patentable, or
copyright registration on all such works of creation that are copyrightable, and
shall execute all patent or copyright registration, vest the Company with full
and exclusive title, and protect against infringement by others.
5.
<PAGE> 6
11. ENTIRE AGREEMENT. This agreement supersedes all other
agreements, either oral or in writing, between the Company and Employee with
respect to the employment of Employee by the Company. It contains all of the
agreements between Employee and the Company with respect to that employment in
any matter whatsoever. Employee and the Company acknowledge that no
representations, inducements, promises, or agreements, orally or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are not
contained in this agreement, and that no other agreement, statement or promise
not contained herein shall be valid or binding on either party. Any modification
of this agreement will be effective only if it is in writing and signed by both
parties.
12. COMPULSORY ARBITRATION. Any controversy or claim arising
out of or relating to this agreement, or the breach thereof, shall be settled by
arbitration in accordance with the rules of the American Arbitration
Association, and any judgment on the award rendered may be entered in any court
having jurisdiction.
13. NOTICES. Any notices which are required to be given by
this agreement shall be delivered in writing by personal delivery, by fax, or by
mail, or by certified mail, return receipt requested. Mailed notices shall be
addressed to the parties at the addresses listed in the first paragraph of this
agreement, but each party may change the address for receipt of this notice by
delivering written notice to the other party in accordance with this paragraph.
Notices delivered personally shall be deemed communicated as of actual receipt;
mailed notices shall be deemed communicated as of three days after the date of
mailing.
14. GOVERNING LAW. This agreement shall be governed by and
construed in accordance with the laws of the State of California.
15. SEVERABILITY. If any of the provisions of this Agreement
shall be declared by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remaining provisions shall continue in full force and effect.
Dated this 12th day of October, 1995.
HOTWIRED VENTURES LLC
BY: /s/ ANDREW L. ANKER /s/ JEFFREY SIMON
------------------------- ---------------------------
ANDREW L. ANKER JEFFREY SIMON
PRESIDENT
6.
<PAGE> 7
[LETTERHEAD Wired Ventures, Inc.]
June 20, 1996
Jeffrey Simon
6329 Chelton Dr.
Oakland, CA 94611
Dear Jeffrey:
As you know, the ownership of Wired Magazine, HotWired and their
related businesses have been restructured as set forth in the attached chart. We
believe that this new structure, which puts all equity ownership in a new parent
company, Wired Ventures, Inc., will benefit the company and its employees by,
among other things, allowing the use of broad-based equity incentive programs to
reward full-time regular employees. This letter outlines the terms of your
continuing employment.
You will continue to perform your duties and responsibilities as CFO
and Secretary at Wired Ventures, Inc. (the "Company"). In that capacity, we
expect you to devote your full time and best efforts to the performance of your
duties and to abide by the Company's policies and procedures.
As a result of the restructuring, your existing equity interest was
converted to shares of Series A Preferred Stock of Wired Ventures, Inc.
("Conversion Shares"). The details of that conversion are described in the
Information Statement sent to you previously. The 20,216 Conversion Shares
representing your former limited partnership or limited liability company units
are subject to a repurchase option in favor of the Company, which lapses in
accordance with the schedule and procedure attached as Exhibit A.
We have implemented an Equity Incentive Plan to reward you for your
contribution to the success of our business. Upon execution of this letter, you
will be offered the opportunity to participate in the Equity Incentive Plan. The
details of your new equity participation in Wired Ventures are described in the
attached stock option grant(s). The option(s) will be subject to the terms and
conditions of the Equity Incentive Plan.
You are eligible to continue your participation in the Wired 401(k)
Plan under the terms of such Plan. In addition, you may continue participating
in Wired group insurance plans, subject to the requirements of the insurance
policies and Company practices. The restructuring will not affect the terms of
those plans and policies.
In our business, we receive and generate a great deal of confidential
information and proprietary material. All employees are required, both during
and after employment, to refrain from revealing or using such information and
materials for any purpose other than performing services for the Wired
companies, unless prior written authorization is obtained. You will be required
to sign the Company's Proprietary Information, Authorship and Inventions
Agreement. That document will further explain your rights and obligations
regarding confidential and proprietary information.
You agree not to engage in work activities for companies other than the
Wired companies without obtaining Wired's prior written approval as set forth in
the Proprietary Information, Authorship and Inventions Agreement.
Both you and the Company may terminate the employment relationship at
any time with or without cause or notice subject to the following terms and
conditions:
(1) If the Company terminates employment of Jeff Simon ("Employee"),
without cause within twelve (12) months following the effective
employment start date of 11/6/95, Employee will receive, as severance,
continued payment of his base salary through the end of such initial
12-month period (i.e., November 5, 1996). In addition, all
<PAGE> 8
accrued vacation, unreimbursed travel and business expenses will be
paid to Employee within sixty (60) days of the effectiveness of his
termination.
(2) If Employee resigns or his employment is terminated for cause, all
compensation and benefits will cease immediately; all accrued salary,
vacation, unreimbursed travel and business expenses and bonuses will be
paid, but Employee will receive no severance benefits. For purposes of
this Employment Agreement, "cause" shall mean misconduct, including:
(i) conviction of any felony or any crime involving moral turpitude or
dishonesty; (ii) participation in a fraud or act of dishonesty against
the Company; (iii) willful breach of the Company's policies; (iv)
intentional damage to the Company's property; (v) material breach of
this Employment Agreement or any subsequent agreement relating to the
subject matter hereof; or (vi) conduct by you which in the good faith
and reasonable determination of the Company demonstrates gross
unfitness to serve. Physical or mental disability shall not constitute
"cause".
The Company may also change your title, responsibilities, duties, salary and
benefits from time to time at its sole discretion. This at-will employment
relationship cannot be changed except in a written agreement signed by you and a
Company officer.
To ensure rapid and economical resolution of disputes or claims that
may arise from or relate to your employment relationship with the Company, and
in exchange for participation in the Equity Incentive Plan, any such disputes or
claims (including, but not limited to, all state and federal statutory and
discrimination claims) will be resolved by final and binding arbitration (rather
than by a court, jury, or administrative agency) conducted by the Judicial
Arbitration and Mediation Services/Endispute, Inc. ("JAMS") under the then
current rules of JAMS, in San Francisco.
This letter constitutes the entire statement of the terms of your
employment and it supersedes any prior agreements or representations concerning
your employment relationship, except as embodied in the Proprietary Information,
Authorship and Inventions Agreement and the Equity Incentive Plan referred to
above. It can only be modified in writing signed by you and a duly authorized
Company officer.
As always, your continuing employment is contingent upon your
eligibility to work in the United States.
To confirm your acceptance of these terms of employment, please sign
and date this letter, and return it to me within 5 business days of receipt.
Sincerely,
/s/ Jane Metcalfe
-------------------
Jane Metcalfe
President
Wired Ventures, Inc.
I UNDERSTAND AND AGREE TO THE TERMS SET FORTH ABOVE
/s/ Jeffrey Simon
___________________________
Jeffrey Simon
July 5, 1996
___________________________
Date
<PAGE> 1
Exhibit 10.13
OFFICE LEASE FORM
of the Building Owners and Managers Association of San Francisco
PARTIES
THIS LEASE, made this 21st day of June, 1996, between GORR PARTNERS,
LLC, a California limited liability company, Landlord, and WIRED VENTURES, INC.,
a Delaware corporation, Tenant.
WITNESSETH:
1. PREMISES. Landlord hereby leases to Tenant and Tenant hereby hires
from Landlord those certain premises (hereinafter called "premises") outlined in
red on Exhibit A attached hereto and by this reference made a part hereof, said
premises being situated on the second floor of that certain building
(hereinafter called "building") known as 660 Third Street, San Francisco,
California.
Said letting and hiring is upon and subject to the terms, covenants and
conditions herein set forth and Tenant covenants as a material part of the
consideration for this Lease to keep and perform each and all of said terms,
covenants and conditions by it to be kept and performed and that this Lease is
made upon the condition of such performance.
2. PURPOSE. The premises shall be used for general office purposes and
for no other use or purpose without the prior written consent of Landlord.
3. TERM. The term of this Lease shall be for the period from the Lease
Commitment Date to the Lease Expiration Date ("Lease Term") unless earlier
terminated or extended according to the terms of this Lease. See Addendum.
4. POSSESSION. If Landlord, for any reason whatsoever, cannot deliver
possession of the said premises to Tenant at the commencement of the term
hereof, this Lease shall not be void or voidable except as set forth herein, nor
shall Landlord be liable to Tenant for any loss or damage resulting therefrom,
but in that event there shall be a proportionate reduction of rent covering the
period between the commencement of said term and the time when Landlord can
deliver possession. See Addendum. Should Landlord tender possession of the
premises to Tenant prior to the date specified for the commencement of the term,
and Tenant accepts such prior tender, such prior occupancy shall be subject to
all terms, covenants, and conditions of this Lease, including the payment of
rent. No delay in delivery of possession shall operate to extend the term
hereof. Within 10 days after written request from Landlord, Tenant shall execute
and return to Landlord an acknowledgment of the commencement date of the term of
this lease. See Addendum.
1.
<PAGE> 2
5. RENT.
(a) On or before the first business day of each calendar month
during the term hereof Tenant shall pay to Landlord, as minimum monthly rent for
the premises, the sum specified in the Basic Lease Information. The minimum
monthly rent for any partial month shall be prorated at the rate of 1/30 of the
minimum monthly rent per day.
Said rent shall be paid by Tenant to Landlord, in advance, without
deduction or offset, in lawful money of the United States of America at 290 San
Bruno Avenue, San Francisco, CA 94103, San Francisco, California, or to such
other person or at such other place as Landlord may from time to time designate
in writing.
(b) All charges and other amounts of any kind payable by
Tenant to Landlord pursuant to this Lease shall be deemed additional rent.
Landlord shall have the same remedies for default in the payment of additional
rent as for default in the payment of basic rent. Basic rent and additional rent
are collectively sometimes hereinafter referred to as rent.
(c) All rent payable by Tenant to Landlord hereunder, if not
received by Landlord within five (5) days of the date when due, shall bear
interest from the due date until paid at the publicly announced prime rate or
reference rate charged on such due date by the San Francisco Main Office of bank
of America, N.T. & S.A. (or any successor bank) for short term, unsecured loans
to its most creditworthy borrowers, plus four percent (4%) per annum, but in no
event shall such interest exceed the maximum rate permitted by law. Landlord's
acceptance of any interest payments shall not constitute a waiver of Tenant's
default with respect to the overdue amount or prevent Landlord from exercising
any of the rights and remedies available to Landlord under this Lease or by law.
6. RENTAL ADJUSTMENT.
(a) In addition to the monthly rent provided for in Paragraph
5 hereof, Tenant shall pay to Landlord the sums set forth in the following
subparagraphs. Tenant's percentage share as set forth below has been calculated
by dividing the number of square feet of rentable area in the Premises by the
number of square feet of rentable area in the building. In the event the
rentable area of the building is changed, the Tenant's percentage share shall be
appropriately adjusted. Rentable area shall be based upon the Building Owners
and Managers Association International (BOMAI) standard method of floor
measurement for office buildings. Tenant hereby approves and accepts Landlord's
calculation of Tenant's current percentage share as set forth below.
(b) TAX INCREASES AND ASSESSMENTS. Subject to the terms of the
Addendum, Tenant shall pay to Landlord an amount equal to Tenant's percentage
share as specified in the Basic Lease Information of any increase in real
property taxes and assessments or other fees or charges of whatsoever kind or
character imposed by a governmental agency which may be levied on the land and
building of which the premises are a part and personal property taxes levied on
personal property of Landlord used in the operation of said land and building
above the amount
2.
<PAGE> 3
of such taxes levied and assessed for the fiscal tax year ending June 30, 1997,
either by way of increase in the rate or in the assessed valuation of said land
and building or by imposition of any such charges by ordinance or statute of any
authority having jurisdiction. For the purposes of the (a) real and personal
property taxes shall include, without limitation, taxes of every kind and nature
levied and assessed in lieu of or in substitution for existing or additional
real or personal property taxes on said land and building as well as any form of
assessment, license, fee, levy, penalty, or tax (other than inheritance or
estate taxes), imposed by any authority having the direct or indirect power to
tax, including any city, county, state, or federal government, or any school,
agricultural, lighting, drainage, or other improvement district, as against any
legal or equitable interest of Landlord in the premises or in the real property
of which the premises are a part, or as against Landlord's right to rent or
other income therefrom, or as against Landlord's business of leasing the
premises. In addition, Tenant shall pay one hundred per cent (100%) of any
increase in taxes or assessments of whatsoever kind and nature (including,
without limitation, all personal property taxes) caused by improvements or
installations made by Tenant to the premises at any time during the term hereof
after the lease Commencement Date. In the event said taxes or assessments are
charged to or paid or payable by Landlord, Tenant forthwith upon demand
therefore, shall reimburse Landlord for all amounts of such taxes or assessments
chargeable against Tenant pursuant to this subparagraph (b) and paid by
Landlord. See Addendum.
