<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIRST VIRTUAL HOLDINGS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 8980 33-0612860
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
11975 EL CAMINO REAL, SUITE 300
SAN DIEGO, CA 92130-2543
(619) 793-2700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LEE H. STEIN
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
FIRST VIRTUAL HOLDINGS INCORPORATED
11975 EL CAMINO REAL, SUITE 300
SAN DIEGO, CA 92130-2543
(619) 793-2700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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JEFFREY D. SAPER, ESQ. THOMAS H. KENNEDY, ESQ.
JOHN T. SHERIDAN, ESQ. KENTON J. KING, ESQ.
BRADLEY A. BENBROOK IRA A. GREENSTEIN, ESQ.
RAMSEY HANNA SKADDEN, ARPS, SLATE, MEAGHER & FLOM
WILSON SONSINI GOODRICH & ROSATI, P.C. 919 THIRD AVENUE
650 PAGE MILL ROAD NEW YORK, NY 10022
PALO ALTO, CA 94304 (212) 735-3000
(415) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(2) PRICE(2) REGISTRATION FEE
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Common Stock, $0.001 par value..... shares(1) $ $35,000,000 $15,152
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</TABLE>
(1) Includes ________ shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
FIRST VIRTUAL HOLDINGS INCORPORATED
CROSS REFERENCE SHEET
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF ITEMS REQUIRED IN FORM S-1
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FORM S-1 ITEM LOCATION IN PROSPECTUS
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<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front and Outside Back Cover Pages;
Additional Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Prospectus Summary; The Company; Risk
Factors
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... Underwriting
6. Dilution.................................. Dilution
7. Selling Security Holders.................. Principal Stockholders
8. Plan of Distribution...................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered................................ Prospectus Summary; Capitalization;
Description of Capital Stock
10. Interests of Named Experts and Counsel.... Legal Matters
11. Information with Respect to the
Registrant................................ Outside Front Cover Page; Prospectus
Summary; Risk Factors; Use of Proceeds;
Dividend Policy; Capitalization; Dilution;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal Stockholders; Description of
Capital Stock; Shares Eligible for Future
Sale; Legal Matters; Experts; Additional
Information; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
</TABLE>
<PAGE> 3
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 BE 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 OCTOBER 21, 1996
PROSPECTUS
SHARES
LOGO
COMMON STOCK
------------------------
All of the shares of Common Stock offered hereby are being sold by the
Company. Prior to this offering, there has been no public market for the Common
Stock of the Company. The Company estimates that the initial public offering
price will be between $ and $ per share. For factors to be
considered in determining the initial public offering price, see "Underwriting."
Application has been made to have the Company's Common Stock approved for
listing on the Nasdaq National Market under the symbol "FVHI."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
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.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share.................................... $ $ $
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Total(3)..................................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,300,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock, on the same terms and
conditions as set forth above, to cover over-allotments, if any. If all such
shares are purchased by the Underwriters, the total Price to Public will be
$ , the total Underwriting Discounts and Commissions will be
$ and the total Proceeds to Company will be $ . See
"Underwriting."
------------------------
The shares of Common Stock are offered subject to prior sale, when, as and
if delivered and accepted by the Underwriters and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
said offer and to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made on or about , 1996 at the
offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.
------------------------
BEAR, STEARNS & CO. INC.
COWEN & COMPANY
LEHMAN BROTHERS
UNTERBERG HARRIS
, 1996
<PAGE> 4
[ARTWORK]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH 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 STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited summary financial
information. First Virtual Holdings IncorporatedTM and VirtualPINTM are
trademarks of the Company. This Prospectus also includes other trademarks and
trade names of the Company and of other companies.
2
<PAGE> 5
(GATEFOLD)
<PAGE> 6
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and the Financial Statements
and notes thereto appearing elsewhere in this Prospectus. The purchase of Common
Stock involves a high degree of risk. This Prospectus 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 those set forth under "Risk
Factors" and elsewhere in this Prospectus. Except as otherwise noted, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option and reflects, prior to the completion of this offering,
(i) the conversion of all outstanding shares of the Company's Preferred Stock
into shares of Common Stock on a one-to-one basis and (ii) the conversion of all
outstanding options and warrants to purchase shares of Preferred Stock into
options and warrants to purchase shares of Common Stock.
First Virtual Holdings Incorporated ("First Virtual" or the "Company") has
developed and implemented the VirtualPIN architecture which facilitates Internet
commerce and is designed to facilitate other forms of interactive Internet
communications. The VirtualPIN architecture utilizes E-mail which has the widest
reach and broadest use of any Internet application. The First Virtual Internet
Payment System ("FVIPS"), a secure and easy-to-use payment system introduced in
October 1994, is the Company's first application of the VirtualPIN architecture.
As of June 30, 1996, the Company has processed over 208,000 FVIPS transactions
and has registered more than 2,150 merchants ("Sellers") and 160,000 consumers
("Buyers") in 166 countries. The Company believes that the VirtualPIN
architecture can also serve as the basis for additional Internet applications
including direct marketing, interactive advertising, merchandising,
subscriptions and renewals, bill payments, client response surveys and Internet
communications.
The Internet has become well-established and is generally expected to
support a growing number of applications including commerce. International Data
Corporation ("IDC") estimates that there were 56 million Internet users
worldwide at the end of 1995, with approximately 200 million users forecasted by
the end of 1999.
First Virtual's objective is to become a leading facilitator of Internet
commerce and other forms of interactive Internet communications. The Company
intends to pursue this objective by rapidly deploying VirtualPINs through
multiple channels, including customers of credit card companies and other
financial institutions, on-line and Internet service providers, value added
integrators, businesses with large direct response customer bases and consumers
through a variety of direct marketing programs. To promote the deployment of the
VirtualPIN, the Company has entered into strategic relationships with several
major financial institutions including First USA Paymentech, General Electric
Capital Corporation and First Data Corporation. These relationships include
equity investments in the Company and, in certain instances, distribution and
marketing arrangements.
The VirtualPIN, an alphanumeric sequence unique to each user, allows the
user to establish and maintain identity on the Internet in a controlled and
confidential manner. To initiate a transaction using FVIPS, the Buyer transmits
a VirtualPIN to the Seller, who accepts it as a form of payment for the Buyer's
order and relays it to First Virtual for verification. After the Buyer responds
to the Company's automated request for E-mail confirmation of the transaction,
First Virtual initiates financial settlement through the established and secure
credit card transaction processing networks. The Company's VirtualPIN
architecture also enables merchandisers to target specific registered users with
the users' consent and without revealing the users' sensitive personal data. The
VirtualPIN is designed for integration with a broad set of Internet applications
and for use on a wide variety of platforms. In contrast to certain other
Internet payment systems which require complex computer architectures capable of
deciphering intricate encrypted messages and the installation of hardware or
software on the Buyer's computer, the VirtualPIN can be used on virtually any
standard personal computer or Internet access appliance.
In an effort to further promote the retail environment on the Web, the
Company has prototyped the VirtualTAG, the second application of the VirtualPIN
architecture. The VirtualTAG uses Java or Shockwave software to create
stimulating, interactive advertisements within banners or "store fronts" which
are designed to allow Buyers to initiate the purchase and payment and arrange
for the delivery of a product being advertised without leaving the Web page on
which the advertisement appears. Upon its introduction, the Company
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<PAGE> 7
believes VirtualTAG may become one of the first solutions that takes full
advantage of the Internet's unique attributes by combining advertising, selling
and paying in one application. The Company believes the VirtualTAG represents an
attractive opportunity to work with merchandisers and advertising agencies to
market products on the Web and to establish First Virtual's own direct
merchandising channel.
The Company was incorporated in Wyoming in March 1994 and was
reincorporated into Delaware in July 1996. The Company's executive offices are
located at 11975 El Camino Real, Suite 300, San Diego, California 92130-2543,
and its telephone number is (619) 793-2700. Information regarding the Company
can be obtained from its site on the World Wide Web (the "Web") located at
"http://www.fv.com." Information contained in the Company's Web site shall not
be deemed to be a part of this Prospectus.
THE OFFERING
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<S> <C>
Common Stock offered by the Company................. shares
Common Stock to be outstanding after the offering... shares(1)
Use of proceeds..................................... For working capital and other general
corporate purposes including capital
expenditures and the repayment of
approximately $1.3 million of indebtedness to
certain stockholders. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.............. FVHI
</TABLE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 11,
1994 (DATE
OF SIX MONTHS ENDED
INCEPTION) JUNE 30,
THROUGH YEAR ENDED ---------------------------
DECEMBER 31, DECEMBER 31, 1995
1994 1995 ----------- 1996
------------ ------------ (UNAUDITED) -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 3,580 $ 197,902 $ 31,390 $ 401,082
Total operating expenses................ 826,110 2,399,993 1,127,775 2,929,574
Net loss................................ (835,679) (2,269,981) (1,133,138) (2,505,834)
Pro forma net loss per share(2)......... $ $ $
Shares used in computing pro forma net
loss per share(2).....................
<CAPTION>
JUNE 30, 1996
------------
AS
ACTUAL PRO FORMA(3) ADJUSTED(4)
---------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, and a short-term
investment, available-for-sale.................. $ 3,487,616 $8,945,959 $
Working capital................................... 2,568,059 8,026,402
Total assets...................................... 5,115,507 10,573,850
Notes payable to stockholders..................... 1,200,000 1,200,000
Total stockholders' equity........................ 2,672,980 8,131,323
</TABLE>
- ---------------
(1) Based on number of shares outstanding as of October 16, 1996 and includes
1,328,006 shares of Common Stock issuable upon exercise of warrants
outstanding as of October 16, 1996 at an exercise price of $0.01 per share
held by First USA Merchant Services Inc. ("First USA Merchant Services"), a
wholly-owned subsidiary of First USA Paymentech, Inc. ("First USA
Paymentech"). Excludes (i) an aggregate of 3,468,250 shares of Common Stock
reserved for issuance under the Company's stock option plans, of which
1,702,145 shares were subject to outstanding options at October 16, 1996 at
a weighted average exercise price of $4.61 per share, (ii) an aggregate of
1,000,000 shares of Common Stock subject to
4
<PAGE> 8
additional outstanding options at October 16, 1996 at an exercise price of
$6.30 per share, (iii) an aggregate of 100,000 shares of Common Stock
reserved for issuance under the Company's Employee Stock Purchase Plan, none
of which were outstanding as of the date of this Prospectus, (iv) shares of
Common Stock equivalent of up to four percent of the Company's outstanding
capital stock issuable upon the exercise of a warrant held by First USA
Merchant Services at an exercise price of $0.01 per share subject to the
satisfaction of certain marketing-related performance milestones and which
terminates immediately prior to the closing date of this offering, (v) up to
47,619 shares of Common Stock reserved for issuance upon the exercise of an
outstanding warrant at an exercise price of $10.50 per share held by General
Electric Capital Corporation ("GE Capital"), subject to adjustment and (vi)
1,500,000 shares of Common Stock reserved for issuance upon the exercise of
an outstanding warrant at exercise prices between $2.23 and $5.00 per share
held by First Data Corporation ("First Data"), subject to the satisfaction
of certain marketing-related performance milestones. See "Capitalization,"
"Dilution," "Management -- Stock Plans," "Certain Transactions" and Notes 6
and 8 of Notes to Financial Statements.
(2) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing pro forma net loss per share.
(3) Gives effect to (i) the exercise of warrants outstanding as of June 30, 1996
to purchase 1,328,006 shares of Common Stock at an exercise price of $0.01
per share held by First USA Merchant Services, (ii) the sale of an aggregate
of 439,985 shares of capital stock subsequent to June 30, 1996 and (iii) the
conversion of all outstanding shares of Preferred Stock into Common Stock on
a one-to-one basis.
(4) Adjusted to reflect the sale of the shares of Common Stock offered
hereby at an assumed offering price of $ (after deduction of the
underwriting discounts and commissions and estimated offering expenses) and
the application of the net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
5
<PAGE> 9
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the timing of certain
events could differ materially from those projected in the forward-looking
statements due to a number of factors, including those set forth below and
elsewhere in this Prospectus. Prospective investors should consider carefully
the following factors, in addition to the other information contained in this
Prospectus, in evaluating an investment in the shares of Common Stock offered
hereby.
HISTORY OF OPERATING LOSSES AND ANTICIPATED FUTURE LOSSES; LIMITED OPERATING
HISTORY
The Company has incurred net operating losses in each quarter since its
inception in March 1994. As of June 30, 1996, the Company had an accumulated
deficit of approximately $5.6 million. To date, the Company has not generated
significant revenues, and the Company anticipates that it will generate only
limited revenues for the year ending December 31, 1996 and possibly thereafter.
There can be no assurance that the Company's revenues will remain at current
levels or increase, and the Company's ability to generate significant future
revenues is subject to substantial uncertainty. In addition, as a result of the
anticipated significant investment that the Company plans to make in its
systems, sales, marketing, research and development, customer support and
administrative infrastructure over the near term, the Company expects to
continue to incur significant operating losses on both a quarterly and an annual
basis for the foreseeable future. For these and other reasons, there can be no
assurance that the Company will ever achieve or be able to sustain
profitability.
The Company commenced operations in March 1994, launched FVIPS in October
1994 and began recognizing revenues in the fourth quarter of 1994. The Company
was a development stage company through December 1995. Accordingly, the Company
has a limited operating history upon which to base an evaluation of its business
and prospects. The Company and its business prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in the new and rapidly evolving market for Internet products and
services. To address these risks, the Company must, among other things,
successfully respond to competitive developments, market additional Internet
commerce services, upgrade its technologies and commercialize products and
services incorporating such technologies, and attract, retain and motivate
qualified personnel. There can be no assurance that the Company will succeed in
addressing any or all of these risks, and the failure to do so would have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, the limited operating history of the Company
makes the prediction of future results of operations very difficult.
Accordingly, the Company believes that period-to-period comparisons of its
operating results are not meaningful and that the results for any period should
not be relied upon as an indication of future performance. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ANTICIPATED FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
As a result of the early stage of development of Internet commerce and the
Company's limited operating history, the Company's revenue expectations are
based almost entirely on internal estimates of future demand and not on actual
experience. Moreover, the Company has only limited historical financial data for
quarterly or annual periods on which to base planned operating expenses. The
Company's expense levels have been established in large part due to its current
expectations for future revenues and its expected development and marketing
requirements. In the event market demand and revenues do not meet expectations,
the Company may be unable to adjust its spending levels on a timely basis to
compensate for unexpected revenue shortfalls. In addition, the Company's
operating expenses have increased substantially in recent periods and the
Company currently anticipates that its operating expenses will continue to
increase substantially for the foreseeable future as the Company continues to
develop and market its initial products and services, increases its marketing
and sales activities, creates and expands the distribution channels for its
services, and broadens its customer support capabilities. The Company's revenues
for the fiscal quarter ended June 30, 1996 declined from the previous quarter,
and the Company anticipates that revenues for the quarter ended September 30,
1996 will reflect an additional decline. While the Company believes that the
decreases were attributable in part to the upgrade of FVIPS during the third
quarter of 1996, there can be no assurance that revenues
6
<PAGE> 10
associated with use of the VirtualPIN and FVIPS will be increased significantly
as required for the Company to attain profitability, or at all. Any material
shortfall of demand for the Company's products and services in relation to the
Company's expectations would have a material adverse effect on the Company's
business and financial condition and could cause significant fluctuations in the
Company's results of operations.
The Company expects its future operating results over both the short and
the long term will be subject to annual and quarterly fluctuations due to
several factors, many of which are beyond the control of the Company, including,
among others, market acceptance of Internet commerce in general and FVIPS and
the VirtualPIN concept in particular; fluctuating market demand for the
Company's products and services including the rate of Seller and Buyer
registrations; the monthly volume and average dollar amount of transactions
using FVIPS; the degree of acceptance of the Internet as an advertising and
merchandising medium; the fees charged to the Company by third party processors
and financial institutions; the timing and effectiveness of collaborative
marketing efforts initiated by the Company's strategic partners; the timing of
the introduction of new products and services offered by the Company; the timing
of the release of enhancements to the Company's products and services; product
introductions and service offerings by the Company's competitors; the mix of the
products and services provided by the Company; the timing and rate at which the
Company increases its expenses to support projected growth; the cost of
compliance with applicable government regulations; competitive conditions in the
Company's marketplace; and general economic conditions. In addition, the fees
charged by the Company for Buyer and Seller registration, transaction processing
and co-marketing are subject to change as the Company continues to roll out
FVIPS and assess its marketing strategy and competitive position. The Company
believes that period-to-period comparisons of its operating results are not
meaningful and should not be relied upon as any indication of future
performance. Due to the foregoing factors, among others, it is possible that the
Company's future quarterly or annual operating results from time to time will
not meet the expectations of market analysts or investors, which may have a
material adverse effect on the price of the Company's Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNDEVELOPED AND RAPIDLY CHANGING MARKETS
The markets for the Company's products and services are at a very early
stage of development, are rapidly changing and are characterized by an
increasing number of market entrants that have introduced or are developing
competing products and services for use on the Internet and the Web. As is
typical for a new and rapidly evolving industry, demand for and market
acceptance of recently introduced products and services are subject to a high
level of uncertainty and risk. While the number of individuals and businesses
using the Internet and the Web for commercial purposes has grown rapidly over
recent years, there can be no assurance that this growth will continue, that
Internet commerce will become widespread or that sufficient demand for the
Company's products and services will develop to sustain the Company's business.
Furthermore, if the Company successfully expands the applications of the
VirtualPIN architecture for additional interactive Internet communications
applications such as Internet advertising, merchandising or direct marketing,
there can be no assurance that demand for such applications will develop or
increase. In addition, it is not known whether individuals or businesses will
use the Internet as a means of purchasing goods and services. To establish the
Internet as a source of widespread and significant commercial activity,
particularly by those individuals and businesses which historically have relied
upon traditional means of commerce, will require the broad acceptance of new
methods of conducting business and exchanging information. Businesses that
already have invested substantial resources in traditional or other methods of
conducting business may be reluctant to adopt new commercial methodologies or
strategies that may limit or compete with their existing businesses. Individuals
with established patterns of purchasing goods and services may be reluctant to
alter those patterns. Banks and financial institutions with established methods
of handling payments may also be reluctant to accept new payment systems based
on Internet commerce. The Company expects such historical patterns of business
conduct to inhibit the growth of Internet commerce in general and market
acceptance of the Company's services in particular.
The Company's business includes products and services that are new, operate
in a market that did not previously exist and will be subject to rapid and
unpredictable market changes. It is uncertain whether a
7
<PAGE> 11
significant market will ever emerge for effecting payments over the Internet by
means of FVIPS or any other payment system or that the Internet will develop as
an effective medium for advertising and merchandising. The Company's success is
critically dependent on the development of Internet commerce, which the Company
believes will require the significant expansion of the Internet infrastructure
in order to provide adequate Internet access, the proper management of Internet
traffic and a substantial amount of public education to, among other things,
increase confidence in the integrity and security of Internet commerce. There
can be no assurance that commerce over the Internet will become widespread, that
a market for the Company's products and services will emerge or that FVIPS or
other applications using the VirtualPIN architecture will be generally adopted.
If the market fails to develop, or develops more slowly than expected, if the
infrastructure for the Internet is not adequately established or if the
Company's products and services do not achieve market acceptance by a
significant number of individuals, businesses and financial institutions, then
the Company's business, financial condition and results of operations will be
materially and adversely affected.
DEPENDENCE ON INCREASED USAGE AND STABILITY OF THE INTERNET
The future of the Internet as a center for commerce will depend in
significant part on continued rapid growth in the number of households and
commercial, educational and government institutions with access to the Internet,
in the level of usage by individuals and in the number and quality of products
and services designed for use on the Internet. Because usage of the Internet as
a medium for on-line exchange of information, advertising, merchandising and
entertainment is a recent phenomenon, it is difficult to predict whether the
number of users drawn to the Internet will continue to increase and whether any
significant market for effecting financial transactions over the Internet or any
substantial commercial use of the Internet will develop. There can be no
assurance that Internet usage patterns will not decline as the novelty of the
medium recedes or that the quality of products and services offered on-line will
improve sufficiently to continue to support user interest. In addition, it is
uncertain whether the cost of Internet access will decline. Failure of the
Internet or the Web to stimulate consumer interest and be accessible to a broad
audience at moderate costs would jeopardize the viability of Internet commerce
and the market for the Company's products and services. The Internet and the Web
have experienced, and are expected to continue to experience, significant growth
in the number of users and amount of traffic; however, the Internet may not
prove to be a viable commercial marketplace for a number of reasons, including
potentially inadequate development of the necessary infrastructure, such as a
reliable network backbone, or timely development of performance improvements
including high speed modems. In addition, although the number of merchants
offering consumer goods and services on the Web has risen sharply in the recent
past, there is no assurance that growth in the number of vendors maintaining
sites on the Web will continue. Accordingly, there can be no assurance that
Internet commerce will become widespread or that sustainable markets for the
Company's products and services will develop. If such markets fail to develop,
develop more slowly than expected or become dominated by one or more
competitors, the Company's business, financial condition and results of
operations will be materially and adversely affected. Furthermore, if the
Internet were unable to support the demands of its users, the Internet could
lose its viability due to delays in the development or adoption of new standards
and protocols or due to increased governmental regulation. If the necessary
infrastructure, complementary services or facilities are not developed, or if
the Internet does not become a viable commercial marketplace, the Company's
business, financial condition and results of operations will be materially and
adversely affected. See "Business -- Industry Background."
Moreover, critical issues regarding the stability of the Internet's
infrastructure remain unresolved. The rapid rise in the number of Internet users
and increased transmission of audio, video, graphical and other multimedia
content over the Web has placed increasing strains on the Internet's
communications and transmission infrastructures. Continuation of such trends
could lead to significant deterioration in transmission speeds and reliability
of the Internet and could reduce the usage of the Internet by businesses and
individuals. In addition, to the extent that the Internet continues to
experience significant growth in the number of users and level of use without
corresponding increases and improvements in the Internet infrastructure there
can be no assurance that the Internet will be able to support the demands placed
upon it by such continued growth. Any failure of the Internet to support such
increasing number of users due to inadequate infrastructure, or
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otherwise, would seriously limit the development of the Internet as a viable
commercial marketplace and could materially and adversely affect the acceptance
of the Company's products and services which would, in turn, materially and
adversely affect the Company's business, financial condition and results of
operations.
DEPENDENCE ON ACCEPTANCE OF FVIPS; RISK OF CHANGES IN CONSUMER PERCEPTIONS
Substantially all of the Company's revenues to date have been attributable
to the receipt of registration fees from Buyers and Sellers, transaction
processing fees and co-marketing fees associated with FVIPS. Such fees are
currently expected to account for a significant portion of the Company's
revenues for the foreseeable future. As a result, a decline in demand for, or
failure to achieve broad market acceptance of FVIPS, as a result of competition,
technological change or otherwise, would have a material adverse effect on the
Company's business, financial condition and results of operations. A failure to
significantly expand both the number of Sellers and Buyers using FVIPS and the
number of transactions processed by FVIPS would also have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's future financial performance will depend in part on the successful
development, introduction and customer acceptance of new and enhanced products
and services which are dependent upon the success of FVIPS. There can be no
assurance that the Company will be successful in marketing FVIPS or any new or
enhanced products or services.
The Company's future success is substantially dependent on the development
of demand for products and services that support transactions processed by FVIPS
over the Internet and, in particular, use credit card-based payment mechanisms.