(c) OPERATING EXPENSE INCREASES. Tenant shall pay to Landlord,
at the times hereinafter set forth, an amount equal to Tenant's percentage share
as specified in the Basic Lease Information of any increase in direct expenses
paid or incurred by Landlord on account of the operation or maintenance of the
building above such direct expenses paid or incurred by Landlord during the Base
Year. "Base Year" as used in this subparagraph (b) shall mean the calendar year
1997. "Direct expenses" as used herein shall include all direct costs of
operation and maintenance as determined by standard accounting practices as set
forth in the Building Owners and Managers Association International (BOMAI)
chart of accounts from time to time (excluding, however, any and all taxes of
the nature set forth in subparagraph (b) above) and shall include the following
by way of illustration but not limitation: the cost of contesting by appropriate
proceeding the amount or the validity of any of the aforementioned taxes or
fees; water and sewer charges; insurance premises; license, permit and
inspection fees; charges of heat, power and steam; janitorial services; labor;
supplies; materials, equipment and tools; management expenses and the cost of
capital improvements made by Landlord to the Building that are intended to
reduce other Operating Expenses or that are required under any governmental law
or regulation that is not applicable to the Building as of the date of
Commencement of this Lease, such cost or allocable portion thereof to be
amortized over such useful life of the improvement together with interest on the
unamortized balance at the rate that was paid by landlord on funds borrowed for
the purpose of constructing or installing such capital improvements, or, if
landlord does not borrow such funds, would have been paid had the Landlord
borrowed funds for such purpose but in no event shall such interest rate exceed
the maximum rate permitted by law. "Direct expenses" as used herein shall not
include depreciation on the building, real estate broker's commissions, tenant
improvements, interest and capital items other than those referred to above. In
the event the Building is not fully occupied during any Expense Year or in the
event the entire Building is not provided with Building standard
3.
<PAGE> 4
services during any Expense Year, an adjustment shall be made by Landlord in
computing Operating Expenses for such Expense Year so that Operating Expenses
shall be computed as though 95% of the entire Building had been occupied and 95%
of the entire Building had been provided with Building standard services during
such year (or such Operating Expenses shall be computed in accordance with
actual occupancy or actual provision of Building standard services if such
respective amounts shall exceed 95%); provided, however, that in no event shall
the aggregate amount of Operating Expenses collected by Landlord from all
Tenants in the Building exceed the actual Operating Expenses for said year. See
Addendum.
7. SECURITY DEPOSIT. Simultaneously with the execution of this lease,
Tenant shall deposit with Landlord the sum of $42,510.00, of which sum
$18,155.31 shall be payment of the first month's rent and the balance thereof,
namely, $24,354.69, shall be held by Landlord as security for the faithful
performance by Tenant of all the terms, covenants and conditions of this lease.
Provided that at the end of the term Tenant shall have delivered up the Premises
to Landlord, broom clean, and in the same condition as at the commencement date,
reasonable wear excepted, said sum held as security shall be returned to Tenant.
No interest shall be payable thereon and Landlord shall not be required to keep
said sum in a separate account. If Tenant fails to pay any Rent or other charges
due hereunder, or otherwise defaults with respect to any provision of this
Lease, Landlord may at its option apply or retain all or any portion of the
deposit for the payment of any Rent or other charge in default or the payment of
any other sum to which landlord may become obligated by Tenant's default, or to
compensate Landlord for any loss damage which Landlord may suffer thereby. If
Landlord so uses or applies all or any portion of the deposit, then within 10
days after demand therefor Tenant shall deposit cash with Landlord in an amount
sufficient to restore the deposit to the full amount thereof, and Tenant's
failure to do so shall be a material breach of this Lease. Landlord's
application or retention of the deposit shall not constitute a waiver of
Tenant's default to the extent that the deposit does not fully compensate
Landlord for all losses or damages incurred by Landlord in connection with such
default and shall not prejudice any other rights or remedies available to
Landlord under this Lease or by law. Within thirty (30) days after termination
of this Lease, Landlord shall return the unapplied portion of the security
deposit to the Tenant.
No security or guaranty which may now or hereafter be furnished
Landlord for the payment of the rent herein reserved or for performance by
Tenant of the other covenants or conditions of this Lease shall in any way be a
bar or defense to any action in unlawful detainer, or for the recovery of the
premises, or to any action which Landlord may at any time commence for a breach
of any of the covenants or conditions of this Lease.
8. USES PROHIBITED. Tenant shall not do or permit anything to be done
in or about the premises nor bring or keep anything therein which will in any
way increase the rate of or affect any fire or other insurance upon the building
or any of its contents or cause a cancellation of any insurance policy covering
said building or contents. Tenant shall not do or permit anything to be done in
or about the premises which will in any way unreasonably obstruct or interfere
with the rights of other tenants or occupants of the building or injury or annoy
them, or use or allow the premises to be used for any residential, immoral,
unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit
any nuisance in, on or about the premises.
4.
<PAGE> 5
No loudspeakers or other similar device, system or apparatus which can be heard
or experienced outside the premises shall, without the prior written approval of
Landlord, be used in or at the premises. Tenant shall not commit or suffer to be
committed any waste in or upon the premises.
See Addendum.
9. COMPLIANCE WITH LAW. Tenant shall not use or permit anything to be
done in or about the premises which will in any way conflict with any law,
statute, ordinance or governmental rule, regulation or requirement now in force
or which may hereafter be enacted or promulgated. Tenant, at its sole cost and
expense, shall promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted relating to or
affecting the Tenant's use of occupancy of the premises, excluding structural
changes not related to or affected by Tenant's improvements or acts. The
judgment of any court of competent jurisdiction or the admission of Tenant in
any action against Tenant, whether Landlord be a party thereto or not, that
Tenant has violated any law, statute, ordinance or governmental rule, regulation
or requirement shall be conclusive of that fact as between Landlord and Tenant.
Further, Tenant shall at all times and in all respects comply with all federal,
state and local laws, ordinances and regulations ("Hazardous Material Laws")
relating to hygiene, environmental protection, or the presence, use generation,
storage, transportation or disposal of any toxic or hazardous substances, as the
same may be amended from time to time, including without limitation, obtaining
any required permits or licenses, and Tenant shall handle, treat, manage and
dispose of any and all toxic or hazardous substances in strict conformity with
all manufacturers' instructions and prudent business practices. See Addendum.
10. ALTERATIONS. After the Commencement Date, Tenant shall not make or
suffer to be made any alterations, additions or improvements to or of the
premises (see Addendum) or any part thereof without the written consent of
Landlord first had and obtained which shall not be unreasonably withheld or
delayed. Any alterations, additions, or improvements to or of said premises,
including without limitation any partitions, movable or otherwise, and all
carpeting, shall at once become a part of the realty and belong to Landlord.
Movable furniture, equipment and trade fixtures shall remain the property of
Tenant. If Landlord consents to the making of any alterations, additions or
Improvements to the premises by Tenant, the same shall be made by Tenant at
Tenant's sole cost and expense and any contractor or person selected by Tenant
to make the same must first be approved of in writing by Landlord which shall
not be unreasonably withheld or delayed, subject to Paragraph 9 of the Addendum.
Tenant's obligation to remove any alterations, additions, improvements, fixtures
and/or personal property and to repair any damage from such removal shall
survive the termination of this Lease.
Construction of the alterations, additions, or improvements shall be
completed in accordance with drawings and specifications approved in advance in
writing by Landlord, shall be carried out in a good and workmanlike manner, and
shall comply with all applicable requirements of governmental authorities and
such additional conditions as Landlord may reasonably impose.
5.
<PAGE> 6
11. REPAIR. By entry hereunder upon the commencement of the term
hereof, Tenant accepts the premises as being in good, sanitary order, condition
and repair. Tenant, at Tenant's sole cost and expense, shall keep the premises
and every part thereof in good condition and repair, damage thereto by fire,
earthquake, act of God or the elements not caused by Tenant's negligent or
willful act excepted, Tenant hereby waiving all rights to make repairs at the
expense of the Landlord as provided by law, statute or ordinance now or
hereafter in effect. Upon the expiration or sooner termination of the term
hereof, Tenant shall surrender the premises to Landlord in the same condition as
when received, ordinary wear and tear and damage by fire, earthquake, act of God
or the elements excepted, unless caused by Tenant's negligent or willful act. It
is specifically understood and agreed that Landlord has no obligation and has
made no promises to alter, remodel, improve, repair, decorate or paint the
premises or any part thereof and that no representations respecting the
condition of the premises or the building have been made by Landlord to Tenant
except as specifically set forth in Exhibit B attached hereto. There shall be no
abatement of Rent and no liability to Landlord by reason of any injury or to
interference with Tenant's business arising from the making of any repair or
performance of any maintenance obligations by the Landlord, except for any
damages caused by Landlord's negligence or intentional acts but in no event any
consequential damages.
12. ABANDONMENT. Tenant shall not abandon the premises at any time
during the term hereof, and if Tenant shall abandon or surrender the premises or
be dispossessed by process of law, or otherwise, any personal property belonging
to Tenant and left on the premises shall be deemed to be abandoned, at the
option of Landlord.
13. LIENS. Tenant shall keep the premises and the building and the land
upon which the building is situated free from any liens arising out of any work
performed, materials furnished or obligations incurred by Tenant. Tenant shall
in the event of the filing of any such lien, post any bond required to release
the premises therefrom. Should Tenant fail to remove any such lien within five
(5) business days after notice to do so from Landlord, Landlord may, in addition
to any other remedies, record a bond pursuant to California Civil Code Section
3143 and all amounts incurred by Landlord in so doing shall become immediately
due and payable by Tenant to Landlord as additional rent. Landlord shall have
the right to post and keep posted on the Premises any notices that may be
provided by law or which Landlord may deem to be proper for the protection of
Landlord, the Premises and the building from such lines.
14. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not mortgage, pledge, hypothecate or encumber
this Lease or any interest therein. Tenant shall not assign this Lease or sublet
or suffer any other person (the agents and servants of Tenant excepted) to
occupy or use the Premises, or any part hereof, or sublet any right or privilege
appurtenant thereto without the prior written consent of Landlord first had and
obtained, which consent shall not be unreasonably withheld or delayed.
Landlord's consent to one assignment, subleasing or occupancy shall not be
deemed to be a consent to any subsequent assignment, subleasing or occupancy.
See Addendum.
6.
<PAGE> 7
(b) Provided further and notwithstanding anything herein
before set forth: In the event that at any time or from time to time during the
term of this Lease, Tenant desires to sublet all or any part of the Premises,
Tenant shall notify the Landlord in writing (the "Sublet Notice") of the terms
of the proposed subletting, and the area so proposed to be sublet and shall give
Landlord the right to sublet from Tenant such space (the "Sublet Space") on the
same terms as those contained in the Sublet Notice. See Addendum.
If Landlord fails to exercise its option and Tenant desires to complete
the proposed sublease, Tenant shall deliver an executed copy of such sublease to
Landlord in order to obtain its consent as required in paragraph 14(a) above.
See Addendum. If Landlord consents to a sublease, then such sublease shall be
subject to and made upon the following terms:
(i) any such sublease shall be subject to the terms
of this Lease and the term thereof may not extend beyond the expiration of the
term of this Lease;
(ii) no subtenant shall have a right to further
sublease its premises. If Landlord fails to exercise such option, and Tenant
fails to consummate a sublease with a third party within 60 days after the
expiration of Landlord's option period on the same terms and conditions
contained in the Sublet Notice, Tenant shall be required to deliver a new Sublet
Notice to Landlord and comply with the terms and conditions set forth above
before any further subletting shall be permitted.
(c) Regardless of Landlord's consent, no subletting nor
assignment shall release Tenant of Tenant's obligation or alter the primary
liability of Tenant to pay rent and perform other obligations of Tenant under
this lease.
(d) In no event shall Tenant assign this Lease or sublet the
premises or any portion thereof to any then existing or prospective tenant (with
whom Landlord has negotiated in the last six months) of said building.
(e) Tenant shall pay Landlord's reasonable costs not to exceed
$1000 incurred in connection with Tenant's request to assign this lease or
sublet the premises, regardless whether or not the Landlord consents to the
proposed transfer.
(f) If Tenant is a corporation or a partnership, the transfer
(as a consequence of a single transaction or any number of separate
transactions) of thirty-five percent (35%) or more of the beneficial ownership
interest of the voting stock of Tenant issued and outstanding as of the date
hereof or of the partnership interests in Tenant, as the case may be, shall
constitute an assignment hereunder for which such consent is required. See
Addendum.
15. INDEMNIFICATION OF LANDLORD. Tenant agrees to indemnify and defend
Landlord against and save Landlord harmless from any and all loss, cost,
liability, damage and expense, including without limitation penalties, fines and
reasonable attorneys fees and costs, except as caused by the negligent or
intentional acts of Landlord, its employees or agents, incurred in connection
with or arising from (1) any default by Tenant in the observance or performance
of
7.
<PAGE> 8
any of the terms, covenants or conditions of this Lease on Tenant's part to be
observed or performed, or (2) the use or occupancy or manner of the use or
occupancy of the Premises by Tenant or any other person or entity claiming
through or under Tenant, including without limitation, the presence, use,
generation, storage, transportation or disposal of any toxic or hazardous
substances, or (3) the condition of the Premises after the Commencement Date and
during the term of the Lease or any occurrence or happening on the Premises from
any cause whatsoever, or (4) any acts, omissions or negligence of Tenant or of
Tenant's agents, contractors, employees, subtenants, licensees, invitees or
visitors or any such person or entity, in, on or about the Premises or the
Building, either prior to the commencement of, during, or after the expiration
of the term, including without limitation any acts, omissions or negligence in
the making or performing of any alterations. Tenant further agrees to indemnify,
defend and save harmless Landlord's agents from and against any and all loss,
cost, liability, damage and expense, incurred in connection with or arising from
any claims by any persons by reason of injury to persons or damage to property
occasioned by any use, occupancy condition, occurrence, happening, act, omission
or negligence referred to in the preceding sentence. In the event any action or
proceeding is brought against Landlord for any claim against which Tenant is
obligated to indemnify Landlord hereunder, Tenant upon notice from Landlord
shall defend such action or proceedings at Tenant's sole expense by counsel
approved by Landlord, which approval shall not be unreasonably withheld or
delayed. The provisions of this Section 15 shall survive the expiration or
earlier termination of this lease.