Demand for secure payment solutions, including FVIPS, has been fueled in part by
wide-spread fears of the risks associated with the potential theft of credit
card account numbers transmitted over the Internet and other manifestations of
Internet-based credit card fraud. Such consumer perceptions of the risks
associated with credit card-based Internet transactions have received
substantial media attention, but may lack empirical support. In addition, the
Company believes that most consumers may be unaware that the potential liability
resulting from fraudulent charges to their credit card accounts is limited by
federal laws that limit the liability of cardholders for an unauthorized use of
their card to no more than $50. Any change in consumer perception of the
incidence of credit card account number theft over the Internet, or the
potential liability attendant to such fraud, could impact the demand for
Internet security mechanisms, including FVIPS. Any such decline in the perceived
need for the security which the Company believes to be a principal feature of
FVIPS could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- The VirtualPIN
Architecture," " -- The First Virtual Internet Payment System" and
"-- Competition."
COMPETITION
The market for products and services that enable the sale of goods and
services over the Internet is expected to be intensely competitive and, to the
extent commercial activity over the Internet increases, the Company expects
competition to increase significantly. There are no substantial barriers to
entry into the Company's business, and the Company expects established and new
entities to enter the market for Internet payment systems and interactive
Internet communications in the near future. Although the Company believes that
the diverse segments of the Internet will provide opportunities for more than
one supplier of products and services similar to the Company's, it is possible
that a single supplier will dominate one or more market segments. Furthermore,
since there are many potential entrants to the field, it is extremely difficult
to assess which companies are likely to offer competitive products and services
in the future, and in some cases it is difficult to discern whether an existing
service is competitive with the Company's current services.
The Company's principal competitors in the market for consumer-initiated
purchases over the Internet include providers of encrypted credit card
transaction systems such as CyberCash, Inc. ("CyberCash"), Checkfree Corporation
("Checkfree"), Open Market, Inc. ("Open Market"), Netscape Communications
Corporation ("Netscape"), and GC Tech and providers of electronic cash payment
systems such as DigiCash, Inc. ("DigiCash"). The Company expects that credit
card processors and acquiring banks will also offer credit card-based payment
systems if Secure Electronic Transaction ("SET") protocols proposed by Visa,
MasterCard, Microsoft Corporation ("Microsoft") and Netscape are adopted and/or
accepted as a standard
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for Internet commerce. SET comprises openly published communication and process
protocols intended to facilitate encrypted credit card transactions over the
Web. The Company may experience additional competition from Internet service
providers who enter the market for Internet payment services. Companies such as
America Online, Inc. ("AOL"), CompuServe Incorporated ("CompuServe"), Microsoft,
IBM, AT&T and Federal Express which possess large, existing customer bases or
ready distribution channels, could develop, market or resell a number of payment
alternatives including, but not limited to, encrypted credit card payment and
digital cash payment systems. Additionally competitors may emerge to provide
payment systems based on alternative systems or methods other than credit cards
or digital cash, such as Internet checking transaction systems. The Company also
competes with the direct transmission of unprotected credit card information for
commercial transactions over the Internet (i.e., "in the clear" transactions),
which is currently the primary method for Internet commercial transactions that
use a credit card as a form of payment. The Company believes that mail order
companies and companies that sell from catalogues using "800" telephone numbers
also compete with Internet payment systems. As the Company expands the
applications of its VirtualPIN architecture, it will compete with a broader
range of companies including traditional advertising, merchandising and direct
marketing companies as well as additional entrants into the interactive Internet
communications market.
Several of the Company's current and potential competitors have longer
operating histories, greater name recognition, larger installed customer bases,
more diversified lines of products and services and significantly greater
financial, technical, marketing and other resources than the Company. Such
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive pricing policies and make more attractive offers to individuals,
businesses and financial institutions. In addition, many of the Company's
current or potential competitors have broad distribution channels that may be
used to bundle competing products or services directly to end-users or
purchasers. If such competitors were to bundle competing products or services
for their customers, the demand for the Company's products and services might be
substantially reduced, and the ability of the Company to successfully effect the
distribution of its products and the utilization of its services would be
substantially diminished. As a result of the foregoing or other factors, there
can be no assurance that the Company will compete effectively with current or
future competitors or that the competitive pressures will not have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Competition."
DEPENDENCE UPON PRODUCT AND SERVICE DEVELOPMENT; RISKS OF TECHNOLOGICAL CHANGE
AND EVOLVING INDUSTRY STANDARDS
The Company's success depends upon its ability to develop new products and
services that satisfy evolving customer requirements including potential
applications for Internet advertising, merchandising and direct marketing. The
market for the Company's services is characterized by rapidly changing
technology, emerging industry standards and customer requirements that have been
changing every few months. There can be no assurance that the Company will
successfully identify new product and service opportunities and develop and
bring to market new products and services in a timely manner. Failure of the
Company, for technological or other reasons, to develop and introduce new
products and services that are compatible with emerging industry standards and
that satisfy customer requirements would have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company or its competitors may announce enhancements to existing products or
services, or new products or services embodying new technologies, emerging
industry standards or customer requirements that render the Company's existing
products and services obsolete and unmarketable. There can be no assurance that
the announcement or introduction of new products or services by the Company or
its competitors or any change in emerging industry standards will not cause
customers to terminate use of the Company's existing products and services,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's products and services are designed around certain technical
standards, and the Company's current and future revenues are dependent on
continued industry acceptance of such standards. While the Company intends to
provide compatibility with the standards promulgated by leading industry
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<PAGE> 14
participants and groups, widespread adoption of a proprietary or closed standard
could preclude the Company from effectively doing so. Moreover, a number of
leading industry participants have announced their intention to enter into or
expand their positions in the market for Internet payment systems through the
development of new technologies and standards. There can be no assurance that
the Company's products and services will achieve market acceptance, that the
Company will be successful in developing and introducing new products and
services that meet changing customer needs and respond to technological changes
or emerging industry standards in a timely manner, if at all, that the standards
upon which the Company's products and services are or will be based will be
accepted by the industry or that products, services or technologies developed by
others will not render the Company's products and services noncompetitive or
obsolete. The inability of the Company to respond to changing market conditions,
technological developments, emerging industry standards or changing customer
requirements or the development of competing technologies or products that
renders the Company's products and services noncompetitive or obsolete would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- The VirtualPIN Architecture,"
"-- The First Virtual Internet Payment System" and "-- Research and
Development."
RISKS ASSOCIATED WITH FVIPS UPGRADES
In July 1996, the Company transitioned FVIPS from a system that relied
solely on Electronic Data Systems, Inc. ("EDS") for financial services
processing of transactions to a system that is primarily managed by the Company.
The Company also plans upgrades to FVIPS from time to time in the future. Prior
to this recent transition to a self-managed system, the Company relied entirely
on EDS for all financial services processing of FVIPS transactions and for
management of the Company's database, including the entry of new Seller and
Buyer registrations, updating of customer information and the management of
customer accounts. Prior to the upgrade of the system, the Company had not
previously effected a general upgrade of FVIPS. Given the limited time the
upgraded system has been in operation, there can be no assurance that
complications resulting from the upgrade will not arise, that the new system
will prove to be capable of functioning in a fully operating environment over an
extended period of time or that operating flaws or disruptions will not emerge.
For example, subsequent to the upgrade, the Company discovered during a batch
process with the Automated Clearing House ("ACH") network that a file created to
ACH specifications did not clear the ACH processing routines. As a result,
deposits destined for Seller bank accounts did not occur until the problem was
resolved 34 hours after the problem was discovered. Any similar systems failure,
if prolonged or compounded, could cause a significant interruption to the
Company's products and services and could reduce the viability of FVIPS and, if
sustained or repeated, could reduce the demand for the Company's products and
services to current and potential Internet customers which would result in a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, the Company has no prior experience with
managing a large database of customer and transactional information. In order to
properly manage its operational database, the Company will need to (i) improve
its management information systems and controls, (ii) implement new database
management software and (iii) attract and retain qualified personnel. Currently,
the Company's databases are inadequate to support its planned future operations.
The Company currently anticipates spending approximately $6.0 million to install
and maintain a relational database management system and related hardware in
connection with an upgrade of FVIPS. There can be no assurance that any such
upgrade will be completed in a timely manner or that any such upgrade will be
adequate to meet the needs of the Company. Any inability to properly effect and
manage upgrades to the Company's customer database could result in a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON REPEATED CUSTOMER USE OF FVIPS
The Company's future success is substantially dependent on its ability to
significantly expand its base of Sellers and Buyers and to increase the number
of transactions that are conducted using FVIPS. The Company believes that an
increase in the number of FVIPS transactions depends primarily on the repeated
usage of the VirtualPIN by Buyers. As a result of the limited data that the
Company has received from the relatively small number of Sellers and Buyers
using FVIPS, the Company believes that conclusions regarding the tendencies of
its Sellers and Buyers are not meaningful and should not be relied on as an
indication of future performance.
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<PAGE> 15
However, the limited information First Virtual has accumulated to date suggests
that a substantial percentage of Buyers have failed to make repeated usage of
their VirtualPINs. Although the Company believes that regular usage of
VirtualPIN accounts by existing Buyers may increase as the variety and quality
of goods and services offered by VirtualPIN-enabled Sellers increases, there is
no assurance the Company's historic rate of VirtualPIN use per Buyer will
continue or increase. The ability of the Company to increase the average number
of transactions per VirtualPIN is subject to substantial uncertainty. In the
event the average number of transactions per VirtualPIN does not substantially
increase in the future, the Company's business, financial condition and results
of operations would be materially and adversely affected. In addition, the
Company anticipates that it will modify Buyer registration and renewal fees from
time to time in the future. There can be no assurance that any modification in
the fee structure will not result in significant Buyer attrition or reduced
future Buyer registrations. Any significant Buyer attrition or the failure of
the Company to substantially increase the number of active users of FVIPS would
materially and adversely affect the Company's business, financial condition and
results of operations.
Certain Sellers employing FVIPS have in the past reduced their use of the
system. Although the Company has very limited information regarding Seller usage
of FVIPS, the Company believes that declining usage of FVIPS by Sellers can
occur when Sellers cease to maintain their Web sites or discontinue product or
service offerings on their Web sites. Such discontinuation could have a material
adverse effect on the Company's business, financial condition and results of
operations. For example, in the fall of 1995, Apple Computer, Inc. ("Apple"),
which had previously offered customers the option of purchasing its QuickTime
application software on its Web site using FVIPS, decided to offer QuickTime as
"freeware," resulting in a decrease in Apple's use of FVIPS and a reduction in
FVIPS transaction volume. The Company also faces the risk of losing Sellers that
choose to employ alternative payment mechanisms or experience a decline in
transactions using FVIPS. In this regard, in March 1996, PC Quote, one of the
Company's largest Sellers, deployed an alternative payment mechanism, resulting
in a substantial decline in usage of VirtualPIN transactions by the PC Quote Web
site. In particular, while the Company believes that FVIPS offers Sellers
significant functional and economic advantages over alternative systems, Sellers
that offer low priced products may incur per transaction costs using FVIPS that
are higher than they may experience from custom developed solutions or from
competitive solutions. Accordingly, Sellers that offer low priced products may
be prone to migration to competing technologies in the future. Any significant
decline in the usage of FVIPS by Sellers or increase in the rate of Seller
attrition could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company anticipates that it
will modify Seller registration and renewal fees from time to time in the
future. There can be no assurance that any such modification in the fee
structure will not result in increased attrition or reduced future Seller
registrations, which could materially and adversely affect the Company's
business, financial condition and results of operations.
RISK OF CAPACITY CONSTRAINTS
A key element of the Company's strategy is to generate a high volume of
FVIPS usage. Accordingly, the performance of the Company's products and services
is critical to the Company's ability to achieve market acceptance and continued
use of these products and services. Significant increases in the volume of
transactions through FVIPS could strain the capacity of the Company's software
or hardware, which could lead to slower response time or system failures. The
Company intends to make substantial investments to increase its server capacity
by adding new servers and upgrading its FVIPS management software. As the number
of Web and Internet users increases, there can be no assurance that the
Company's products and services will be able to meet this demand. The Company
and its customers are also dependent upon Web browsers and Internet and online
service providers for access to its services, and users have experienced
difficulties due to system failures unrelated to the Company's system, products
or services. To the extent that the capacity constraints described above are not
effectively addressed by the Company, such constraints could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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RISKS OF DEFECTS AND DEVELOPMENT DELAYS
Products and services based on sophisticated software and computing systems
often encounter development delays, and the underlying software may contain
undetected errors and failures when introduced or when usage increases. The
Company may experience delays in the development of the software and computing
systems underlying the Company's services. In addition, there can be no
assurance that, despite testing by the Company and Sellers and Buyers, errors
will not be found in the underlying software or that the Company will not
experience development delays, resulting in delays in the commercial release of
its products and services or in the market acceptance of its products and
services, each of which could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Research and Development."
RISKS OF SYSTEMS FAILURES; LACK OF INSURANCE AND SECURITY RISKS
The operation of FVIPS is dependent on the Company's ability to protect its
computer equipment and the information stored in its data centers against loss
or damage that may be caused by system overloads, fire, power loss,
telecommunications failures, unauthorized intrusion, infection by computer
viruses and similar events. The Company's data center and servers are currently
located at its headquarters in San Diego, California and at a facility in
Dallas, Texas, and the Company will soon add a second facility in San Diego.
There can be no assurance that a system failure at any of these locations would
not materially and adversely affect the Company's ability to provide its
products and services.
The Company uses a UNIX file system for its database which, from time to
time has been susceptible to some data corruption. The Company is in the process
of developing a relational database for installation scheduled for completion in
the first half of 1997, and will remain susceptible to such data corruption
until the installation is completed. Corruption of data could result in a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company currently retains highly confidential customer financial
information, including bank account and credit card information, in a secure
database server that the Company believes to be isolated from the Internet.
Although the server is protected by firewalls and proprietary, one-way batch
protocols for sensitive information and the Company regularly reviews the system
for security weaknesses, there can be no assurance that unauthorized individuals
could not obtain access to this database server. Any unauthorized penetration of
the Company's server which is not directly connected to the Internet could
result in the theft of bank account and credit card information, E-mail
addresses, and comprehensive transaction histories. Any unauthorized penetration
of the Company's servers which are connected to the Internet could result in the
theft of VirtualPIN numbers, E-mail addresses and recent transaction histories.
Unauthorized penetration could lead to attempts to use such information to
effect fraudulent purchases, including the introduction of fabricated
transactions into the Company's financial processors. Although the Company
believes that VirtualPIN architecture should thwart attempts to use
misappropriated account information, widespread attempts to effect such
transactions would require the Company to devote substantial resources to
counteracting such attempts and could result in a compromise of the system or
the interruption of the Company's ability to provide its products and services
and may result in adverse publicity to the Company and consequently have a
material adverse effect on the Company's business, financial condition and
results of operations. Despite the Company's security precautions and cautious
hiring policies, it is also possible that an employee of the Company may attempt
to divert customer funds or otherwise misuse confidential customer information,
exposing the Company to legal liability. In addition, although the Company
believes that the potential for the unauthorized interception of information
transmitted over the Internet through FVIPS is not likely to result in the
fraudulent use of VirtualPINs, there can be no assurance that unauthorized use
of such information will not occur and, if it does occur, that it will not
result in a financial loss or significant inconvenience to the VirtualPIN
holder. Furthermore, although the Company employs disclaimers and limitation of
warranty provisions in its customer agreements to attempt to limit its liability
to customers, including liability arising out of systems failure or failure of
security precautions, there can be no assurance that such provisions will be
enforceable, or will otherwise prove effective in limiting the Company's
exposure to damage claims. See "Business -- The VirtualPIN Architecture" and
"-- The First Virtual Internet Payment System."
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Although the Company carries property and business interruption insurance,
its coverage may not be adequate to compensate the Company for all losses that
may occur. The Company is in the process of increasing its server capacity,
improving its security mechanisms and taking other precautions to protect itself
and its customers from events that could interrupt delivery of the Company's
products and services or result in a loss of transaction or customer data.
However, these measures will not eliminate a significant risk to the Company's
operations from a natural disaster or systems failure. There can be no assurance
that these measures would protect the Company from an organized effort to
inundate the Company's servers with massive quantities of E-mail or other
Internet message traffic which could overload the Company's systems and result
in a significant interruption of service. In August 1995, the Company
experienced a 78-hour disruption in its systems which resulted in interruption
of service to all Sellers and Buyers for such period. Any systems failure that
causes a significant interruption to or increases response time of the Company's
products and services could reduce traffic to the Company's Web sites and, if
sustained or repeated, would reduce the attractiveness of the Company's products
and services to current and future customers. The Company does not have business
interruption insurance that would compensate the Company for lost revenues or
increased costs experienced by the Company during the occurrence of any
disruption of its computer systems, nor is there any assurance that the Company
will be able to obtain such coverage on reasonable terms or at all in the
future. Significant service interruptions could also damage the Company's
reputation and result in the loss of a significant portion of its Sellers and
Buyers, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Facilities."
DEPENDENCE ON DISTRIBUTION RELATIONSHIPS, COLLATERAL SYSTEMS AND EXPANSION OF
DIRECT SALES FORCE
A key element of the Company's current business and marketing strategy is
to establish, develop and maintain relationships with credit card companies and
other financial institutions to promote the Company's products and services to
their merchant and consumer customers. Although the Company has established
relationships with several entities which may enhance the Company's ability to
penetrate the market for Internet payment services, such relationships have only
been entered into recently, are nonexclusive and have not resulted in any
comprehensive marketing effort or a measurable increase in the Company's Seller
and Buyer base to date. No assurance can be given that the Company will be able
to maintain its current strategic relationships or cultivate additional
partnering relationships in the future or that any such relationship will prove
to be effective in expanding the Company's Seller and Buyer base. In addition,
there can be no assurance that the Company's existing or potential marketing
partners, most of whom have significantly greater financial and marketing
resources than the Company, will not change their business strategies or
discontinue their relationships with the Company, develop and market products
and services that compete with the Company's products and services in the future
or form collaborative marketing relationships with one or more of the Company's
competitors that offer alternative Internet payment mechanisms.
The operation of FVIPS is dependent on the continued availability and
reliability of collateral telecommunications, information processing and
financial clearance systems. In particular, the Company is substantially
dependent on First USA Paymentech for merchant transaction acquisition services,
on EDS for financial services processing and on Northern Trust Company
("Northern Trust") for clearinghouse services. There is no assurance that these
companies will continue to provide collateral services to the Company without
disruptions in service, at the current cost, or at all. Although the Company
believes that such services could be obtained from other sources in due course
if required, reengineering the Company's computer systems and telecommunications
infrastructure to accommodate a new service provider could only be accomplished
at significant cost and with significant delay. Any interruption of service by a
collateral services provider also would be likely to result in the disruption of
the operation of FVIPS, with an attendant loss of revenues and potential loss of
customers. Such losses could have a material adverse impact on the Company's
business, financial condition and results of operations.
In order to increase market acceptance of FVIPS and to increase the number
of Sellers and Buyers using the system to a level necessary for the Company to
attain profitability, the Company will be required to significantly expand its
direct sales force and marketing organization and manage such personnel
effectively. As of September 30, 1996, the Company had 18 marketing and sales
employees. Establishing required
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<PAGE> 18
marketing and sales capability will require substantial efforts and significant
management and financial resources. The Company's management has very limited
experience in recruiting, developing or managing a marketing and sales force.
There can be no assurance that the Company will be able to recruit and retain
direct marketing and sales personnel in order to build an effective marketing
and sales organization, that building such a marketing and sales organization
will be cost effective or that the Company's marketing and sales efforts will be
successful.
MANAGEMENT OF POTENTIAL GROWTH; RISKS ASSOCIATED WITH NEW MANAGEMENT TEAM
The rapid development necessary for the Company to exploit the market
opportunity for FVIPS requires an effective planning and management process. As
of September 30, 1996, the Company had grown to 86 employees from 21 employees
on December 31, 1995, and the Company expects this growth to continue. As of
September 30, 1996 the Company had seven executive officers. Many of the
Company's executive officers have joined the Company since April 1996, including
the President of Financial Services; Vice President, Merchant Services; and Vice
President, Finance and Administration and Chief Financial Officer, each of whom
joined in September or October 1996. The Company's success depends to a
significant extent on the ability of its executive officers and other members of
its management to operate effectively, both individually and as a group. There
can be no assurance that the Company will satisfactorily allocate
responsibilities and that the new executives will succeed in these roles in a
timely and efficient manner. Furthermore, the continued success of the Company
is largely dependent on the personal efforts and abilities of its senior
management and certain other key personnel and on the Company's ability to
retain current management and to attract and retain qualified personnel in the
future. The Company's failure to assimilate these new executives could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's recent growth has placed, and is expected to continue to
place, a significant strain on its managerial, operational and financial
resources. Prior to July 1996, the Company's internal operational, financial and
management information systems were in the process of development and were
relatively unsophisticated. To manage its potential growth, the Company must
implement a comprehensive management information system and improve its internal
operational and financial systems. The Company currently anticipates spending
approximately $2.0 million through the end of 1997 to upgrade the Company's
internal operating systems and its management information systems. There can be
no assurance that any upgrade of its management information systems will be
completed in a timely fashion or that any such upgrade will be adequate to meet
the Company's needs. The Company is also expanding its transaction processing
capacity and its marketing and sales organizations, funding increasing levels of
research and development, and increasing its customer support organization to
accommodate the growth of its installed base of Sellers and Buyers and to
develop additional products and services. The growth in the Company's customer
base and transaction volume has placed, and any future growth is expected to
continue to place, increased demands on the Company's management and operations,
including its marketing and sales, customer support, research and development,
general and administrative operations. There can be no assurance that the
Company will be able to effectively manage the expansion of its operations, that
the Company's systems, procedures and controls will be adequate to support the
Company's operations or that Company's management will be able to achieve the
rapid execution necessary to exploit the market opportunity for the Company's
products and services. Any inability to manage growth effectively could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance is substantially dependent upon the
continued contributions of members of the Company's senior management and
technical personnel. In particular, the Company's success substantially depends
on the continued participation of its Chief Executive Officer, Lee Stein, its
principal senior technical employees, Nathaniel Borenstein and Marshall Rose,
and other members of its senior management team, which is currently composed of
a small number of individuals who recently joined the Company. The loss of any
of such persons could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company has obtained key man
life insurance in the amount
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of $3 million each on the lives of Messrs. Stein, Borenstein and Rose. In
addition, the Company believes that its future success will depend upon its
continuing ability to identify, attract, train and retain other highly skilled
managerial, engineering, sales and marketing and other personnel. Competition
for such personnel is intense. There can be no assurance that the Company will
be successful in identifying, attracting, training and retaining the necessary
personnel, and the failure to do so could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management."
LIMITED INTELLECTUAL PROPERTY PROTECTION
The Company relies on a combination of trade secret, copyright and
trademark laws, nondisclosure agreements, and other contractual provisions and
technical measures to protect its proprietary rights. There can be no assurance
that trade secret, copyright and trademark protections will be adequate to
safeguard the proprietary software underlying the Company's products and
services, or that its agreements with employees, consultants and others who
participate in the development of its software will not be breached, that the
Company will have adequate remedies for any breach or that the Company's trade
secrets will not otherwise become known. Moreover, notwithstanding the Company's
efforts to protect its intellectual property, there is no assurance that
competitors will not be able to develop functionally equivalent Internet payment
services without infringing any of the Company's intellectual property rights.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use products or technology
that the Company considers proprietary, and third parties may attempt to develop
similar technology independently. In addition, effective protection of
intellectual property rights may be unavailable or limited in certain countries.