16. INSURANCE. Tenant agrees to keep in force during the term hereof,
at Tenant's expense, public liability and property damage insurance with
combined single limits in the amount of not less than $2,000,000. Said policy
shall name Landlord as an additional insured, and shall insure Landlord's
contingent liability as respects acts, or omissions of Tenant, shall be issued
by an insurance company licensed to do business in the state where the premises
are located; and shall provide that said insurance shall not be cancelled or
amended unless thirty (30) days' prior written notice to Landlord is first
given. Said policy or a certificate thereof shall be delivered to landlord by
Tenant prior to the commencement of the term and each renewal of such insurance.
Tenant and Landlord hereby waives all rights of subrogation against each other
to which any insurance carrier may at any time become entitled under any policy
of insurance carried by such other party.
17. UTILITIES. Subject to the provisions of the Addendum, Landlord
shall furnish to the premises, during reasonable hours of generally recognized
business days, to be determined by Landlord, and subject to the rules and
regulations of the building, water and electricity suitable for the use of the
premises for general office purposes, including without limitation, use of the
premises for on-line computer operations (provided, however, that Landlord shall
be under no obligation to provide electricity in an amount exceeding the
capacity of the electrical panels described in Paragraph 1(d) of the Work
Letter) and heat required in Landlord's judgement for the comfortable use and
occupation of the premises for such purposes, janitorial service, and elevator
service. Landlord shall not be liable for, and Tenant shall not be entitled to
any abatement or reduction of rent by reason of Landlord's failure to furnish
any of the foregoing when such failure or delay is caused by accident, breakage,
repairs, strikes, lockouts or other labor disturbances or labor disputes of any
character, or is caused directly or indirectly by the
8.
<PAGE> 9
limitation, curtailment, rationing or restrictions on use of water, electricity,
gas or any other form of energy serving the premises or the building, or by any
other cause, similar or dissimilar, beyond the reasonable control of Landlord.
Landlord shall not be liable under any circumstances for loss of business or
injury to property, however occurring, through or in connection with or
incidental to failure to furnish any of the foregoing. Tenant shall pay and
provide for all services and utilities not furnished by Landlord.
Tenant will not, without the written consent of Landlord, use any
apparatus or device in the premises which will in any way increase the amount of
cooling capacity or water usually furnished or supplied for use of the premises
for general office purposes or connect with or water pipes, any apparatus or
device for the purpose of using water. If Tenant shall require water in excess
of that customarily furnished or supplied to other tenants of the building for
use of their premises for general office purposes, Tenant shall first procure
the consent of Landlord, which Landlord may refuse, to the use thereof and
Landlord may cause a water meter to be installed in the premises so as to
measure the amount of excess water consumed by Tenant. The cost of any such
meter and of the installation, maintenance and repair thereof shall be paid by
Tenant and Tenant agrees to pay to Landlord promptly upon demand therefor the
cost of all such excess water consumed, as shown by said meters, at the rates
charged for such services by the local public utility furnishing the same, plus
any additional expense incurred in keeping account of the excess water so
consumed.
18. PERSONAL PROPERTY AND OTHER TAXES. Tenant shall pay, before
delinquency, any and all taxes levied or assessed and which become payable
during the term hereof upon Tenant's equipment, furniture, fixtures and other
personal property located in the premises, including carpeting installed by
Tenant even though said carpeting has become a part of the leased premises; and
any and all taxes or increases therein levied or assessed on Landlord or Tenant
by virtue of alterations, additions or improvements to the premises made by
Tenant or Landlord at Tenant's request after the Lease Commencement Date. In the
event said taxes are charged to or paid or payable by Landlord, Tenant,
forthwith upon demand therefore, shall reimburse Landlord for all of such taxes
paid by Landlord.
19. RULES AND REGULATIONS. Tenant shall faithfully observe and comply
with the rules and regulations printed on or annexed to this Lease and all
modifications of and additions thereto applicable to all tenants of the building
from time to time put into effect by Landlord of which Tenant shall have notice,
provided that such rules and regulations do not unreasonably interfere with
Tenant's use of the premises as permitted herein. Landlord shall not be
responsible to Tenant for the nonperformance by any other tenant or occupant of
the building of any of said rules and regulations.
20. HOLDING OVER. If Tenant holds possession of the premises after the
term of this lease, Tenant shall, (at option of Landlord to be exercised by
Landlord's giving written notice to Tenant and not otherwise) become a Tenant
from month to month upon the terms and conditions herein specified, so far as
applicable, at a monthly rental of 140% of the last month's rent payable in
advance, in lawful money, and shall continue to be such Tenant until thirty (30)
days after Tenant shall have given to Landlord or Landlord shall have given to
Tenant a written
9.
<PAGE> 10
notice of intent to terminate such monthly tenancy. Unless Landlord shall
exercise the option hereby given him, Tenant shall be a Tenant at sufferance
only, whether or not Landlord shall accept any rent from Tenant while Tenant is
so holding over.
21. SUBORDINATION. This Lease shall be subject and subordinate at all
times to all ground or underlying leases which may now exist or hereafter be
executed affecting the building and/or the land upon which the building is
situated and to the lien of any mortgages or deeds of trust in any amount or
amounts whatsoever now or hereafter placed on or against said building and/or
land or on or against the Landlord's interest or estate therein or on or against
any ground or underlying lease without the necessity of having further
instruments on the part of Tenant to effectuate such subordination.
Notwithstanding the foregoing, Tenant covenants and agrees to execute and
deliver, upon demand, such further instruments evidencing such subordination of
this Lease to such ground or underlying leases and to the lien of any such
mortgages or deeds of trust as may be required by Landlord. In the event of
termination of any ground or underlying lease, or in the event of foreclosure or
exercise of any power of sale under any mortgage or deed of trust superior to
this Lease or to which this Lease is subject or subordinate, upon Tenant's
attornment to the Lessor under such ground or underlying lease or to the
purchaser at any foreclosure sale or sale pursuant to the exercise of any power
of sale under any mortgage or deed of trust, this Lease shall not terminate and
Tenant shall automatically be and become the Tenant of said Lessor under such
ground or underlying lease or to said purchaser, whichever shall make demand
therefore. See Addendum.
22. ENTRY BY LANDLORD. Landlord reserves and shall upon twenty-four
hours prior notice, except for emergencies, have the right to enter the premises
to inspect the same, to supply janitor service and any other service to be
provided by Landlord to Tenant hereunder, to submit the premises to prospective
purchasers or tenants, to post notices of nonresponsibility, and to alter,
improve or repair the premises and any portion of the building without abatement
of rent and may for that purpose erect scaffolding and other necessary
structures where reasonably required by the character of the work to be
performed, always providing the entrance to the premises shall not be blocked
thereby and further providing that the business of Tenant shall not be
interfered with unreasonably. Tenant hereby waives any claim for damages for any
injury or inconvenience to or interference with Tenant's business, any loss of
occupancy of quiet enjoyment of the premises, and other loss occasioned by such
entry unless caused by Landlord's negligence or intentional wrongful acts
excluding consequential damages. For each of the aforesaid purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors,
in, upon and about the premises excluding Tenant's vaults and safes, and
Landlord shall have the right to use any and all means which Landlord may deem
proper to open said doors in an emergency in order to obtain entry to the
premises, and any entry to the premises obtained by Landlord by any of said
means, or otherwise, shall not under any circumstances be construed or deemed to
be a forcible or unlawful entry into or a detainer of the premises or an
eviction of Tenant from the premises or any portion thereof.
23. INSOLVENCY OR BANKRUPTCY. Either (a) the appointment of a receiver
to take possession of all or substantially all of the assets of Tenant or (b)
any action taken or suffered by Tenant under any insolvency, bankruptcy or
reorganization act, other than an assignment
10.
<PAGE> 11
pursuant to the terms of Paragraph 14 of the Addendum, shall constitute a breach
of this Lease by Tenant. Upon the happening of any such event this lease shall
terminate five (5) days after written notice of termination from Landlord to
Tenant. Except as set forth in Paragraph 14 of the Addendum, in no event shall
this Lease be assigned or assignable by reason of any voluntary or involuntary
bankruptcy proceeding nor shall any rights or privileges hereunder be an asset
of Tenant in any bankruptcy, insolvency or reorganization proceedings. See
Addendum.
24. DEFAULT. See Addendum. In the event of any breach or default of
Lease by Tenant, then Landlord, besides any other rights and remedies of
Landlord at law or equity, shall have the right either to terminate Tenant's
right to possession of the premises and thereby terminate this Lease or have
this Lease continue in full force and effect with Tenant at all times having the
right to possession of the premises. Such property so removed may be stored in a
public warehouse or elsewhere at the cost and for the account of Tenant. Upon
such termination Landlord, in addition to any other rights and remedies
(including rights and remedies under Subparagraphs (1), (2) and (4) of
Subdivision (a) of Section 1951.2 of the California Civil Code of any amendment
thereto), shall be entitled to recover from Tenant the worth at the time of
award of the amount by which the unpaid rent for the balance of the term after
the time of award exceeds the amount of such rental loss that the Tenant proves
could be reasonably avoided. The worth at the time of award of the amount
referred to in subparagraphs (1) and (2) of Subdivision (a) of Section 1951.2 of
the California Civil Code shall be computed by allowing interest at the maximum
rate allowed by law. The worth at the time of the award of the amount referred
to in subparagraph (3) of Subdivision (a) of Section 1951.2 of the California
Civil Code shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of the award plus 1%.
Any proof by Tenant of the amount of rental loss that could be
reasonably avoided shall be made in the following manner: Landlord and Tenant
shall each select a licensed real estate broker in the business of renting
property of the same type and use of the premises and in the same geographic
vicinity and such two real estate brokers shall select a third licensed real
estate broker and the three licensed real estate brokers so selected shall
determine the amount of rental loss that could be reasonably avoided for the
balance of the term of this Lease after the time of award. The decision of the
majority of said licensed real estate brokers shall be final and binding upon
the parties hereto.
Should Landlord, following any breach or default of this Lease by
Tenant, elect to keep this Lease in full force and effect, with Tenant retaining
the right to possession of the premises (notwithstanding the fact the Tenant may
have abandoned the leased premises), then Landlord, besides the rights and
remedies specified in Section 1951.4 of the California Civil Code "(lessor may
continue lease in effect after lessee's breach and abandonment and recover rent
as it becomes due, if lessee has right to sublet or assign, subject only to
reasonable limitations)" and all other rights and remedies Landlord may have at
law or equity, shall have the right to enforce all of Landlord's rights and
remedies under this Lease. Notwithstanding ant such election to have this Lease
remain in full force and effect, Landlord may at any time thereafter elect to
terminate Tenant's right to possession of said premises and thereby terminate
this Lease for any previous breach or default which remains uncured, or for any
subsequent breach or default.
11.
<PAGE> 12
25. DESTRUCTION OR DAMAGE.
(a) In the event the Premises or a portion of the Building is
damaged by fire or other insured casualty, Landlord shall diligently repair the
same to the extent possible with the insurance proceeds received by Landlord,
subject to the provisions of this Section hereinafter set forth, if such repairs
can in Landlord's reasonable opinion be completed within 120 days after issuance
of a building permit therefor under the laws and regulations of federal, state
and local governmental authorities having jurisdiction thereof. In such event
this Lease shall remain in full force and effect except that if such damage is
not the result of the negligence or willful misconduct of Tenant or Tenant's
agents, contractors, employees, subtenants, licensees, invitees or visitors, an
abatement of basic rent shall be allowed Tenant for such part of the Premises as
shall be rendered unusable or inaccessible by Tenant in the conduct of its
business during the time such part is so unusable. Notwithstanding the
foregoing, if such damage shall occur during the final year of the term of this
Lease, Landlord shall not be obligated to repair such damage, but may instead
elect to terminate this Lease upon written notice given to Tenant within 30 days
after the date of such fire or other casualty, in which event this Lease shall
terminate as of the termination date specified in Landlord's notice.
(b) See Addendum.
(c) A total destruction of the Building automatically shall
terminate this lease. Landlord and Tenant acknowledge that this Lease
constitutes the entire agreement of the parties regarding events of damage or
destruction, and Tenant waives the provisions of California Civil Code Sections
1932(2) and 1933(4) and any similar statute nor or hereafter in force.
(d) If the Premises are to be repaired under this Section,
Landlord shall repair at its cost any injury or damage to the building itself,
and the initial improvements made by landlord pursuant to Exhibit B, Tenant
shall pay the cost of repairing or replacing all other improvements in the
Premises and Tenant's trade fixtures, furnishings, equipment and other personal
property.
26. EMINENT DOMAIN. If all or any part of the premises shall be taken
or appropriated by any public or quasipublic authority under the power of
eminent domain, and such taking will substantially impair Tenant's use of the
premises for more than 90 days, either party hereto shall have the right, at its
option, to terminate this Lease. If all of the building of which the premises
are a party shall be taken or appropriated by any public or quasi-public
authority under any power of eminent domain, Landlord may terminate this Lease.
In either of such events, Landlord shall be entitled to and Tenant upon demand
of Landlord shall assign to Landlord any rights of Tenant to any and all income,
rent, award, or any interest therein whatsoever excluding any award compensating
Tenant for relocation costs of personal property or equipment of Tenant which
may be paid or made in connection with such public or quasi-public use or
purpose, and Tenant shall have no claim against Landlord or the condemnor for
the value of any unexpired term of this Lease. If a part of the premises shall
be so taken or appropriated and neither party hereto shall elect to terminate
this lease, and rent thereafter to be paid shall be equitably reduced.
12.
<PAGE> 13
27. PLATS AND RIDERS. Clauses, plats and riders, if any, signed by
Landlord and Tenant and endorsed on or affixed to this lease are a part hereof.
28. SALE BY LANDLORD. See Addendum. In the event the original Landlord
hereunder, or any successor owner of the building, shall sell or convey the
Building, including an involuntary transfer and the owner shall assume
Landlord's obligations under the Lease, all liabilities and obligations on the
part of the original Landlord, or such successor owner, under this Lease,
accruing thereafter shall terminate, and thereupon all such liabilities and
obligations shall be binding upon the new owner. Tenant agrees to attorn to such
new owner. If any security be given by Tenant to secure the faithful performance
of all or any of the covenants of this Lease on the part of Tenant, Landlord
shall transfer and/or deliver the security, to the successor in interest of
Landlord, and thereupon Landlord shall be discharged from any further liability
in reference thereto. Except as set forth in this Paragraph 28, this Lease shall
not be affected by any such sale or conveyance.
29. ESTOPPEL CERTIFICATES. At any time and from time to time, upon not
more than ten (10) days prior request by Landlord, Tenant or Landlord shall
execute, acknowledge and deliver to the other party a statement certifying the
date of commencement of this Lease, stating that this Lease is unmodified and in
full force and effect (or if there have been modifications, that this Lease is
in full force and effect as modified and the date and nature of such
modifications) and the dates to which the rent has been paid, and setting forth
such other matters as may reasonably be requested by Landlord or Tenant.
Landlord and Tenant intend that any such statement delivered pursuant to this
paragraph may be relied upon by any mortgagee or the beneficiary of any Deed of
Trust or by any purchaser or prospective purchaser of the building.
30. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements to be
kept and performed by Tenant under any of the terms of this Lease shall be
performed by Tenant and Tenant's sole cost and expense and without any abatement
of rent except as otherwise provided herein. If Tenant shall fail to pay any sum
of money, other than rent, required to be paid by it hereunder or shall fail to
perform any other act on its part to be performed hereunder, and such failure
shall continue for ten (10) business days after notice thereof by Landlord,
Landlord may, but shall not be obligated to, and without waiving any default of
Tenant or releasing Tenant from any obligations of Tenant hereunder, make any
such payment or perform any such other act on Tenant's part to be made or
performed as in this lease provided. All sums so paid by the Landlord and all
necessary incidental costs, together with interest thereon at the rate of ten
percent (10%) per annum from the date of such payment by the Landlord, shall be
paid to landlord forthwith on demand, and Landlord shall have (in addition to
any other right or remedy of Landlord) the same rights and remedies in the event
of nonpayment thereof by Tenant as in the case of default by Tenant in payment
of rent.
31. ATTORNEY FEES. If as a result of any breach or default on the part
of Tenant under this Lease, Landlord uses the services of any attorney in order
to secure compliance with this Lease, Tenant shall reimburse Landlord upon
demand as additional rent for any and all attorneys' fees and expenses incurred
by Landlord, whether or not formal legal proceedings are instituted. Should
either party being action against the other party, by reason or of alleging the
13.
<PAGE> 14
failure of the other party to comply with any or all of its obligations
hereunder, whether for declaratory or other relief, then the party which
prevails in such action shall be entitled to its reasonable attorneys' fees and
expenses related to such action, in addition to all other recovery or relief. A
party shall be deemed to have prevailed in any such action (without limiting the
generality of the foregoing) if such action is dismissed upon the payment by the
other party of the sums allegedly due or the performance of obligations
allegedly not complied with, or if such party obtains substantially the relief
sought by it in the action, irrespective of whether such action is prosecuted to
judgment. In addition, if either party to this Lease becomes a party to or is
involved in any way in any action concerning this Lease or the Premises by
reason in whole or in part of any act, neglect, fault or omission of any duty by
the other party, its employees or contractors, the party subjected to said
involvement shall be entitled to reimbursement for any and all reasonable
attorneys' fees and costs.
32. SURRENDER OF PREMISES. The voluntary or other surrender of this
Lease by Tenant or mutual cancellation thereof shall not work a merger and, at
the option of Landlord, shall terminate all or any existing subleases or
subtenancies, or at the option of Landlord, may operate as an assignment to
Landlord of any or all such subleases or subtenancies.
33. WAIVER. The waiver by Landlord or Tenant of performance of any
term, covenant or condition herein contained shall not be deemed to be a waiver
of such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent acceptance of
rent hereunder by landlord shall not be deemed to be a waiver of any preceding
breach by Tenant of any term, covenant or condition of this Lease, other than
the failure of Tenant to pay the particular rent so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent.
34. NOTICES. All notices and demands which may or are required to be
given by either party to the other hereunder shall be in writing. All notices
and demands by Landlord to Tenant shall be delivered personally or sent by
United States certified or registered mail, postage prepaid, addressed to Tenant
at the premises, or at such other place as Tenant may from time to time by like
notice designate. All notices and demands by Tenant to Landlord shall be sent by
United States certified or registered mail, postage prepaid, addressed to
Landlord at 290 San Bruno Avenue, San Francisco, California 94103 or at such
other place as Landlord may from time to time by like notice designate.
35. NOTICE OF SURRENDER. At least sixty (60) days before the last day
of the term hereof, Tenant shall give to Landlord a written notice of intention
to surrender the premises on that date, but nothing contained herein or any
failure to give such notice shall be construed as an extension of the term
hereof or as consent of Landlord to any holding over by tenant.
36. DEFINED TERMS AND MARGINAL HEADINGS. The words "Landlord" and
"Tenant," as used herein shall include the feminine and neuter. If there be more
than one Tenant, the obligations hereunder imposed upon Tenant shall be joint
and several. The marginal headings and titles to the paragraphs of the Lease are
not a part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
14.
<PAGE> 15
37. TIME AND APPLICABLE LAW. Time is of the essence of this Lease and
each and all of its provisions. This Lease shall in all respects be governed by
the laws of the state in which the premises are located.
38. SUCCESSORS. Subject to the provisions of Paragraph 14 hereof, the
covenants and conditions herein contained shall be binding upon and inure to the
benefits of the heirs, successors, executors, administrators and assigns of the
parties hereto.
39. ENTIRE AGREEMENT. This Lease constitutes the entire agreement
between Landlord and Tenant and no promises or representations, express or
implied, either written or oral, not herein set forth shall be binding upon or
inure to the benefit of Landlord or Tenant. This Lease shall not be modified by
any oral agreement, either express or implied, and all modifications hereof
shall be in writing and signed by both Landlord and Tenant.
40. LATE CHARGE. In the event Tenant shall fail to pay any rents or
sums due hereunder within five (5) days of the due date herein provided, then
and in that event the amount so due and unpaid shall bear a late charge equal to
five percent (5%) of the amount due together with interest accruing from the
date due at the rate set forth in Paragraph 5(c) above, which late charge and
interest shall be payable forthwith upon demand. (The foregoing shall be in
addition to any other right or remedy of Landlord.)
41. NO DISCRIMINATION. Tenant agrees for Tenant and Tenant's heirs,
executors, successors and assigns and all persons claiming under or through
Tenant, and this Lease is made and accepted upon the following conditions; that
there shall be no discrimination against or segregation of any person or group
of persons on account of race, color, creed, sex, religion, marital status,
ancestry or national origin (whether in the use, occupancy, subleasing,
transferring, tenure or enjoyment of the Premises or otherwise) nor shall Tenant
or any person claiming through or under Tenant establish or permit any such
practice or practices of discrimination or segregation with reference to or
arising out of the use or occupancy of the Premises by Tenant or any person
claiming through or under Tenant.
15.
<PAGE> 16
42. ADDITIONAL PROVISIONS. The exhibits and addenda listed below are
incorporated by reference in this lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the
day and year first above written.
LANDLORD: TENANT:
GORR PARTNERS, a California limited WIRED VENTURES, INC., a Delaware
liability company corporation
By: /s/ Bernard Osher By: /s/ Jeff Simon
------------------------------- -----------------------------
Its: Member Its: Chief Financial Officer
------------------------------- -----------------------------
Dated: June 24, 1996 Dated: June 21, 1996
------------------------------- -----------------------------
SEE YOUR ATTORNEY
This Lease should be given to your attorney for review and approval before you
sign it. BOMA makes no representation or recommendation concerning the legal
effect, legal sufficiency, or tax consequences of this Lease. These are
questions for your attorney.
16.
<PAGE> 17
OFFICE LEASE
BASIC LEASE INFORMATION
This Basic Lease Information shall be completed and signed when all
applicable information has been set forth below.
DATE OF LEASE: As of June 21, 1996
BUILDING: 660 Third Street
San Francisco, California
LANDLORD: GORR PARTNERS, LLC
a California limited liability company
TENANT: WIRED VENTURES, INC.
a Delaware corporation
RENTABLE AREA
OF PREMISES
(ESTIMATED): 21,255 +/- square feet
RENTABLE AREA
OF BUILDING
(ESTIMATED): 85,020 +/- square feet
TENANT'S PERCENTAGE
SHARE: 25%
LEASE
COMMENCEMENT DATE: December 15, 1996 (estimated)
LEASE
EXPIRATION DATE: The Lease Expiration Date for this
Lease shall be the same as the "Lease
Expiration Date" defined in that certain
lease dated November 15, 1995 between
Landlord (as landlord) and Hot Wired
Ventures, LLC (as tenant) for the third and
fourth floors of the Building.
OPTIONS: One (1) five year option, as described in
Paragraph 3 of the Addendum.
i.
<PAGE> 18
<TABLE>
<CAPTION>
MINIMUM MONTHLY
RENT: Lease Years Minimum Monthly Rent
----------- --------------------
<S> <C> <C>
1-2 $ 18,155.31
3 $ 21,166.44
4-5 $ 23,291.94
6-10 $ 24,354.69
SECURITY DEPOSIT: $24,354.69 as provided in Paragraph 7 hereof.
</TABLE>
ii.
<PAGE> 19
EXHIBITS
Exhibit A Floor Plan of Premises
Exhibit B Work Letter
Exhibit C Memorandum of Lease Term Dates
Exhibit D Rules and Regulations
ADDENDA
Addendum 1 Addendum to Lease
TENANT: WIRED VENTURES, INC.
a Delaware corporation
By: /s/ Jeffrey Simon
---------------------------------------------
Jeffrey Simon, Chief Financial Officer
Dated: June 21, 1996
Address: 520 Third Street, Fourth Floor
San Francisco, California 94107
Telephone: (415) 222-6333
Facsimile: (415) 222-6369
iii.
<PAGE> 20
LANDLORD: GORR PARTNERS, LLC
a California limited liability company
By: /s/ Bernard Osher
-----------------------------------------
Name: Bernard Osher
-----------------------------------------
Its: Member
-----------------------------------------
Dated: June 24, 1996
Address: 290 San Bruno Avenue
San Francisco, CA 94103
Telephone: (415) 522-5700
Facsimile: (415) 522-5701
iv.
<PAGE> 21
ADDENDUM TO OFFICE LEASE
This Addendum is attached to and made a part of the Office
Lease dated June 21, 1996 (the "Lease), by and between GORR PARTNERS, LLC, a
California limited liability company ("Landlord") and WIRED VENTURES, INC., a
Delaware corporation ("Tenant"), and the terms and conditions of this Addendum
are incorporated into the Lease.
1. DEFINITIONS. All defined terms used in this Addendum
whether capitalized or in lower case shall have the same meaning as defined in
the Lease.
2. LEASE COMMENCEMENT DATE.
(a) LEASE COMMENCEMENT DATE. The Lease Term shall
commence on the earliest of (i) the date Tenant opens for business in the
premises, or (ii) ten (10) days after substantial c0ompletion of the tenant
improvements as specified in Exhibit B attached hereto or (iii) December 15,
1996 provided Landlord has substantially completed the tenant improvements as
specified in Exhibit B (the "Lease Commencement Date"). The premises shall be
deemed substantially completed and possession delivered when Landlord has
substantially completed these improvements and has delivered written notice of
such substantial completion to Tenant. Tenant agrees to accept delivery of the
premises upon delivery of such notice from Landlord. No later than ten (10) days
after the delivery of possession of the premises to Tenant, a representative of
Landlord and Tenant shall walk through the premises and compile a "punch list"
of items for the premises that must be completed or repaired by Landlord in
order for Landlord to fulfill all of its construction obligations under the Work
Letter. The punch list items shall not expand Landlord's construction
obligations beyond those contained in the Work Letter. Once the punch list is
compiled, Landlord will work diligently to complete or repair such items within
fifteen (15) days unless longer is necessary to complete said items. Landlord
and Tenant agree to cooperate in good faith so that Landlord can complete its
punch list work and Tenant can complete its fixturization work in the premises
with minimum interference to the other. Tenant agrees that within ten (10) days
after the Lease Commencement Date has been determined, Tenant will execute and
deliver to Landlord a written addendum to this Lease in the form of Exhibit C
attached hereto stating the Lease Commencement Date, the Lease Expiration Date,
and accepting possession of the premises and acknowledging compliance by
Landlord with all of the obligations to construct and deliver possession of the
premises. Notwithstanding anything in this paragraph to the contrary, Tenant
shall have a period of ten (10) days upon substantial completion of the tenant
improvements but prior to the Lease Commencement Date ("Early Entry") during
which Tenant shall have access to the Premises on the terms and conditions set
forth in this Lease except for rent for purposes of installing and assembling
Tenant's fixtures, telecommunications and computers. Tenant shall have no
obligation to pay rent during this Early Entry period.