Accordingly, there can be no assurance that the Company's means of protecting
its proprietary rights will be adequate or that the Company's competitors will
not independently develop similar technology.
The Company currently has pending two patent applications relating to
FVIPS. While the Company believes that its pending patent applications relate to
patentable inventions, the Company's set of claims with respect to its first
patent application was rejected by the U.S. Patent and Trademark Office (the
"PTO"). While the Company is vigorously protesting the PTO's position, there can
be no assurance that any pending or future patent applications will be granted
or that any patent relied upon by the Company in the future will not be
challenged, invalidated or circumvented or that the rights granted thereunder or
under licensing agreements will provide competitive advantages to the Company.
The Company believes that, due to the rapid pace of technological innovation for
Internet products, the Company's ability to establish and maintain a position of
technology leadership in the industry depends more on the skills of its
development personnel than upon the legal protections afforded its existing
technology.
As the volume of Internet commerce increases, and the number of products
and service providers that support Internet commerce increases, the Company
believes that Internet commerce technology providers may become increasingly
subject to infringement claims. Any such claims, with or without merit, could be
time consuming, result in costly litigation, disrupt or delay the enhancement or
shipment of the Company's products and services or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable or favorable to the Company,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company was named as a defendant in a
patent infringement suit filed by E-data, Inc. ("E-data") in August 1995. The
suit was dismissed without prejudice in March 1996 and the Company now holds an
exclusive license for Internet payment systems under the Freeny patent, E-data's
applicable patent for Internet payment systems. There can be no assurance that
similar claims will not be filed by other plaintiffs in the future. In addition,
the Company may initiate claims or litigation against third parties for
infringement of the Company's proprietary rights or to establish the validity of
the Company's proprietary rights. Litigation to determine the validity of any
claims could result in significant expense to the Company and divert the efforts
of the Company's technical and management personnel from productive tasks,
whether or not such litigation is determined in favor of the Company. In the
event of an adverse ruling in any such litigation, the Company may be required
to pay substantial damages, discontinue the use and sale of infringing products,
expend significant resources to develop non-infringing technology or obtain
licenses to infringing technology. The failure of the Company to develop or
license a substitute technology could have a material adverse effect
16
<PAGE> 20
on the Company's business, financial condition and results of operations. See
"Business -- Proprietary Rights."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company believes it is not currently subject to direct regulation by
any government agency in the U.S., other than regulations applicable to
businesses generally, and there are currently few laws or regulations directly
applicable to access to, or commerce on, the Internet. However, no assurance can
be given that federal, state or foreign agencies will not attempt in the near
future to begin to regulate the market for Internet commerce. In addition, if a
government agency were to challenge the Company's position with respect to the
applicability of regulations to its activities, responding to such a challenge
could result in significant expenditures of the Company's financial and
management resources, which could have a material adverse effect on the
Company's business, financial condition and results of operations. More
generally, due to the increasing popularity and use of the Internet, it is
possible that a number of laws and regulations will be adopted with respect to
the Internet, covering issues such as user privacy, pricing, taxation and
characteristics and quality of products and services. For example, the recently
enacted Telecommunications Reform Act of 1996 subjects certain Internet content
providers to criminal penalties for the transmission of certain information, and
could also result in liability to Internet service providers, Web hosting sites
and transaction facilitators such as the Company. Various foreign jurisdictions
have also moved to regulate access to the Internet and to strictly control Web
content. Even if the Company's business is not directly subject to regulation,
the adoption of any such laws or regulations may inhibit the growth of the
Internet, or the businesses of the users of the Company's products and services,
which could in turn adversely affect the Company's business, financial condition
and results of operations. Moreover, the applicability to the Internet of
existing laws governing issues such as property ownership, libel, taxation and
personal privacy is uncertain. Such uncertainty creates the risk that such laws
could be interpreted in a manner that could generally inhibit commerce on the
Internet and adversely impact the Company's business.
Due to the growth of Internet commerce, Congress has considered regulating
providers of services and transactions in this market, and federal or state
authorities could enact laws, rules or regulations affecting the Company's
business or operations. Senior officials from several regulatory agencies,
including the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") and the Office of the Comptroller of the Currency, have
indicated that those agencies have refrained from promulgating regulations in
order to encourage continued development of electronic commerce, but will
monitor this area closely in the future. For example, the Electronic Funds
Transfer Act and Regulation E, promulgated by the Federal Reserve Board, govern
certain electronic funds transfers made by regulated financial institutions from
a consumer's account, and govern providers of access devices and electronic
funds transfer services. Although the Company believes that its current services
are not subject to Regulation E, there is no assurance that the Federal Reserve
Board will not require all or certain of the Company's services to comply with
Regulation E, revise Regulation E or adopt new rules and regulations affecting
electronic commercial transactions. Other government agencies in addition to the
Federal Reserve Board, including the Federal Trade Commission and the Federal
Communications Commission, may promulgate rules and regulations affecting the
Company's activities or those of the users of its products and services. Any or
all of these potential actions could result in increased operating costs for the
Company or for the principal users of its services and could also reduce the
convenience and functionality of the Company's services, possibly resulting in
reduced market acceptance which would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Government Regulation."
EVOLVING FINANCIAL INDUSTRY POLICIES FOR INTERNET COMMERCE
The Company currently relies on credit cards as the payment method for
FVIPS transactions. Credit card associations are still in the process of
drafting operating regulations governing many credit card transactions on the
Internet. In some cases, the Company's access to the payment systems of credit
card associations and other payment providers may be conditioned on its
compliance, and the compliance of associated processors such as First USA
Paymentech with interim regulations.
17
<PAGE> 21
The Company's operations have been reviewed by MasterCard and Visa which
currently are the sole payment methods accepted by the Company. Visa has issued
to First USA Paymentech several conditions which govern First USA Paymentech's
processing of transactions for the Company over the Visa system. These
conditions, among other things, establish a maximum dollar amount and aging of
small-dollar transactions the Company can accumulate before they are submitted
to the Visa system for processing, and establish procedures for handling
chargebacks involving such bundled transactions. The Company does not believe
that these conditions materially burden the Company's current operations. The
conditions were initially issued pursuant to an oral communication, and were due
to expire on December 31, 1995. The conditions were renewed until the later of
the adoption of industry-wide operating regulations addressing Internet
transactions or December 31, 1997. If the revised operating regulations are not
in place by December 31, 1997, the conditions provide that they can be extended,
with Visa's concurrence. To date, MasterCard has not issued any conditions that
are specific to the Company's operations. The Company is applying to accept
Discover, JCB and American Express credit cards, although there can be no
assurance that any of such applications will be accepted. While the Company
expects that it will be able to comply with Visa's future operating regulations
and regulations issued by any other credit card association, there can be no
assurance that it will be able to do so or that compliance will not have a
material adverse effect on its business, financial condition or results of
operations. In addition, there can be no assurance, if the operating regulations
have not been adopted, that the agreement between First USA Paymentech and Visa,
or related agreements between First USA Paymentech and the Company and other
payment providers, will be issued or extended, if at all, on terms that do not
have a material adverse effect on the Company's business, financial condition
and results of operations.
RISK OF LOSS FROM RETURNED TRANSACTIONS, MERCHANT FRAUD OR ERRONEOUS
TRANSACTIONS
Because the Company acts as an intermediary and facilitator for credit card
transactions, the Company may be subject to the risks borne by merchants
generally in the use of credit card payment systems, primarily the risk that the
Buyer's payment will be "charged back" because of unauthorized use of the
Buyer's credit card, disputes over the goods or services purchased by the Buyer,
erroneous transmission of information by the Company, or fraud by the Seller or
Buyer. The Company's customer agreements provide for the allocation of the risk
of chargebacks (other than chargebacks caused by erroneous transmission by the
Company) to Sellers, but such agreements may not be enforceable. In addition,
even if the Company has an enforceable right to charge a Seller's account for
the amount of a chargeback, the Company is subject to the risk that the Seller
may not have a sufficient positive balance in its bank account to cover the
chargeback, and may otherwise be unable or unwilling to pay.
The Company manages these risks through its risk management systems and
internal controls, which are still in the process of being implemented. The
Company currently requires explicit authorization by Buyers prior to initiating
a charge of the Buyer's credit card, holds funds for 91 days for Sellers who
choose not to qualify for a traditional credit card merchant account and
subjects Sellers who attempt to so qualify to a screening process, and holds
such Sellers' funds for three to five business days. As a result, the Company
believes that the risks associated with widespread chargebacks by customers are
minimized, but there can be no assurance that chargebacks will not increase
significantly in the future as the volume of FVIPS transactions increases and as
more Sellers of goods and services requiring physical delivery begin to use
FVIPS. There also can be no assurance that the Company will not change FVIPS in
a manner that increases the risk of exposure to chargebacks, or that the
Company's reserves will be sufficient to protect the Company from increased
chargebacks. A significant increase in chargebacks could materially and
adversely affect the Company's business, financial condition and results of
operations. See "Business -- The VirtualPIN Architecture" and "-- The First
Virtual Internet Payment System."
LIABILITY FOR INFORMATION STORED ON THE INFOHAUS SERVER
Because materials may be uploaded to the Company's InfoHaus shared Web
server ("InfoHaus") and, without intervention by the Company, may be
subsequently distributed to others, it is possible that claims will be made
against the Company for defamation, negligence, copyright or trademark
infringement or other theories based on the nature and content of such
materials. In the past, such claims have been brought, and sometimes
successfully pressed against electronic bulletin boards, on-line service
providers, and Web sites
18
<PAGE> 22
hosting content provided by other parties. Although the Company carries general
liability insurance, the Company's insurance may not adequately cover claims of
this type. Any imposition of liability that is not covered by insurance or is in
excess of insurance coverage could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Additional Products and Services."
SIGNIFICANT UNALLOCATED NET PROCEEDS
The principal purpose of this offering is to obtain additional financing to
(i) expand the Company's marketing and sales, and customer service and support
capabilities; (ii) fund the Company's capital expenditures necessary to
accommodate the increasing base of Sellers and Buyers and processing of their
transactions, including spending approximately $6.0 million in connection with
an upgrade of FVIPS; (iii) expand certain financial and administrative
functions, including spending approximately $2.0 million to upgrade the
Company's internal operating systems and management information systems; (iv)
continue the Company's research and development activities; (v) repay
approximately $1.3 million of indebtedness subject to promissory notes held by
two stockholders of the Company; and (vi) provide working capital and support
other general corporate purposes. The Company's Board of Directors and
management will have broad discretion as to the use of the proceeds without any
action or approval of the Company's stockholders. In addition, the Company may
use a significant portion of the net proceeds to acquire complementary
technologies, products or businesses which broaden or enhance the Company's
current business, although the Company has no specific agreements or commitments
and is not currently engaged in any negotiations for any such acquisition. There
can be no assurance that any such acquisitions would be consummated. See "Use of
Proceeds."
INTEGRATION OF POTENTIAL ACQUISITIONS
As a part of its business strategy, the Company expects to make
acquisitions of, or significant investments in, complementary companies,
products or technologies, although no such acquisitions or investments are
currently pending. Any such future acquisitions would be accompanied by the
risks commonly encountered in acquisitions of companies. Such risks include,
among other things, the difficulty of assimilating the operations and personnel
of the acquired companies, the potential disruption of the Company's ongoing
business, the inability of management to maximize the financial and strategic
position of the Company through the successful incorporation of acquired
technology and rights into the Company's products and services, additional
expense associated with amortization of acquired intangible assets, the
maintenance of uniform standards, controls, procedures and policies and the
impairment of relationships with employees and customers as a result of any
integration of new management personnel. There can be no assurance that the
Company would be successful in overcoming these risks or any other problems
encountered in connection with such acquisitions. See "Use of Proceeds."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently anticipates that its available cash resources
combined with the net proceeds of this offering, will be sufficient to meet its
presently anticipated cash requirements at least through 1997. Thereafter, if
cash generated from operations is insufficient to satisfy the Company's working
capital and capital expenditure requirements, the Company will need to raise
additional funds. Furthermore, the Company may need to raise additional funds
sooner in order to fund more rapid expansion, to develop new or enhanced
services, to respond to competitive pressures or to acquire complementary
businesses or technologies. 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 significant additional
dilution and such equity securities may have rights, preferences or 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 or that if
available, such financing will include terms favorable to the Company or its
stockholders. If adequate funds are not available or are not available on
acceptable terms, the Company may be unable to
19
<PAGE> 23
develop or enhance its products and services, take advantage of important
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Dilution" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION AND DELAWARE LAW
Upon completion of the offering, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options and warrants (other
than outstanding warrants to purchase 1,328,006 shares of Common Stock with an
exercise price of $0.01 per share), executive officers and directors of the
Company and companies associated with such individuals will collectively own an
aggregate of % of the Company's outstanding Common Stock, including %
to be held by First USA Merchant Services. Accordingly, such persons will have
the effective power to influence significantly the outcome of matters submitted
for the vote of stockholders, including the election of members of the Board of
Directors and the approval of significant change in control transactions. Their
combined equity interest in the Company accordingly may have the effect of
making certain transactions more difficult in the absence of the support of
management of the Company and may have the effect of delaying, deferring or
preventing a change in control of the Company.
In addition, following the completion of this offering, the Board of
Directors shall have the authority to issue up to 5,000,000 shares of Preferred
Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of such stock without further stockholder
approval. 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. Issuance of Preferred Stock could have the effect
of delaying, deferring or preventing a change in control of the Company.
Furthermore, certain provisions of the Company's Certificate of Incorporation to
be filed immediately following completion of this offering, including the
provision for a classified Board of Directors, and certain provisions of the
Delaware General Corporation Law could have the effect of delaying, deferring or
preventing a change in control of the Company. See "Management," "Certain
Transactions," "Principal Stockholders" and "Description of Capital Stock."
BENEFITS TO EXISTING STOCKHOLDERS AND AFFILIATES
The consummation of this offering will involve certain benefits to existing
stockholders and affiliates of the Company. The Company will use a portion of
the proceeds from this offering to repay approximately $1.3 million of
indebtedness subject to promissory notes held by two existing stockholders who
are members of the Board of Directors of the Company. The Company also intends
to use a portion of the proceeds of this offering to upgrade its databases,
which could benefit Sybase, Inc. ("Sybase"), a database software developer and a
stockholder of the Company. Robert Epstein, a director of the Company, is a
founder and Executive Vice President and a director of Sybase. In addition, the
existing holders of Common Stock will benefit from the conversion of the
Preferred Stock into shares of Common Stock due to the termination of senior
rights, preferences and privileges attributable to the Preferred Stock.
Furthermore, certain members of the Board of Directors of the Company hold stock
options to purchase shares of Common Stock which, among other provisions,
entitle the holder to perform a cashless exercise of the options by leveraging
the fair value of the Common Stock in the public market. As a result of the
public offering and the attendant increased per share fair market value of such
Common Stock, such option holders will be able to exercise increased leverage
upon the exercise of such options than would have been likely if the Company had
not effected this offering. See "Use of Proceeds" and "Management."
NO PRIOR MARKET FOR THE SHARES; POSSIBLE VOLATILITY OF SHARE PRICE
Prior to the offering, there has been no market for the Common Stock.
Although application has been made to have the Company's Common Stock approved
for quotation on The Nasdaq Stock Market, there can be no assurance that an
active trading market will develop upon completion of the offering or, if it
does develop, that such market will be sustained. The initial public offering
price of the Common Stock will be determined by negotiation among the Company
and the representatives of the Underwriters. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price.
20
<PAGE> 24
The market price for the Common Stock may be significantly affected by
factors such as the announcement of new products and services or enhancements
thereto by the Company or its competitors, technological innovation by the
Company or its competitors, quarterly variations in the Company's results of
operations or the operating results of the Company's competitors or changes in
earnings estimates by analysts or in opinions of writers or analysts. The stock
prices for many emerging growth companies have experienced wide fluctuations
which have often been unrelated to the operating performance of such companies.
Such fluctuations may adversely affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
this offering may adversely affect the prevailing market prices of the Common
Stock and could impair the Company's ability to raise capital in the future
through the sale of its equity securities. Upon completion of this offering, the
Company will have outstanding an aggregate of shares of Common Stock,
assuming no exercise of the Underwriters' over-allotment option and no exercise
of outstanding options and warrants (other than outstanding warrants to purchase
1,328,006 shares of Common Stock with an exercise price of $0.01 per share) and
based upon the number of shares outstanding as of June 30, 1996. Of these
shares, all of the shares sold in this offering will be freely tradable without
further registration under the Securities Act of 1933, as amended (the
"Securities Act"). The remaining 8,043,467 shares of Common Stock held by
stockholders (assuming exercise of a warrant to purchase an aggregate of
1,328,006 shares) are "restricted securities" as that term is defined in Rule
144 under the Securities Act (the "Restricted Shares"). Restricted Shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 or 701 promulgated under the Securities Act. As
a result of contractual restrictions and the provisions of Rules 144 and 701,
additional shares will be available for sale in the public market as follows:
(i) no Restricted Shares will be eligible for immediate sale on the effective
date of the Registration Statement of which this Prospectus is a part (the
"Effective Date"); (ii) 3,319,062 Restricted Shares will be eligible for sale
upon expiration of lock-up agreements 180 days after the Effective Date; and
(iii) the remaining 4,724,405 Restricted Shares will be eligible for sale from
time to time thereafter upon expiration of their respective two-year holding
periods. Of the Restricted Shares eligible for sale beginning 180 days after the
Effective Date, approximately 3,000,000 shares will be subject to volume
limitations and other resale restrictions pursuant to Rule 144. The Securities
and Exchange Commission has recently proposed to reduce the Rule 144 holding
periods. If enacted, the proposal could permit more rapid resale of Restricted
Shares.
As of October 16, 1996, the Company has reserved 1,702,145 shares of Common
Stock for issuance upon the exercise of outstanding stock options granted
pursuant to the Company's 1994 Incentive and Non-Statutory Stock Option Plan
(the "1994 Stock Plan") and the 1995 Stock Plan, and 1,000,000 shares of Common
Stock for issuance upon the exercise of certain additional outstanding stock
options. In addition, the Company has reserved 1,766,105 shares of Common Stock
for issuance pursuant to options to be granted in the future under the 1995
Stock Plan and 100,000 shares of Common Stock for future issuance pursuant to
the Company's Employee Stock Purchase Plan. The Company intends to file a
Registration Statement on Form S-8 to register the shares of Common Stock
issuable upon exercise of options granted under the 1994 Stock Plan, the 1995
Stock Plan and sold pursuant to the 1996 Employee Stock Purchase Plan. Following
the filing of the Form S-8, shares of Common Stock issued under such plans will
be available for sale in the public market, subject to the Rule 144 volume
limitations applicable to affiliates. See "Description of Capital Stock" and
"Shares Eligible for Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS
The initial public offering price is substantially higher than the book
value per share of the outstanding Common Stock. Investors purchasing Common
Stock in the offering will, therefore, incur immediate and substantial dilution
of approximately $ in the net tangible book value per share of Common
Stock from the initial public offering price and may incur additional dilution
upon the exercise of outstanding stock options. See "Dilution."
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<PAGE> 25
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock being offered by the Company in the offering are estimated to be
approximately $ ($ if the Underwriters' over-allotment option
is exercised in full), after deduction of the underwriting discounts and
commissions and estimated offering expenses. The principal purpose of the
offering is to obtain additional financing to: (i) expand the Company's
marketing and sales, and customer service and support capabilities; (ii) fund
the Company's capital expenditures necessary to accommodate the increasing base
of Sellers and Buyers and processing of their transactions, including spending
approximately $6.0 million in connection with an upgrade of FVIPS; (iii) expand
certain financial and administrative functions, including spending approximately
$2.0 million to upgrade the Company's internal operating systems and management
information systems; (iv) continue the Company's research and development
activities; (v) repay approximately $1.3 million of indebtedness (including
accrued interest) subject to promissory notes held by two stockholders of the
Company, which notes bear interest at a rate of 8% per annum and are due and
payable upon the closing of the offering; and (vi) provide working capital and
support other general corporate purposes. The Company may also use a portion of
the net proceeds to fund acquisitions of products, technologies or businesses
that are related or complementary to Internet commerce products and services.
Although the Company has no present agreements or commitments and is not
currently engaged in any negotiations with respect to any such transactions, the
Company from time to time evaluates such opportunities. Pending use of the net
proceeds for the foregoing purposes, the Company intends to invest the net
proceeds in investment grade interest-bearing marketable securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain its future earnings, if any, to
fund the development and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future.
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<PAGE> 26
CAPITALIZATION
The following table sets forth the (i) capitalization of the Company as of
June 30, 1996, (ii) pro forma capitalization as of such date after giving effect
to the assumed exercise of warrants outstanding at June 30, 1996 to purchase
1,328,006 shares of Common Stock at an exercise price of $0.01 per share, the
recent sale of an aggregate of 439,985 shares of capital stock, conversion of
all outstanding shares of Preferred Stock into shares of Common Stock on a
one-to-one basis and an amendment of the Company's Certificate of Incorporation
on or prior to the closing of the offering and (iii) as adjusted capitalization
to give effect to the application of the estimated net proceeds from the sale by
the Company of the shares of Common Stock offered by the Company
hereby (after deduction of the underwriting discounts and commissions and
estimated expenses of the offering) and the application of the net proceeds to
pay outstanding notes payable to certain stockholders.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
<S> <C> <C> <C>
Notes payable to stockholders.......................... $1,200,000 $1,200,000 $
---------- ---------- ----------
Stockholders' equity(1):
Preferred Stock, $0.001 par value; 3,270,495 shares
authorized, 1,942,489 shares issued and
outstanding, actual; 5,000,000 shares authorized
and no shares outstanding pro forma and as
adjusted.......................................... 1,943 --
Common Stock, $0.001 par value; 40,000,000 shares
authorized, 4,332,987 shares issued and
outstanding, actual; 40,000,000 shares authorized,
8,043,467 shares issued and outstanding, pro
forma; 40,000,000 shares authorized,
shares issued and outstanding, as adjusted........ 4,333 8,043
Additional paid-in-capital........................... 5,307,486 13,781,177
Warrants............................................. 3,017,115 --
Deferred compensation................................ (46,403) (46,403)
Accumulated deficit.................................. (5,611,494) (5,611,494)
---------- ---------- ----------
Total stockholders' equity............................. 2,672,980 8,131,323
---------- ---------- ----------
Total capitalization......................... $3,872,980 $9,331,323 $
========== ========== ==========
</TABLE>
- ---------------
(1) Based on number of shares outstanding as of June 30, 1996 and includes
1,328,006 shares of common stock issuable upon the assumed exercise of
warrants outstanding as of June 30, 1996 at an exercise price of $0.01 per
share. Excludes (i) an aggregate of 3,468,250 shares of Common Stock
reserved for issuance under the Company's stock option plans, of which
983,833 shares were subject to outstanding options at June 30, 1996 at a
weighted average exercise price of $0.53 per share, (ii) an aggregate of
1,000,000 shares of Common Stock subject to additional outstanding options
at June 30, 1996 at an exercise price of $6.30 per share, (iii) an aggregate
of 100,000 shares of Common Stock reserved for issuance under the Company's
1996 Employee Stock Purchase Plan, none of which were outstanding as of June
30, 1996, and (iv) shares of Common Stock equivalent to up to four percent
of the Company's outstanding capital stock issuable upon the exercise of a
warrant at an exercise price of $0.01 per share subject to the satisfaction
of certain marketing-related performance milestones and which warrant
terminates immediately prior to the closing date of this offering. After
June 30, 1996 and prior to the date of this Prospectus, (i) the Company
granted additional options (net of cancellations and exercise) under its
1995 Stock Plan to purchase 718,312 shares of Common Stock at a weighted
average exercise price of $10.19 per share and (ii) sold an aggregate of
439,985 shares of capital stock, (iii) issued a warrant exercisable for up
to 47,619 shares of Common Stock at an exercise price of $10.50 per share,
subject to adjustment, and (iv) issued a warrant exercisable for up to
1,500,000 shares of Common Stock at exercise prices between $2.23 and $5.00
per share, subject to the satisfaction of certain marketing-related
performance milestones. See "Dilution," "Management -- Stock Plans,"
"Certain Transactions" and Notes 6 and 8 of Notes to Financial Statements.