1.
<PAGE> 22
(b) DELAY IN COMMENCEMENT. Except for delays caused
by reasons beyond Landlord's control including delays caused by Tenant, delays
caused by governmental authorities or other Force Majeure causes ("Excused
Delays"), if the Commencement Date has not occurred on or before February 15,
1997, Tenant shall have the right to terminate this Lease upon written notice to
Landlord and Landlord and Tenant shall have no further obligations hereunder.
Any delays caused by Tenant's failure to comply with the requirements of the
Work Letter shall not extend the Lease Commencement Date and, in such case,
Tenant's obligations to pay rent and other charges hereunder shall commence on
December 15, 1996.
3. OPTION TO EXTEND LEASE TERM.
(a) OPTION TO EXTEND. Tenant shall have one (1)
one-time option ("Option to Extend") to extend the initial Lease Term ("Initial
Term") on the same terms and conditions as set forth in this Lease, except for
the minimum monthly rent ("Minimum Rent") and the Base Year, for a period of
five (5) years ("Extended Term"). Tenant may exercise the Option to Extend by
delivering written notice of exercise ("Option Notice") to Landlord at least
eight (8) months but not more than twelve (12) months before the expiration of
the Initial Term. In the event Tenant fails to exercise the Option to Extend in
strict accordance with the foregoing, the Option to Extend shall expire and be
of no further force or effect. If, on the date Tenant gives the Option Notice, a
default under the Lease has occurred and is continuing, then the Option Notice
shall be of no force and effect. If the time period during which Tenant may
exercise the Option to Extend has not expired, Tenant may cure the default and
re-submit the Option Notice (if such resubmission is timely made). Additionally,
(i) if a default has occurred and is continuing on the expiration of the Initial
Term or, (ii) there have occurred more than three (3) material defaults during
the twenty-four (24) months immediately preceding the expiration of the Initial
Term, then, notwithstanding a valid exercise by Tenant of the Option Notice,
Landlord may, in its sole discretion, elect to have this Lease expire at the end
of the Initial Term. The Minimum Rent for the Extended Term shall be determined
pursuant to paragraph (b) below. In no event, however, shall the Minimum Rent
for the Extended Term be less than the Minimum Rent payable in the last Lease
Year of the Initial Term. The Base Year for the Extended Term shall be 2007. For
purposes of this Lease, the term "Lease Year" shall mean each consecutive twelve
month period during the term of this Lease ending on December 31, provided that
the first Lease Year shall commence upon the Lease Commencement Date and shall
end on the next succeeding December 31, and the last Lease Year shall end upon
the Lease Expiration Date, unless extended pursuant to the terms hereof.
(b) MINIMUM RENT FOR EXTENDED TERM. Minimum Rent for
the Extended Term shall be the Ninety Five Percent (95%) of the Fair Market
Rental of the premises as determined below.
(i) DEFINITION. "Fair Market Rental" means
the fair market rental per month on similar terms and
conditions contained in this Lease for the
2.
<PAGE> 23
specific space that constitutes the premises for the
five (5) year period constituting the Extended Term,
as determined herein. The Fair Market Rental shall
take into account only the following factors: (1)
such periodic increases as may be part of the fair
market rental for the Extended Term, (2) the length
of the Extended Term, and (3) the contract rental
rate then being charged by other landlords for
similar space in comparable buildings in the area in
which the premises are located.
(ii) DETERMINING FAIR MARKET RENTAL FOR RENEWAL
TERM--INITIAL 20-DAY PERIOD FOR NEGOTIATION. After
Tenant delivers the Option Notice to Landlord,
Landlord and Tenant will commence negotiation, on
that date that is six months prior to the expiration
of the Initial Term to determine the Fair Market
Rental. If Landlord and Tenant have not agreed on the
Fair Market Rental within twenty (20) days after such
date, then Tenant may elect to have the Fair Market
Rental determined by arbitration.
(iii) ARBITRATION. The arbitration shall be
conducted and determined in the City and County of
San Francisco in accordance with the then prevailing
rules of the American Arbitration Association or its
successor for arbitration of commercial disputes
except to the extent that the procedures mandated by
said rules shall be modified as follows:
(A) Tenant shall make demand for
arbitration in writing within ten (10) days
of the expiration of the initial twenty (20)
day period provided for the determination by
Tenant and Landlord of the Fair Market
Rental [described in subsection (b)(ii)
above], specifying therein the name and
address of the person to act as the
arbitrator on its behalf. The arbitrator
shall be qualified as a real estate
appraiser familiar with the Fair Market
Rental of first-class commercial office
space in the downtown San Francisco area who
would qualify as an expert witness over
objection to give opinion testimony
addressed to the issue in a court of
competent jurisdiction. Failure on the part
of Tenant to make a proper demand in a
timely manner for such arbitration shall
constitute a waiver of the right thereto and
acceptance of Landlord's determination of
Fair Market Rental. Within fifteen (15) days
after the service of the demand for
arbitration, Landlord shall give notice to
Tenant, specifying the name and address of
the person designated by Landlord to act as
arbitrator on its behalf who shall be
similarly qualified. If Landlord fails to
notify Tenant of the
3.
<PAGE> 24
appointment of its arbitrator, within or by
the time above specified, then the
arbitrator appointed by Tenant shall be the
arbitrator to determine the issue.
(B) In the event that two
arbitrators are chosen pursuant to paragraph
b(iii)(A) above, the arbitrators so chosen
shall, within fifteen (15) days after the
second arbitrator is appointed determine the
Fair Market Rental. If the two arbitrators
shall be unable to agree upon a
determination of Fair Market Rental within
such 15-day period, they, themselves, shall
appoint a third arbitrator, who shall be a
competent and impartial person with
qualifications similar to those required of
the first two arbitrators pursuant to
paragraph b(iii)(A). In the event they are
unable to agree upon such appointment within
seven (7) days after expiration of said
15-day period, the third arbitrator shall be
selected by the parties themselves, if they
can agree thereon, within a further period
of fifteen (15) days. If the parties do not
so agree, then either party, on behalf of
both, may request appointment of such a
qualified person by the then Chief Judge of
the United States District Court having
jurisdiction over the City and County of San
Francisco, acting in his private and not in
his official capacity, and the other party
shall not raise any question as to such
Judge's full power and jurisdiction to
entertain the application for and make the
appointment. The three arbitrators shall
decide the dispute if it has not previously
been resolved by following the procedure set
forth below.
(C) Where an issue cannot be
resolved by an agreement between the two
arbitrators selected by Landlord and Tenant
or settlement between the parties during the
course of arbitrations, the issue shall be
resolved by the three arbitrators within
fifteen (15) days of the appointment of the
third arbitrator in accordance with the
following procedure. The arbitrator selected
by each of the parties shall state in
writing his determination of the Fair Market
Rental supported by the reasons therefor
with counterpart copies to each party. The
arbitrators shall arrange for a simultaneous
exchange of such proposed resolutions. The
role of the third arbitrator shall be to
select which of the two proposed resolutions
most closely approximates his determination
of Fair Market Rental. The third arbitrator
shall have no right to
4.
<PAGE> 25
propose a middle ground or any modification
of either of the two proposed resolutions.
The resolution he chooses as most closely
approximating his determination shall
constitute the decision of the arbitrators
and be final and binding upon the parties.
(D) In the event of a failure,
refusal or inability of any arbitrator to
act, his successor shall be appointed by
him, but in the case of the third
arbitrator, his successor shall be appointed
in the same manner as provided for
appointment of the third arbitrator. The
arbitrators shall decide the issue within
fifteen (15) days after the appointment of
the third arbitrator. The decision of the
arbitrators shall be binding and conclusive
upon the parties. Each party shall pay the
fee and expenses of its respective
arbitrator and both shall share the fee and
expenses of the third arbitrator, if any,
and the attorneys' fees and expenses of
counsel for the respective parties and of
witnesses shall be paid by the respective
party engaging such counsel or calling such
witnesses.
(E) The arbitrators shall have the
right to consult experts and competent
authorities to obtain factual information or
evidence pertaining to a determination of
Fair Market Rental, but any such
consultation shall be made in the presence
of both parties with full right on their
part to cross-examine. The arbitrators shall
render their decision and award in writing
with counterpart copies to each party. The
arbitrators shall have no power to modify
the provisions of this Lease.
4. TAX INCREASES AND ASSESSMENTS.
(a) CHANGE IN OWNERSHIP DURING INITIAL TERM. Not-
withstanding anything contained in Paragraph 6(b) of the Lease, during the
Initial Term Tenant shall have no obligation to pay any increases in real
property taxes which are attributable to any transaction by Landlord which
results in a reassessment of the building other than transactions requested by
Tenant after the Lease Commencement Date.
(b) PAYMENTS. Tenant shall pay to Landlord monthly as
additional rent during each Lease Year a sum equal to one-twelfth (1/12th) of
Tenant's percentage share of the amount of any increase in real property taxes
and assessments as described in Paragraph 6 (b) of the Lease, payable on or
before the first day of each month during such Lease Year, in advance, in an
amount reasonably estimated by Landlord and billed by Landlord to Tenant, and
Landlord shall have the right initially to determine monthly estimates and to
revise such estimates from time to time. After
5.
<PAGE> 26
Landlord has received the bills for the property taxes and assessments for any
year, Landlord shall furnish Tenant with a statement ("Landlord's Tax
Statement") setting forth the amount of the Tenant's percentage share of the
increase in taxes for such year, which may include any legal fees or expenses
incurred by Landlord in seeking the reduction of such taxes. Such statement
shall credit Tenant with its proportionate share of any refund of taxes received
by the Landlord in the Lease Year and not credited to Tenant and shall be
accompanied by a copy of the tax bill, the refund statement and the bill for
legal services, if any, received by Landlord. If the actual Tenant's Percentage
Share of increases in taxes, including any refund and legal fees, for such year
exceeds the estimated amounts paid by Tenant for such year, Tenant shall pay to
Landlord the difference between the amount paid by Tenant and the actual
increase in taxes payable by Tenant within thirty (30) days after Landlord's Tax
Statement has been given to Tenant, and if the total amount paid by Tenant for
such year exceeds the actual increase in taxes payable by Tenant for such year,
such excess shall be credited against installments of increase in taxes due from
Tenant to Landlord until Tenant has fully recouped such excess payment; or, if
such excess payment is made during the last Lease Year of the Lease Term, such
excess shall be refunded to Tenant, within thirty (30) days after Landlord's
delivery of tax statement to Tenant.
5. OPERATING EXPENSE INCREASES.
(a) DEFINITION OF "DIRECT EXPENSES". Notwith-
standing anything contained in Paragraph 6(c) of the Lease, Direct expenses
shall also include: (1) salaries, wages and payroll burden, (2) premiums and
other charges incurred by Landlord with respect to fire, other casualty, rent
and liability insurance, and, after the Base Year, costs of repairing an insured
casualty to the extent of the deductible amount under the applicable insurance
policy; (3) telephone, postage, stationery supplies and other reasonable
expenses directly incurred in connection with the operation, maintenance or
repair of the building; (4) repairs to and physical maintenance of the building,
including building systems and appurtenances thereto and normal repair and
replacement of worn-out equipment, facilities and installations, but excluding
the replacement of major building systems (except as otherwise provided in
Paragraph 6(c) of the Lease; (5) rubbish removal, window cleaning, security,
plumbing, service contracts for elevator, electrical, telecommunications,
cabling, mechanical and other building equipment and systems or as may otherwise
be necessary or proper for the operation or maintenance of the building; (6)
supplies, tools and equipment used in connection with the operation, maintenance
or repair of the building; (7) accounting, legal and other professional fees and
expenses; and (8) painting the exterior or the common areas of the building and
maintaining the sidewalks and landscaping and public areas of the building.
(b) OPERATING COST EXCLUSIONS. Notwithstanding the
provisions of paragraph (a) above, the following shall not be included within
Operating Expenses:
6.
<PAGE> 27
(1) Leasing commissions, attorneys' fees,
costs, disbursements, and other expenses incurred in
connection with negotiations or disputes with
tenants, or in connection with leasing, renovating,
or improving space for tenants or other occupants or
prospective tenants or other occupants of the
building.
(2) The cost of any service sold to any
tenant (including Tenant) or other occupant for which
Landlord is entitled to be reimbursed as an
additional charge or rental over and above the basic
rent and escalations payable under the lease with
that tenant.
(3) any depreciation on the building or
property.
(4) Except as otherwise permitted in the
Lease, costs of a capital nature, including but not
limited to capital improvements and alterations,
capital repairs, capital equipment, and capital tools
as determined in accordance with generally accepted
accounting principles.
(5) Expenses in connection with services or
other benefits of a type that are not provided to
Tenant but which are provided another tenant or
occupant of the building or property.
(6) Costs incurred due to Landlord's
violation of any terms or conditions of this Lease or
any other lease relating to the building or property.
(7) Overhead profit increments paid to Land-
lord's subsidiaries or affiliates for management or
other services on or to the building or for supplies
or other materials to the extent that the cost of the
services, supplies, or materials exceeds the cost
that would have been paid had the services, supplies,
or materials been provided by unaffiliated parties on
a competitive basis.