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<PAGE> 27
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996,
after giving effect to the assumed exercise of outstanding warrants to purchase
an aggregate of 1,328,006 shares of Common Stock at an exercise price of $0.01
per share, the recent sale of an aggregate of 439,985 shares of capital stock
for aggregate consideration of $5.5 million, and the conversion of all
outstanding shares of Preferred Stock into 2,273,441 shares of Common Stock, was
approximately $ or $ per share of Common Stock. Pro forma net
tangible book value per share represents the amount of total tangible assets of
the Company reduced by the amount of its total liabilities, divided by the total
number of shares of Common Stock outstanding. After giving effect to the
estimated net proceeds from the sale of shares of Common Stock offered
by the Company at an assumed public offering price of $ , the adjusted
pro forma net tangible book value of the Company as of June 30, 1996 would have
been approximately $ or $ per share. This represents an
immediate increase in pro forma net tangible book value of $ per share
to existing stockholders and an immediate dilution of $ per share to
new investors.
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............................... $
Pro forma net tangible book value as of June 30, 1996............. $
Increase attributable to new investors............................
----------
Adjusted pro forma net tangible book value after this offering......
----------
Dilution to new investors........................................... $
==========
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1996,
the differences between the existing stockholders and the purchasers of shares
in the offering (at an assumed public offering price of $ per share and
before deducting underwriting discounts and commissions and estimated offering
expenses) with respect to the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... % $ % $
New investors............................. % %
----- ----- ------- -----
Total................................... 100.0% $ 100.0%
===== ===== ======= =====
</TABLE>
The foregoing table assumes no exercise of the Underwriter's over-allotment
option and no exercise of stock options or warrants outstanding as of June 30,
1996 (except for outstanding warrants to purchase an aggregate of 1,328,006
shares of Common Stock at an exercise price of $0.01 per share). As of June 30,
1996, (i) an aggregate of 2,468,750 shares of Common Stock were reserved for
issuance under the Company's stock option plans, of which 983,833 shares were
subject to outstanding options at a weighted average exercise price of $0.53 per
share, (ii) an aggregate of 1,000,000 shares of Common Stock were subject to
additional outstanding options with an exercise price of $6.30 per share, (iii)
an aggregate of 100,000 shares of Common Stock were reserved for issuance under
the Company's 1996 Employee Stock Purchase Plan, none of which were outstanding,
(iv) an aggregate of 1,328,006 shares of Common Stock were reserved for issuance
upon the exercise of outstanding warrants at an exercise price of $0.01 per
share (which warrants are assumed exercised for purposes of the foregoing
table), and (v) shares of Common Stock equivalent to up to four percent of the
Company's outstanding capital stock were issuable upon the exercise of a warrant
at an exercise price of $0.01 per share subject to the satisfaction of certain
marketing-related performance milestones and which terminates immediately prior
to the closing date of this offering. Additionally, after June 30, 1996 and
prior to the date of this Prospectus the Company (i) granted additional options
(net of cancellations and exercise) under its 1995 Stock Plan to purchase
718,312 shares of Common Stock at a weighted average exercise price of $10.19
per share, (ii) issued a warrant exercisable for up to 47,619 shares of Common
Stock at an exercise price of $10.50 per share, subject to adjustment, and (iii)
issued a warrant exercisable for up to 1,500,000 shares of Common Stock at
exercise prices between $2.23 and $5.00 per share, subject to the satisfaction
of certain marketing-related performance milestones. See "Capitalization,"
"Management -- Stock Plans," "Certain Transactions" and Notes 6 and 8 of Notes
to Financial Statements.
24
<PAGE> 28
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere in
this Prospectus. The statement of operations data for the period from the date
of inception through December 31, 1994, for the year ended December 31, 1995 and
for the six months ended June 30, 1996, and the balance sheet data as of
December 31, 1994 and 1995 and June 30, 1996 are derived from the Company's
financial statements audited by Ernst & Young LLP, independent auditors,
included elsewhere in this Prospectus. The statement of operations data for the
six months ended June 30, 1995 have been derived from unaudited financial
statements of the Company and include all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for a fair
presentation of the financial data for such period and as of such date. The
results for the six months ended June 30, 1996 are not necessarily indicative of
the results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 11,
1994 (DATE
OF
INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ---------------------------
1994 1995 1995 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 3,580 $ 197,902 $ 31,390 $ 401,082
Operating expenses:
Marketing and sales.............. 143,678 346,400 198,567 322,060
Research and development......... 307,315 530,809 101,902 543,950
General and administrative....... 375,117 1,522,784 827,306 2,063,564
------------ ------------ ----------- -----------
Total operating expenses............ 826,110 2,399,993 1,127,775 2,929,574
------------ ------------ ----------- -----------
Loss from operations................ (822,530) (2,202,091) (1,096,385) (2,528,492)
Interest income (expense), net...... (13,149) (67,890) (36,753) 22,658
------------ ------------ ----------- -----------
Net loss............................ $ (835,679) $ (2,269,981) $(1,133,138) $(2,505,834)
========== ========== ========== ==========
Pro forma net loss per share........ $ $ $
========== ========== ==========
Shares used in computing pro forma
net loss per share(1)............
========== ========== ==========
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1994 1995 1996
------------ ----------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, and a short-term
investment, available-for-sale................. $ 14,847 $ 2,091,651 $ 3,487,616
Working capital (deficit)......................... (121,825) 1,480,201 2,568,059
Total assets...................................... 320,421 2,574,826 5,115,507
Notes payable to stockholders..................... 713,400 1,200,000 1,200,000
Total stockholders' equity (net capital
deficiency).................................... (541,651) 752,423 2,672,980
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing pro forma net loss per share.
25
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in "Risk Factors" as well as those discussed
elsewhere in this Prospectus.
OVERVIEW
The Company commenced operations in March 1994, and developed and
implemented the VirtualPIN architecture which facilitates Internet commerce and
other forms of interactive Internet communications. FVIPS, the Company's initial
application of the VirtualPIN architecture, was introduced in October 1994. As
of June 30, 1996, the Company has registered more than 2,150 Sellers and 160,000
Buyers in 166 countries and, for the six months ended June 30, 1996, processed
approximately 137,000 FVIPS transactions. The Company differentiates FVIPS
Sellers into two categories, Pioneer Sellers and Express Sellers. Pioneer
Sellers are typically smaller, less established merchants that may not qualify
for a traditional credit card merchant account. The Company's Pioneer Seller
program allows any person or entity to be a Seller. The Company has established
a 91-day settlement period for transactions involving Pioneer Sellers to
minimize its financial exposure to chargebacks and fraud. During this settlement
period, the Company's merchant acquiror, First USA Paymentech, holds the
proceeds from the Pioneer Seller transaction in an escrow account prior to
releasing the funds to the Company, which after deducting its fees, remits the
net proceeds to the Pioneer Seller. The Company receives interest on funds held
in the escrow account. Express Sellers are typically larger, more established
merchants that have been qualified by a merchant acquiror and approved by the
Company under terms similar to those for a traditional credit card merchant
account. Although the Company independently evaluates and approves all Express
Sellers, it currently relies on credit information gathered by First USA
Paymentech in making its evaluation. The Express Seller program allows these
Sellers to be paid for FVIPS transactions within a time frame similar to
standard credit card settlement terms, usually three to five business days.
Through June 30, 1996, the Company's revenues were derived solely from
FVIPS and, in particular, the Pioneer Seller program. The capability to offer
the Express Seller program occurred in connection with major enhancements to
FVIPS in July 1996. The Company believes that the Express Seller program will be
particularly attractive to merchants selling hard goods or services requiring
physical delivery and to merchants with large transaction volumes, since the
program allows Express Sellers to be paid for transactions within three to five
business days, a time frame similar to standard credit card settlement terms.
Although the Company expects to derive a substantial portion of its revenues in
the future from the Express Seller program, there can be no assurance that the
program will generate significant revenues. In addition, as the Company develops
and markets additional applications of the VirtualPIN architecture, it
anticipates decreasing its dependence on FVIPS as a source of revenues, although
there can be no assurance that additional applications will result in
substantial revenues.
The Company has incurred net operating losses in each quarter since
inception. As of June 30, 1996, the Company had an accumulated deficit of
approximately $5.6 million. To date, the Company has not generated significant
revenues, and the Company anticipates that it will generate only limited
revenues for the year ending December 31, 1996. There can be no assurance that
the Company's revenues will remain at their current level or increase, and the
Company's ability to generate significant future revenues is subject to
substantial uncertainty. In addition, as a result of the anticipated significant
investments that the Company plans to make in its systems, sales, marketing,
research and development, customer support and administrative infrastructure
over the near term, the Company expects to continue to incur significant
operating losses on both a quarterly and an annual basis for the foreseeable
future.
RESULTS OF OPERATIONS
The financial results for the period from inception to June 30, 1996
reflect the Company's initial organization efforts, research and development
activities, capital raising and deployment of FVIPS as the first
26
<PAGE> 30
application of the VirtualPIN architecture. The Company believes that its
limited operating history makes prediction of future results of operations
difficult and, accordingly, that its operating results should not be relied upon
as an indication of future performance. FVIPS was introduced in October 1994,
and the Company recognized nominal revenues for the period from inception to
December 31, 1994. The Company's revenues and expenses increased for the year
ended December 31, 1995 and the six-month period ended June 30, 1996 due to
growth of the Company and related operational and development costs. The Company
believes that any comparison of the results of operations for the period from
inception to December 31, 1994 with the results for the year ended December 31,
1995 and the six months ended June 30, 1995 with the results for the six months
ended June 30, 1996 is not meaningful.
Revenues
The Company currently generates revenues from the receipt of Buyer and
Seller registration fees, transaction processing fees and co-marketing fees
associated with FVIPS. The Company currently charges a first year registration
fee of $2 for Buyers and $10 and $350 for Pioneer Sellers and Express Sellers,
respectively. In July 1996, the Company instituted annual renewal fees of $2 for
Buyers and $10 and $250 for Pioneer Sellers and Express Sellers, respectively.
The Company will begin collecting annual renewal fees in July 1997. In
conjunction with the Company's decision to institute annual renewal fees, the
Company's policy will be to recognize Buyer and Seller registration and renewal
fees over a 12-month period beginning in July 1996. Prior to July 1, 1996,
revenues from registration fees were recognized in the month the Seller's or the
Buyer's registration fee was processed and the VirtualPIN was issued. Revenues
from transaction processing fees are recognized on the date the transaction
amount is charged to the Buyer's credit card. Currently, the Company charges a
transaction fee consisting of 2% of the purchase price of the product or service
plus an additional $0.29 per transaction. The Company collects transaction
processing fees automatically by deducting its fees prior to the time the net
proceeds are forwarded to Pioneer Sellers (after 91 days) and Express Sellers
(between three and five business days) by the Company's ACH agent. Revenues from
co-marketing fees are recognized in the month the Buyer accepts the promotional
offer of one of the Company's co-marketing partners. To date, such revenues
consist of commissions earned on sales resulting from such promotional offers.