(8) All interest, loan fees, and other
carrying costs related to any mortgage or deed of
trust or related to any capital item, which is an
excluded operating cost under the Lease, and all
rental and other payable due under any ground or
underlying lease, or any lease for any equipment
ordinarily considered to be of a capital nature
(except janitorial equipment which is not affixed to
the building).
(9) Any compensation paid to clerks, attend-
ants, or other persons in commercial concessions
operated by Landlord.
7.
<PAGE> 28
(10) Advertising and promotional
expenditures.
(11) Costs of repairs and other work
occasioned by fire, windstorm, or other casualty of
an insurable nature to the extent Landlord receives
insurance proceeds to cover such costs.
(12) Any costs, fines, or penalties incurred
due to violations by Landlord of any governmental
rule or authority, this Lease or any other lease in
the property, or due to Landlord's negligence or
willful misconduct.
(13) Management costs to the extent they
exceed management costs charged for similar
facilities in the area and in any event, to the
extent they exceed six percent (6%) of all other
Operating Expenses.
(14) Costs for sculpture, paintings, or
other objects of art (nor insurance thereon or
extra-ordinary security in connection therewith).
(15) Wages, salaries, or other compensation
paid to any executive employees above the grade of
building manager.
(16) The cost of correcting any building
code or other violations which were violations prior
to the Commencement Date.
(17) the cost of containing, removing, or
otherwise remediating any contamination of the
property (including the underlying land and ground
water) by any Hazardous Substances, as defined in
Paragraph 8(b) of this Addendum, (including, without
limitation, asbestos and "PCB's") where such
contamination was not caused by Tenant or any
employee, agent or invitee of Tenant.
(18) Any other expense that under generally
accepted accounting principles and practice
consistently applied would not be considered a normal
maintenance or operating expense.
(c) PAYMENT OF INCREASES IN DIRECT EXPENSES.
Tenant shall pay to Landlord monthly as additional rent during each Lease Year a
sum equal to one-twelfth (1/12th) of Tenant's percentage share of increases in
Direct expenses for such Lease Year, payable on or before the first day of each
month of such Lease Year, in advance, in an amount reasonably estimated by
Landlord and billed by Landlord to Tenant, and Landlord shall have the right
initially to determine monthly estimates and to revise such estimates from time
to time. Within ninety (90) days after the end of each Lease Year, Landlord
shall furnish Tenant with a statement ("Landlord's Expense Statement"), setting
forth in reasonable detail the Direct expenses for such Lease Year, and
8.
<PAGE> 29
Tenant's Percentage Share of increases in Direct expenses over the Base Year. If
the actual increase in Direct expenses for said Lease Year exceed the estimated
increase in Direct expenses paid by Tenant for such year, Tenant shall pay to
Landlord the difference between the amount paid by Tenant and the actual
increase in Direct expenses within thirty (30) days after Landlord's Expense
Statement has been given to Tenant, and if the total amount paid by Tenant for
any such year exceeds the actual increase in Direct expenses for such year, such
excess shall be credited against installments of the estimated increase in
Direct expenses due from Tenant to Landlord hereunder until Tenant has fully
recouped such excess payment; or, if such excess payment is made during the last
Lease Year of the Initial Term, such excess shall be refunded to Tenant within
thirty (30) days after Landlord's delivery of Operating Expense Statement to
Tenant. Tenant shall have no obligation to pay any amounts hereunder if
Landlord's Expense Statement is not delivered within three (3) years after the
end of such Lease Year. A Landlord's Expense Statement for any Lease Year shall
be conclusively deemed to be correct if not objected to by Tenant, Landlord or
Landlord's successor within three years following the expiration of such Lease
Year. Tenant hereby waives the benefit of any statute of limitations that would
extend Tenant's right to challenge the propriety of any Direct expenses
contained in any Landlord's Expense Statement beyond the three year period
agreed to in the preceding sentence.
(d) TENANT'S AUDIT RIGHTS. Within ninety (90) days
after receipt of Landlord's statement setting forth actual Operating Expenses
and Direct Expenses (the "Statement"), Tenant shall have the right to audit at
Landlord's local offices, at Tenant's expense, Landlord's accounts and records
relating to Operating Expenses and Direct Expenses. Such audit shall be
conducted by a certified public accountant approved by Landlord, which approval
shall not be unreasonably withheld. If such audit reveals that Landlord has
overcharged Tenant, the amount overcharged shall be paid to Tenant within thirty
(30) days after the audit is concluded. If the Statement exceeds the actual
Operating Expenses and Direct Expenses which should have been charged to Tenant
by more than seven percent (7%), the cost of the audit shall be paid by
Landlord.
6. [PROVISION INTENTIONALLY OMITTED]
7. COMPLIANCE WITH COVENANTS. Landlord warrants to Tenant that
on the Lease Commencement Date, the premises and all improvements thereon (a)
shall be free from material structural defects and (b) shall comply with all
applicable covenants and restrictions of record, statutes, ordinances, codes,
rules, regulations, orders, and requirements, including, without limitation,
Title 24 of the California Administrative Code and the Americans with
Disabilities Act. In the event of a breach of any of the foregoing warranties,
Landlord shall rectify such breach at its sole cost and expense. Nothing
contained herein shall constitute a warranty by Landlord of the plans and
specifications for the premises as prepared by Tenant's architect pursuant to
the Work Letter.
9.
<PAGE> 30
8. COMPLIANCE WITH LAWS.
(a) TENANT'S USE OF HAZARDOUS SUBSTANCES. In addition
to the provisions of Paragraph 9 of the Lease, Tenant shall not use, store,
dispose, release, discharge, transport or generate (collectively "Use of
Hazardous Substances") any Hazardous Substances (as defined below), in, on, to,
under, from or about the premises or the building without Landlord's prior
written consent, which consent may be granted on conditions or withheld in
Landlord's sole and absolute discretion. Tenant warrants and agrees that if
Landlord grants its consent to Tenant's Use of Hazardous Substances, such Use of
Hazardous Substances shall be conducted in strict accordance with all
Environmental Laws (as defined below) and prudent business practices. Any
consent or approval by Landlord of Tenant's Use of Hazardous Substances shall
not constitute an assumption of risk respecting the same nor a warranty or
certification by Landlord that Tenant's proposed Use of Hazardous Substances is
safe or reasonable or in compliance with Environmental Laws. Tenant shall
maintain current all permits required for its operations, including, without
limitation, those for the Use of Hazardous Substances. Tenant shall keep and
maintain the premises in compliance with all, and shall not cause or permit the
premises and the activities conducted thereon by Tenant to be in violation of
any, Environmental Laws. Tenant shall not undertake any remedial action with
respect to any release of Hazardous Substances or to comply with any violation
of any Environmental Law without obtaining the prior written consent of Landlord
which shall not be unreasonably withheld or delayed unless any delay in
undertaking any such remedial action may expose Tenant to any liability. If
Tenant's use of Hazardous Substances results in an increase in the premiums of
any insurance that Landlord is required to maintain under this Lease, then
Tenant shall pay the amount of such increased premiums. Additionally, Landlord
may require that Tenant procure, at Tenant's sole cost and expense, additional
insurance that specifically covers loss or damage to persons or property that
may result from Tenant's use of such Hazardous Substances.
(b) DEFINITIONS. As used in this Lease, the term
"Hazardous Substances" shall mean any substances or materials which at such time
are classified or are considered to be hazardous or toxic under any
Environmental Law, including, without limitation, petroleum products, asbestos
and PCBs. As used in this Lease, the term "Environmental Laws" shall mean any
and all present and future federal, state and local laws (whether under common
law, statute, rule, regulation or otherwise), requirements under permits issued
with respect thereto, and other requirements of governmental authorities
relating to the environment or to any Hazardous Substance (including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as heretofore or hereafter amended from time to time.
(c) LANDLORD'S ENVIRONMENTAL INDEMNITY. Landlord
warrants to Tenant that on the commencement of the term hereof, the premises
comply with Environmental laws. In the event of a breach of the foregoing
warranty, Landlord shall take all reasonable steps to remedy such breach.
Landlord shall protect, indemnify, defend,
10.
<PAGE> 31
and hold Tenant harmless from and against any and all liability, loss, suits,
claims, actions, costs, and expense (including, without limitation, attorneys'
fees) arising from (a) any breach of the foregoing warranty and (b) any
contamination of the premises by any Hazardous Substances where such
contamination was caused by Landlord. The provisions of this paragraph shall
survive the termination of this Lease.
9. ALTERATIONS AND RESTORATION OF PREMISES. Notwithstanding
anything contained in Paragraph 10 of the Lease, after the Commencement Date,
Tenant shall not be required to obtain Landlord's prior written consent for
alterations, additions or improvements to or of the premises if the anticipated
cost of any such alteration, addition or improvement is less than $7,000;
provided, however, that any alteration, addition or improvement, regardless of
its anticipated cost, that will affect the structural portions or the mechanical
or utility systems of the Building shall require Landlord's prior written
consent, which shall not be unreasonably withheld or delayed. Upon the
expiration or sooner termination of the Term, upon demand by Landlord, at
Tenant's sole cost and expense, Tenant shall with all due diligence:
(a) remove any initial Tenant Improvements that were
constructed by Landlord to provide private access from the premises to the third
floor of the Building to the extent that the cost of removing such items does
not exceed $50,000;
(b) remove any alterations, additions or improvements
made by Tenant and designated for removal by Landlord at the time Landlord
approves such alterations; and
(c) repair any damage to the premises caused by any
such removal pursuant to subparagraphs (a) and (b) above.
10. ASSIGNMENT AND SUBLETTING.
(a) For purposes of Paragraph 14(a) of the Lease, it
shall not be unreasonable for Landlord to consider the following, among others:
(a) reputation and character of the proposed assignee or sublessee; (b) the
financial worth of the proposed assignee or sublessee; (c) the business
experience of the proposed assignee or sublessee; (d) the number of separate
uses of the premises and (e) other similar matters. In no event shall it be
considered unreasonable for Landlord to withhold its consent to a proposed
assignment or sublease if such proposed assignment or sublease would cause
Landlord to be in default of a lease with another tenant or occupant of the
building. If Landlord approves such assignment or subletting, Tenant shall
proceed with such assignment or subletting and such transfer shall be upon and
subject to the terms of this Lease and Tenant shall pay Landlord a sum equal to
fifty percent (50%) of any rent or other consideration paid to Tenant by any
assignee or sublessee which is in excess of the rent then being paid to Landlord
by Tenant pursuant to the terms of this Lease net of: (a) leasing commissions;
(b) tenant improvements payable by Tenant; and (c) other transaction costs not
to exceed $6,000 in the aggregate including but not limited to attorneys' fees
and the Landlord's approval fee.
11.
<PAGE> 32
(b) If Tenant delivers a Sublet Notice to Landlord,
the Sublet Notice shall be accompanied by a proposed draft of the assignment or
sublease ("Draft"). Landlord shall have fifteen (15) business days after
delivery of such Draft to grant its consent or to notify Tenant, in writing, of
its intent to withhold consent. If Landlord does not withhold its consent,
Tenant shall thereafter deliver a copy of the executed sublease or assignment to
Landlord and Landlord shall have five (5) business days thereafter to grant its
consent or to notify Tenant in writing, of its intent to withhold consent;
provided, however, Landlord shall have no right to withhold its consent if the
executed sublease or assignment is substantially the same as the proposed Draft
previously approved by Landlord on the same economic terms and conditions as
approved by Landlord.
(c) Notwithstanding anything contained in Paragraph
14(f) of the Lease, Tenant may assign or sublease this Lease to an affiliate or
subsidiary without Landlord's consent. Tenant shall provide Landlord written
notice of such assignment or sublease on or before the effective date of such
assignment or sublease.
11. UTILITIES AND SERVICES.
(a) GENERAL. So long as Tenant is not in material
default in the performance of its obligations under this Lease, Landlord shall:
(1) Operate or cause the operation in season
of the heating, ventilating and air-conditioning
("HVAC") system presently serving the premises, at
such temperatures and in such amounts as Landlord
determines are reasonably required for the
comfortable occupancy of the premises or as may be
permitted or controlled by applicable laws,
ordinances, rules and regulations. Any HVAC provided
by Landlord to Tenant shall be at Tenant's sole cost
and expense, which shall be an amount equal to
Landlord's cost of supplying HVAC to the HVAC zone of
which the premises are a part. Tenant shall also be
responsible for and shall pay Landlord any additional
costs (including, without limitation, the costs of
installation of additional HVAC equipment) incurred
because of the failure of the HVAC system to perform
its function due to arrangement of partitioning in
the premises after the initial tenant improvements or
changes or alterations thereto, from any use of heat-
generating machinery or equipment, from occupancy of
the premises exceeding one person per one hundred
twenty (120) square feet of rentable area, or for
failure of Tenant to keep all HVAC vents within the
premises free of obstruction.
(2) Provide access to water in the
lavatories in the premises and make customary
arrangements with public utilities and/or public
agencies to furnish electric current to the premises
as
12.
<PAGE> 33
specified in Paragraph (G) of the Work Letter. The
cost of all electricity serving the Premises shall be
paid for by Tenant directly to the utility company.
Landlord shall, at its sole cost and expense, install
a separate electrical meter in the premises.
(3) Operate, maintain, clean, light, heat,
ventilate and air-condition the common areas of the
building and provide such security as may be
reasonably necessary during business hours only.
Landlord shall not be liable to Tenant for losses due
to theft or burglary, or for damages or injury done
by unauthorized persons in the building. Landlord
shall provide elevator service in the building on a
24 hours per day, seven days per week basis.
(4) Provide janitorial service to the
building at a standard provided to other comparable
office buildings in San Francisco on each weekday,
exclusive of Saturday, Sunday and holidays, subject
to access being granted to the person or persons
employed or retained by Landlord to perform such work
at such time as prescribed by Landlord.
(5) Notify Tenant in writing at least
forty-eight (48) hours before any intentional
shut-down of electrical power or HVAC serving the
premises, except in the case of an emergency.
Notwithstanding the terms of this Lease to the
contrary, if any building service is interrupted for a period of five (5)
consecutive business days due to the gross negligence or willful acts of
Landlord, its agents, servants, employees, contractors or subcontractors, or ten
(10) consecutive business days for any other reason and such failure adversely
effects Tenant's use of the premises for Tenant's normal business operations,
then there shall be an abatement of Base Rent from and after said fifth (5th) or
tenth (10th) day, until such services are restored. However, if such failure
lasts for one hundred twenty (120) consecutive days, Tenant shall have the
option, upon written notice to Landlord, to terminate this Lease. Landlord
agrees to use its best efforts to restore such services as soon as possible. If
Landlord has not diligently commenced efforts to restore such services within
three (3) days of such interruption, Tenant may make any necessary repairs and
may deduct the actual cost of such repairs from the next installment or
installments of rent due hereunder.
(b) SUPPLEMENTARY SERVICES. Tenant shall pay
Landlord, at the charges established by Landlord from time to time, for all
supplementary services requested by Tenant, which charges shall be payable by
Tenant upon demand by Landlord. Such supplementary services shall include,
without limitation, maintenance, repair, janitorial, cleaning and other services
provided
13.
<PAGE> 34
during hours other than ordinary business hours and/or in amounts not considered
by Landlord as standard.
(c) INTERRUPTION OF ACCESS, USE OR SERVICES. Land-
lord shall not be liable for any failure to provide access to or use of the
premises, or to furnish any services or utilities when such failure is caused by
nature occurrences, riots, civil disturbances, insurrection, war, court order,
public enemy, accidents, breakage, repairs, strikes, lockouts, other labor
disputes, the making of repairs, alterations or improvements to the premises or
the building, the inability to obtain an adequate supply of fuel, gas, steam,
water, electricity, labor or other supplies or by any other condition beyond
Landlords' reasonable control, and Tenant shall not be entitled to any damages
resulting from such failure,nor shall such failure relieve Tenant of the
obligation to pay all sums due hereunder or constitute or be construed as a
constructive or other eviction of Tenant. If any governmental entity promulgates
or revises any statute, ordinance or building, fire or other code, or imposes
mandatory or voluntary controls or guidelines on Landlord or the building or any
part thereof, relating to the use or conservation of energy, water, gas, steam,
light or electricity or the provision of any other utility or service provided
with respect to this Lease, or if Landlord is required or elects to make
alterations to the building in order to comply with such mandatory or voluntary
controls or guidelines, or make such alterations to the building, neither such
compliance nor the making of such alterations shall in any event entitle Tenant
to any damages, relieve Tenant of the obligation to pay any of the sums due
hereunder, or constitute or be construed as a constructive or other eviction of
Tenant.
12. SUBORDINATION AGREEMENT. Landlord specifically agrees that
(i) Tenant may conclusively rely upon any written notice Tenant receives from
the beneficiary of any mortgage or deed of trust ("Lender"), encumbering the
building and/or the land upon which the building is situated, notwithstanding
any claim by Landlord contesting the validity of any term or condition of such
notice, including, but not limited to, any default claimed by Lender and (ii)
that Landlord shall not make any claim of any kind against Tenant or Tenant's
leasehold interest with respect to amounts paid to Lender by Tenant or any acts
performed by Tenant pursuant to such written notice. As a condition to Tenant's
execution of this Lease, Landlord hereby covenants and agrees to deliver to
Tenant, prior to the Lease Commencement Date, a Subordination, Non-Disturbance
and Attornment Agreement executed by Wells Fargo Bank, National Association, in
a form reasonably acceptable to Tenant (the "Non-Disturbance"). In the event
that Landlord does not deliver the Non-Disturbance to Tenant prior to the Lease
Commencement Date, this Lease shall terminate and be of no further force and
effect, Landlord shall immediately return to Tenant the Security Deposit and any
and all other funds theretofore delivered by Tenant to Landlord, and neither
Tenant nor Landlord shall have any further liability under this Lease.
Notwithstanding anything in this Lease to the contrary, as a condition to
Tenant's subordination to any future mortgages, deeds of trust, or ground or
underlying leases affecting the premises, Tenant shall receive a
14.
<PAGE> 35
non-disturbance agreement in a form reasonably acceptable to Landlord and
Tenant.
13. TENANT'S DEFAULT. Tenant shall be deemed to be in default
under this Lease upon the occurrence of any of the following events ("Event of
Default"): (a) Tenant shall fail to pay any Rent within five (5) days after the
same becomes due and payable; (b) Tenant shall fail to pay any other sum when
and as the same becomes due and payable and such failure shall continue for more
than five (5) business days after written notice that such payment was not
received when due; (c) Tenant shall fail to observe, keep or perform any of the
other terms, covenants, agreements or conditions contained in this Lease or in
the rules and regulations described in Paragraph 6 above and on the part of
Tenant to be observed or performed and such default continues for a period of
thirty (30) days after written notice by Landlord and Tenant shall not within
said period commence with due diligence the curing of such default or, having so
commenced, shall thereafter fail or neglect with due diligence to complete the
curing of such default or shall not, in all events, complete the curing of such
default within ninety (90) days after the original default notice to Tenant; (d)
Tenant shall file a petition for bankruptcy or become insolvent or make a
transfer in fraud of creditors, or make an assignment for the benefit of
creditors, or commence or there is commenced against Tenant any proceedings of
any kind under any provision of the United States Bankruptcy Code or under any
other insolvency, bankruptcy or reorganization act and, in the event any such
proceedings are involuntary, Tenant is not discharged from the same within
ninety (90) days thereafter; (e) a receiver is appointed for a substantial part
of the assets of Tenant and is not dismissed or discharged within ninety (90)
days; (f) Tenant shall abandon the premises; or (g) this Lease or any estate of
Tenant hereunder shall be levied upon by any attachment or execution which is
not discharged or bonded against within thirty (30) days.
14. BANKRUPTCY OF TENANT. To the extent permitted under
then-applicable law, if a petition is filed by or against Tenant for relief
under Title 11 of the United States Code, as amended (the "Bankruptcy Code"),
and Tenant (including for purposes of this paragraph Tenant's successor in
bankruptcy, whether a trustee or Tenant as debtor in possession) assumes and
proposes to assign, or proposes to assume and assign, this Lease pursuant to the
provisions of the Bankruptcy Code to any person or entity who has made a bona
fide offer to accept any assignment of this Lease on the terms acceptable to
Tenant, then notice of the proposed assignment setting forth (a) the name and
address of the proposed assignee, (b) all of the terms and conditions of the
offer and proposed assignment, and (c) the adequate assurance to be furnished by
the proposed assignee of its future performance under the Lease, shall be given
to Landlord by Tenant no later than twenty (20) days after the Tenant has made
or received such offer, but in no event later than ten (10) days prior to the
date on which Tenant applies to a court of competent jurisdiction for authority
and approval to enter into the proposed assignment. Landlord shall have the
prior right and option, to be exercised by notice to Tenant given at any time
prior the date on which the court order authorizing such assignment becomes
final and non-appealable, to receive an
15.
<PAGE> 36
assignment of this Lease upon the same terms and conditions, and for the same
consideration, if any, as the proposed assignee, less any brokerage commissions
which may otherwise be payable out of the consideration to be paid by the
proposed assignee for the assignment of this Lease. If this Lease is assigned
pursuant to the provisions of the Bankruptcy Code, Landlord: (i) may require
from the assignee a deposit or other security for the performance of its
obligations under the Lease in an amount substantially the same as would have
been required by Landlord upon the initial leasing to a tenant similar to the
assignee; and (ii) shall receive, as additional rent, the sums and economic
consideration described in Paragraph 7 of this Addendum. Any person or entity to
which this Lease is assigned pursuant to the provisions of the Bankruptcy Code
shall be deemed, without further act or documentation, to have assumed all of
the Tenant's obligations arising under this Lease on and after the date of such
assignment. No provision of this Lease shall be deemed a waiver of Landlord's
rights or remedies under the Bankruptcy Code to oppose any assumption and/or
assignment of this Lease, to require a timely performance of Tenant's
obligations under this Lease, or to regain possession of the premises if this
Lease has neither been assumed nor rejected within sixty (60) days after the
date of the order for relief or within such additional time as a court of
competent jurisdiction may have fixed. Notwithstanding anything in this Lease to
the contrary, all amounts payable by Tenant to or on behalf of Landlord under
this Lease, whether or not expressly denominated as rent, shall constitute rent
for the purposes of Section 502(b)(6) of the Bankruptcy Code.
15. DAMAGE AND DESTRUCTION. This paragraph shall be in
replacement of Paragraph 25(b) of the Lease: "Landlord shall notify Tenant
within thirty (30) days of the date of a casualty, and such notice shall specify
Landlord's architect's or engineer's reasonable estimate as to the time required
to rebuild or restore the Premises. If such repairs cannot in Landlord's
reasonable opinion be completed within one hundred twenty (120) days after
issuance of a building permit therefor or if such damage is uninsured, either
Landlord or Tenant may elect to terminate this Lease by giving written notice
thereof within sixty (60) days after the date of such fire or casualty. If
either Landlord or Tenant elects to terminate this Lease, the Lease shall
terminate as of the termination date specified in either party's notice. If
neither party elects to terminate the Lease, Landlord shall commence restoration
of the premises.
If Landlord fails to restore the premises within a
period which is thirty (30) days longer than the period Landlord estimates as
the rebuilding period, Tenant may within ten (10) days thereafter terminate this
Lease by delivering written notice to Landlord of such termination, in which
event this Lease shall terminate as of the date of the giving of such notice.
If the damage or destruction to the Premises is of
such a nature that Tenant reasonably determines that such damage or destruction
will materially interfere with the conduct of Tenant's business, and Landlord is
obligated to restore the Premises under this section, and Landlord fails to
restore the
16.
<PAGE> 37
Premises (including reasonable means of access thereto) within said one hundred
twenty (120) days, Tenant, at any time thereafter until such restoration is
completed, may terminate this Lease by delivering written notice to Landlord of
such termination, in which event this Lease shall terminate as of the date of
the giving of such notice.
16. LIMITATION OF RECOVERY AGAINST LANDLORD. Tenant
acknowledges and agrees that the liability of Landlord (which for purposes of
this Paragraph shall include all partners, both general and limited, of any
partnership and the officers, directors and shareholders of any corporation and
the members and managers of any limited liability company) under this Lease
shall be limited to its interest in the building, and any judgments rendered
against Landlord shall be satisfied solely out of the proceeds of sale of its
interest in the building. No officer, member, manager or partner of Landlord
shall be named as a party in any suit or action (except as may be necessary to
secure jurisdiction over Landlord) and no personal judgment shall lie against
Landlord. Tenant agrees that the foregoing covenants and limitations shall be
applicable to any obligation or liability of Landlord, whether expressly
contained in this Lease or imposed by statute or at common law. The foregoing
provisions are not intended to relieve Landlord from the performance of any of
Landlord's obligations under this Lease, but only to limit the personal
liability of Landlord in case of recovery of a judgment against Landlord.
17. AUTHORITY. Each of the persons executing this Lease on
behalf of the Tenant does hereby covenant and warrant that Tenant is duly
organized and validly existing, that Tenant has and is qualified to do business
in California, that Tenant has full right and authority to enter into this Lease
and to carry out the transactions contemplated herein, and that each person
signing on behalf of Tenant is authorized to do so.
18. BASIC LEASE INFORMATION. At such time as all the Lease
terms called for in the Basic Lease Information attached hereto have been
finally determined in accordance with the provisions of this Lease, the Basic
Lease Information shall be completed and signed by the parties and shall
thereafter be a final and binding agreement of the parties as to the terms and
conditions set forth therein.
19. NO CONSTRUCTION AGAINST PREPARER. This Lease has been
prepared by Landlord and its professional advisors and reviewed by Tenant and
its professional advisors. Landlord, Tenant, and their separate advisors believe
that this Lease is the product of all of their efforts, that it expresses their
agreement, and that it should not be interpreted in favor of either Landlord or
Tenant or against either Landlord or Tenant merely because of their efforts in
preparing it.
20. FORCE MAJEURE. In addition to specific provisions of this
Lease, the time within which a party is to perform an obligation under this
Lease shall be extended on a day for day basis to the extent such performance is
delayed as a result of labor or supply difficulties, inclement weather, acts of
God,
17.
<PAGE> 38
government regulation, additions, modifications or withdrawals of, or delays in
obtaining, governmental consents or approvals, building moratoria or
restrictions, requirements to prepare further environmental impact documents or
to conduct further environmental impact studies, or any similar cause beyond the
reasonable control or without the fault of the party invoking such extension.
Nothing contained in the foregoing sentence, however, shall excuse Tenant from
its obligation to timely pay Rent or any other monetary amounts owing under this
Lease. Any party invoking an extension under this Paragraph shall immediately
notify the other party in writing of the occurrence and nature of the force
majeure event and the anticipated delay resulting therefrom.
21. SIGNAGE. Tenant may, at Tenant's sole cost and expense,
install on the exterior facade of the building as well as on the lobby directory
and at the entrance to the premises on both the second floor, and on a flag pole
on the roof such signs subject to Landlord's approval which shall not be
unreasonably withheld or delayed, and otherwise in accordance with the
ordinances of the City of San Francisco.
22. PARKING. During the initial term of the Lease, Tenant
shall have the right to lease up to thirteen (13) parking spaces in the parking
lot located at 676-680 3rd Street, San Francisco, California ("South Spaces") at
an initial monthly rental rate of $100 per space ("Parking Rate") on the terms
and conditions established by Landlord from time to time for the use of such
parking spaces ("Parking Terms"); provided, however, that Tenant's right to
lease the South Spaces is expressly contingent on and subject to the continued
existence of Landlord's right to the spaces as set forth in that lease dated
July 28, 1986 between Williamson Estate, Inc., as landlord, and Landlord, as
tenant. Landlord may, at is option, move Tenant's right to the South Spaces to
spaces located in the building's north parking lot provided Landlord can
guaranty Tenant access to such spaces during the initial term of this Lease.
After the first Lease Year, the Parking Rate for all spaces leased by Tenant
shall be subject to increase as a result of an increase in the Consumers Price
Index ("CPI"), effective on the first day of such Lease Year computed as
follows: the then monthly Parking Rate shall be multiplied by a fraction, the
numerator of which shall be equal to the index (defined below) available
immediately prior to the expiration of the prior Lease Year and the denominator
of which shall be equal to the Index available immediately prior to the
commencement of the Prior Lease Year. The basis for computing each CPI increase
shall be the CPI for All Urban Consumers, San Francisco-Oakland-San Jose area,
All Items (1982-84=100), as published by the United States Department of Labor,
Bureau of Labor Statistics ("Index"). If publication of the Index by any
governmental or private agency is discontinued or if it so modified that it does
not accurately reflect the changes in consumer prices from one Lease Year to
another then the Landlord and Tenant shall use such other index as is then
generally recognized and accepted for similar determination of changes in
consumer prices. If the Index is revised, it shall be converted in accordance
with the conversion factor published by the Bureau of Labor Statistics or any
other governmental agency then publishing same.
18.
<PAGE> 39
23. BROKERAGE COMMISSION. The parties hereto acknowledge that
no broker or finder has represented either party with respect to this Lease. If
a broker or finder claims that it represented Landlord or Tenant in connection
with this Lease and that it is entitled to a commission or finder's fee, then
the party whom such broker or finder claims to represent (whether Landlord or
Tenant) shall indemnify, protect and defend the other from all loss, claim,
expense and liability arising out of such claim, including reasonable attorneys'
fees.
24. SECURITY. At the time of the execution of this Lease,
there is no provision for continuous manned security during either standard or
non-standard operating hours at the building.
25. EXPANSION SPACE - RIGHT OF FIRST REFUSAL. Subject to the
terms and conditions of this Paragraph, Tenant shall have the right of first
refusal throughout the Initial Term to lease all or a portion of the first floor
of the building (the "Expansion Space"), which right may be exercised only by
strict compliance with the terms of this Paragraph; provided, however, that such
right of first refusal, with respect to the space leased by Tower Records, is
subject to and expressly subordinate to the right of Tower Records, a tenant of
a portion of the first floor of the building, to extend the term of its lease
pursuant to the terms of that lease. During the Lease Term, Landlord shall not
enter into a binding lease with any third party tenant for all or any portion of
the Expansion Space without first offering such Expansion Space to Tenant as
follows:
(a) Landlord shall provide Tenant with its right of
first refusal hereunder by notifying Tenant in writing that it has received a
bona fide offer from a third party tenant to lease the Expansion Space, or any
portion thereof, and offering to lease such premises to Tenant (the "Offer") on
all the same terms and conditions as this Lease, except as follows: (i) the term
of any lease for the Expansion Space shall be co-terminus with this Lease,
including any renewal options; and (ii) Landlord shall have no obligation to
perform or pay for any Base Building Work (as defined in the Work Letter
attached hereto) except for demolition, HVAC, code required upgrades, and
electrical work required to enable Tenant to occupy the Expansion Space
("Expansion Base Building Work"), and Landlord's obligation to perform or pay
for such Expansion Base Building Work and for any Tenant Improvements (as
defined in the Work Letter) shall be reduced proportionately as follows:
(1) the total cost to Landlord for Tenant
Improvements relating to the Expansion Space shall
not exceed the product of (x) $17.75 per rentable
square foot of the Expansion Space, multiplied by (y)
a fraction (the "Remaining Term Fraction"), the
numerator of which is the number of full calendar
months remaining in the Initial Term following
Tenant's scheduled occupancy date in the Expansion
Space, and the denominator of which is 120 months;
and
19.
<PAGE> 40
(2) the total cost to Landlord for the
Expansion Base Building Work relating to the
Expansion Space shall not exceed the product of (x)
the cost of all such work required for the Expansion
Space multiplied by (y) the Remaining Term Fraction;
provided, however, that no such limitation or
proration of Landlord's cost shall apply if either of
the following conditions is satisfied: (A) the
Remaining Term Fraction (expressed as a percentage)
is more than sixty percent (60%); or (B) concurrently
with accepting the Offer in accordance with
subparagraph (c) below Tenant also validly and
irrevocably exercises the Option to Extend pursuant
to Paragraph 3 of this Addendum (which concurrent
exercise of the Option to Extend shall be permitted
notwithstanding the 12-month time limitation
contained in the second sentence of said Paragraph
3).
(b) In addition, any new lease for the Expansion
Space, or any portion thereof, executed pursuant to this right of first refusal
(an "Expansion Lease") shall contain provisions that provide for the following:
(i) Any default under this Lease shall
constitute a default under the Expansion Lease, and
it is agreed that any default under any Expansion
Lease shall constitute a default under this Lease.
(ii) Neither the Option to Extend provided
under Section 3 above nor any renewal or extension
option contained in any Expansion Lease may be
exercised by Tenant singly, but both must be
exercised, if at all, concurrently with each other.
Any attempted or purported exercise in violation of
this provision shall be void and of no force or
effect for any purpose.
(c) The Expansion Lease shall take the form of an
amendment to this Lease in form mutually acceptable to Landlord and Tenant and
in compliance with this Paragraph to be executed within five (5) business days
after Tenant's acceptance of the Offer.
(d) If Tenant fails to deliver its written acceptance
of the Offer in the manner required above within such five (5) business day
period, or if an Expansion Lease for the Expansion Space consistent with the
Offer is not signed by Tenant within the time required by subparagraph (c)
above, then Landlord shall have the right to lease all or any portion of the
Expansion Space covered by the Offer to any other person on any terms or
conditions whatsoever, regardless whether such terms and conditions are more or
less favorable than those offered to Tenant.
(e) Tenant shall have no right to exercise any right
of first refusal hereunder if, at the time Landlord desires to enter into a
lease with another tenant for all or any portion
20.
<PAGE> 41
the Expansion Space, an Event of Default has occurred and is continuing.
26. RIGHT OF FIRST REFUSAL TO PURCHASE BUILDING. Before
consummating a voluntary sale of the building at any time during the Initial
Term or the Extended Term of this Lease, and so long as no breach or default by
Tenant has occurred and is continuing under this Lease, Landlord will notify
Tenant of the purchase price and other terms (collectively "Sale Terms") upon
which it would be willing to sell the building to Tenant, which Sale Terms shall
include an allocation of closing costs in accordance with then prevailing custom
in the City and County of San Francisco. Tenant shall notify Landlord in writing
within five (5) business days after Landlord's notice whether Tenant is
interested in purchasing the building on the Sale Terms ("Tenant's Interest
Notice"). If, within twenty-five (25) business days after Tenant's Interest
Notice, Tenant unconditionally agrees in writing to purchase the building on the
Sale Terms, Tenant shall execute a formal agreement prepared by Landlord for the
purchase and sale of the building consistent with the Sale Terms within five (5)
days thereafter; provided, however, if the notice of Sale Terms was delivered by
Landlord in the form of a proposed contract of sale, then Tenant shall indicate
its acceptance of the Sale Terms by signing such proposed contract and the sale
shall close within fifteen (15) business days thereafter. If Tenant does not
deliver the Tenant's Interest Notice within the five (5) business day period, or
its written agreement to purchase the building on the Sale Terms offered in
Landlord's notice within such twenty-five day period, or if Landlord and Tenant
do not enter into a fully executed agreement for the purchase and sale of the
building within such five-day period (if applicable), Landlord shall thereafter
have the right to offer and sell the building to any third party on the Sale
Terms or any other terms and conditions, so long as the gross purchase price for
the building is at least ninety-five (95%) of the purchase price contained in
the Sale Terms and the terms of any seller financing, if any, are not
substantially less favorable to the purchaser than any such terms contained in
the Sale Terms offered to Tenant; provided, however, Landlord may elect to
transfer or sell the building to a nonprofit or charitable organization for a
lesser amount which amount is ninety-five percent (95%) of the purchase price
contained in the Sales Terms adjusted to reflect the economic value of the
transaction to Landlord including the tax consequences of such transaction. The
right of first refusal shall lapse upon such sale to a third party.
Notwithstanding the foregoing, Tenant's right of first refusal to purchase the
building under this Paragraph shall not apply to any involuntary sale or
disposition of the building, such as by foreclosure, deed-in-lieu of
foreclosure, condemnation or sale under threat of condemnation or any change in
the percentage ownership among the parties constituting Landlord or any change
in the legal entity constituting Landlord.
27. LANDLORD'S WARRANTY. Landlord hereby warrants it is the
fee owner of the premises, that it has authority to enter into this Lease, and
that it shall take all actions necessary, at its expense, to defend Tenant's
quiet enjoyment of the premises.
21.
<PAGE> 42
28. LANDLORD'S INDEMNITY. Landlord hereby indemnifies Tenant
and its agents, employees and successors and assignees against the following
unless caused by the negligence or intentional actions of Tenant, its employees,
shareholders, partners, agents, contractors or invitees: (i) any damages and
claims arising from Landlord's or Landlord's agents' breach of this Lease; (ii)
the negligence or willful misconduct of Landlord or its agents in the building
or the premises; and (iii) any causes of action solely related to the building
arising prior to the Commencement Date. The foregoing indemnity shall exclude
consequential damages unless any damages are caused by the gross negligence or
intentional misconduct of Landlord.
22.
<PAGE> 1
EXHIBIT 11.1
WIRED VENTURES, INC. STATEMENT RE: COMPUTATION OF PRO FORMA NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
YEAR ENDED ----------------
DECEMBER 31, 1995
--------------- (UNAUDITED)
<S> <C> <C>
Pro forma net loss........................ $ (6,505) $ (34,699)
----------------------------------------
Weighted average number of preferred
shares outstanding(1)................... 14,312 13,941
Shares and options issued subject to SAB
No. 83:
Preferred stock issuances(1)............ 2,283 2,283
Stock option grants(2).................. 933 933
----------------------------------------
3,216 3,216
----------------------------------------
Shares used in computing pro forma net
loss per share.......................... 17,528 17,157
----------------------------------------
Pro forma net loss per share.............. $ (0.37) $ (2.02)
----------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Using if-converted method.
(2) Using treasury-stock method.
<PAGE> 1
Exhibit 21.1
Subsidiaries
Wired Magazine Group, Inc., a California corporation
HotWired, Inc., a Delaware corporation
HardWired, Inc., a Delaware corporation
Wired Television, Inc., a Delaware corporation
Wired New York, a California corporation
Wired World LLC, a Delaware limited liability company
Wired UK, a United Kingdom unlimited company
<PAGE> 1
EXHIBIT 23.1
FORM OF REPORT ON FINANCIAL STATEMENT SCHEDULE AND
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Wired Ventures, Inc.
When the reverse stock split referred to in Note 12 of the Notes to
Consolidated Financial Statements has been consummated, we will be in a position
to render the following report:
The audits referred to in our report dated May 24, 1996, except as to Note
12, which is as of , 1996, included the related consolidated
financial statement schedule for each of the years in the three-year period
ended December 31, 1995, included in the Registration Statement. This
consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits. In our
opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the use of the forms our reports included herein and to the
references to our firm under the headings "Selected Consolidated Financial Data"
and "Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
San Francisco, California
September 30, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEE
ATTACHED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 7,234 2,604
<SECURITIES> 0 0
<RECEIVABLES> 3,071 2,920
<ALLOWANCES> 2,564 3,617
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,806 6,187
<PP&E> 2,768 3,440
<DEPRECIATION> 552 695
<TOTAL-ASSETS> 13,218 9,154
<CURRENT-LIABILITIES> 12,050 11,982
<BONDS> 1,185 1,216
0 0
28 28
<COMMON> 0 0
<OTHER-SE> (1,535) (5,062)
<TOTAL-LIABILITY-AND-EQUITY> 13,218<F1> 9,154<F1>
<SALES> 25,255 7,621
<TOTAL-REVENUES> 25,255 7,621
<CGS> 16,751 5,554
<TOTAL-COSTS> 16,751 5,554
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (156) 11
<INCOME-PRETAX> (6,496) (3,352)
<INCOME-TAX> 9 9
<INCOME-CONTINUING> (6,505) (3,361)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,505) (3,361)
<EPS-PRIMARY> (.19) (.10)
<EPS-DILUTED> 0 0
<FN>
<F1>Includes minority interest of 1,366 and 867 respectively.
</FN>
</TABLE>