The Company receives interest income on funds held during the 91-day settlement
period for Pioneer Sellers. The Company continuously reviews its registration,
renewal, transaction processing and co-marketing fees, and expects that such
fees will be modified in the future.
For the six-month period ended June 30, 1996, revenues were $401,000
compared to $31,000 for the six-month period ended June 30, 1995. The primary
reason for this growth was the increase in Buyer and Pioneer Seller registration
fees and transaction processing fees. Registration fees, transaction processing
fees and co-marketing fees accounted for approximately 46%, 38% and 16% of
revenues, respectively, for the six-month period ended June 30, 1996.
Operating Expenses
Operating expenses consist of marketing and sales, research and
development, and general and administrative expenses. The Company anticipates
that operating expenses will increase in connection with increasing levels of
research and development for new and enhanced products and services, growth in
its marketing and sales organization, and expansion of the Company's support
organization to accommodate the anticipated increased installed base of Buyers
and Sellers.
Marketing and sales expenses, which include salaries and wages, consulting
fees, advertising, trade show expenses, travel and other marketing expenses,
increased to $322,000 for the six-month period ended June 30, 1996 as compared
to $199,000 for the six-month period ended June 30, 1995. This increase resulted
from a general increase in spending to support the Company's expanding
operations. The Company expects that marketing and sales expenses will increase
significantly in the future as the Company implements its marketing plan to
rapidly deploy VirtualPINs.
Research and development expenses consist primarily of salaries and wages
and consulting fees to support the development and enhancement of the Company's
products and services. Research and development
27
<PAGE> 31
expenses increased to $544,000 for the six-month period ended June 30, 1996 as
compared to $102,000 for the six-month period ended June 30, 1995. The increase
resulted primarily from the addition of development personnel and consultants.
To date, all of the Company's software development costs have been expensed as
incurred. The Company anticipates that research and development expenses will
increase during the balance of 1996 and in future years as the Company leverages
the VirtualPIN architecture to offer new products and services and increases the
functionality of FVIPS.
General and administrative expenses consist primarily of salaries and
wages, professional and consulting fees and other expenses associated with the
general management and administration of the Company. General and administrative
expenses increased to $2.1 million for the six-month period ended June 30, 1996
as compared to $827,000 for the six-month period ended June 30, 1995. The
increase resulted primarily from an increase in expenses relating to the
establishment of the Company's headquarters and an increase in payroll,
consulting and recruiting expenses in connection with the Company's expansion of
its management team. The Company anticipates that its general and administrative
expenses will increase substantially in the near future in connection with the
hiring of additional management personnel and the anticipated professional fees
and other costs associated with becoming a public company.
For certain Common Stock options granted between January and April 1996,
the Company has recorded deferred compensation as the difference between the
exercise price and the deemed fair value, as determined in part by an
independent valuation. This deferred compensation, which aggregated $51,000,
will be amortized according to the related options' four year vesting schedule.
As of June 30, 1996, $4,000 of such compensation had been amortized. See Note 6
of Notes to Financial Statements.
Income Taxes
As of June 30, 1996, the Company has federal and state net operating loss
carryforwards of approximately $3.8 million. These federal and state
carryforwards will begin to expire in 2010 and 2000, respectively, unless
previously used. Pursuant to Internal Revenue Code Sections 382 and 383, a
change in ownership of greater than 50% of a corporation within a three-year
period will place an annual limitation on the corporation's ability to utilize
its existing carryforwards. The Company anticipates that while an ownership
change will occur upon the closing of this offering the resulting limitation
will not have an effect on its ability to utilize its carryforwards. See Note 7
of Notes to Financial Statements.
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly financial data for each of
the six quarters ended June 30, 1996. This data has been prepared on the same
basis as the audited Financial Statements and, in the opinion of management,
includes all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the unaudited quarterly results set forth herein,
when read in conjunction with the Company's audited Financial Statements
appearing elsewhere in this Prospectus. The operating results for any quarter
are not necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... 5,734 25,485 56,011 110,672 244,466 156,616
Operating expenses:
Marketing and sales...... 95,541 103,026 43,519 104,314 156,476 165,584
Research and
development........... 25,411 76,491 88,956 339,951 197,807 346,143
General and
administrative........ 290,057 537,249 432,471 263,007 766,144 1,297,420
--------- --------- --------- --------- --------- -----------
Total operating expenses... 411,009 716,766 564,946 707,272 1,120,427 1,809,147
--------- --------- --------- --------- --------- -----------
Loss from operations....... (405,275) (691,281) (508,935) (596,600) (875,961) (1,652,531)
Interest income (expense),
net...................... (17,459) (19,123) (15,475) (15,833) 1,036 21,622
--------- --------- --------- --------- --------- -----------
Net loss................... (422,734) (710,404) (524,410) (612,433) (874,925) (1,630,909)
========= ========= ========= ========= ========= ===========
</TABLE>
28
<PAGE> 32
The Company's revenues for the quarter ended June 30, 1996 declined from
the previous quarter and the Company anticipates that revenues for the quarter
ended September 30, 1996 will reflect a further decline. The Company believes
that the decrease in revenues in the quarter ended June 30, 1996 resulted
primarily from the lack of active promotional efforts by the Company to register
additional Buyers and Sellers during such quarter in anticipation of the roll
out of the FVIPS upgrade in the following quarter. Prior to such upgrade, FVIPS
was in its development stage. In July 1996, the Company began offering FVIPS
upgrade, which included the Express Seller program and increased functionality,
only to selected customers. In October 1996, the Company began offering such
upgraded FVIPS services to its entire customer base.
The Company expects to experience significant fluctuations in its future
quarterly operating results. These fluctuations will be due to several factors,
some of which are beyond the control of the Company, including, among others,
market acceptance of Internet commerce in general and the VirtualPIN concept and
FVIPS in particular; fluctuating market demand for the Company's products and
services, including the rate of Seller and Buyer registrations; the monthly
volume and average dollar amount of transactions using FVIPS; the degree of
acceptance of the Internet as an advertising and merchandising medium; the fees
charged to the Company by third party processors and financial institutions; the
timing and effectiveness of collaborative marketing efforts initiated by the
Company's strategic partners; the timing of the introduction of new products and
services offered by the Company; the timing of the release of enhancements to
the Company's products and services; product introductions and service offerings
by the Company's competitors; the mix of the products and services provided by
the Company; the timing and rate at which the Company increases its expenses to
support projected growth; the cost of compliance with applicable government
regulations; competitive conditions in the Company's marketplace; and general
economic conditions. In addition, the fees charged by the Company for Buyer and
Seller registration, transaction processing and co-marketing are subject to
change as the Company continues to roll out FVIPS upgrades and assess its
marketing strategy and competitive position. The Company believes that
period-to-period comparisons of its operating results are not meaningful and
should not be relied upon as any indication of future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded its operations and satisfied
its capital expenditure requirements primarily through the sale of capital stock
and borrowings under certain subordinated lines of credit provided by two
stockholders. To date, the Company has raised $13.8 million from the sale and
issuance of its Preferred Stock, Common Stock and warrants, of which $5.5
million was raised after June 30, 1996, and $1.2 million of principal under the
stockholder lines of credit. The borrowings from such stockholders, plus
interest at 8% per annum, are due and payable upon the closing of this offering.
Operating activities used cash of $1.8 million during the year ended
December 31, 1995. Net cash used during the year was primarily to fund operating
expenses of $2.4 million (excluding depreciation and amortization), offset in
part by revenues of $198,000 and an increase in accounts payable of $412,000.
Investing activities used net cash of $181,000 in 1995, principally to purchase
furniture and equipment. Financing activities generated cash of $4.0 million
during 1995 from the sale of Preferred Stock and borrowings from stockholders.
Operating activities used cash of $2.1 million during the six months ended
June 30, 1996. Net cash used during this period was primarily to fund operating
expenses of $2.8 million (excluding depreciation and amortization) offset in
part by revenues of $401,000 and a decrease in non-cash working capital of
$308,000. Investing activities used net cash of $1.1 million during the
six-month period, principally to purchase furniture and equipment. Financing
activities generated cash of $4.4 million during the six-month period primarily
from the sale of warrants in addition to the proceeds from the partial exercise
of a previously outstanding warrant.
Capital expenditures have been, and future expenditures are expected to be,
primarily for facilities, furniture and capital equipment to support the
expansion of the Company's operations and management information systems.
Capital expenditures were $151,000 for the year ended December 31, 1995 and
$898,000 for the six-month period ended June 30, 1996. Furniture and equipment
are stated at cost and depreciated over three to five years using the straight
line method. While the Company has no material capital commitments, it
29
<PAGE> 33
expects to spend approximately $6.0 million to install and maintain a relational
database management system and related hardware in connection with a further
upgrade of FVIPS. The Company also anticipates spending approximately $2.0
million through 1997 to upgrade the Company's internal operating systems and
management information systems. The Company expects to use a portion of the net
proceeds of this offering for such expenditures. In addition, the Company may
finance a portion of such expenditures through equipment leases. There can be no
assurance that any upgrades of the Company's database and management information
system will be completed in a timely manner or that any such upgrades will be
adequate to meet the Company's needs.
At September 30, 1996, the Company had $6.1 million in cash, cash
equivalents and a short-term investment, available-for-sale. The Company
believes that existing cash resources, together with the net proceeds of this
offering, will be sufficient to support the Company's currently anticipated
working capital and capital expenditure requirements at least through 1997.
Thereafter, if cash generated from operations is insufficient to satisfy the
Company's working capital and capital expenditure requirements, the Company will
need to raise additional funds through the public or private sale of its equity
or debt securities or from other sources. Furthermore, there can be no assurance
that the Company will not be required to seek additional capital at an earlier
date. The timing and amount of the Company's capital requirements will depend on
a number of factors, including demand for the Company's products and services,
the need to develop new or enhanced products and services, competitive pressures
and the availability of complementary businesses or technologies that the
Company may wish to acquire. If additional funds are raised through the issuance
of equity securities, the percentage ownership of the Company's stockholders
will be diluted and such equity securities may have rights, preferences or
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 or
that, if available, such financing will include terms favorable to the Company
or its stockholders. If adequate funds are not available on acceptable terms,
the Company may be unable to develop or enhance its products and services, take
advantage of opportunities or respond to competition, any of which could have a
material adverse affect on the Company's business, financial condition and
results of operations.
30
<PAGE> 34
BUSINESS
First Virtual has developed and implemented the VirtualPIN architecture
which facilitates Internet commerce and is designed to facilitate other forms of
interactive Internet communications. The VirtualPIN architecture utilizes E-mail
which has the widest reach and broadest use of any Internet application. FVIPS,
a secure and easy-to-use payment system introduced in October 1994, is the
Company's first application of the VirtualPIN architecture. As of June 30, 1996,
the Company has processed over 208,000 FVIPS transactions and has registered
more than 2,150 Sellers and 160,000 Buyers in 166 countries. The Company
believes that the VirtualPIN architecture can also serve as the basis for
additional Internet applications including direct marketing, interactive
advertising, merchandising, subscriptions and renewals, bill payments, client
response surveys and Internet communications.
INDUSTRY BACKGROUND
The Internet is a rapidly growing network of computers and computer
networks that permits communication among users throughout the world. IDC
estimates that the number of Internet users will grow to approximately 200
million by the end of 1999 from 56 million at the end of 1995. The most widely
used application of the Internet is E-mail. The popularity of E-mail and the
emergence of the Web and easy-to-use browser software have fostered continued
rapid growth in Internet use by businesses and individuals.
The evolution of the Internet as a vehicle for electronic commerce has led
to the emergence of new media, merchandising and transaction processing
opportunities. Advertisers, for example, can use newly provided demographic data
to cost effectively target individuals or narrowly defined groups. Internet
commerce can reduce, and in some cases eliminate, merchants' requirements for
physical store premises, warehouses and distribution centers, by permitting
shipment directly from manufacturer to consumer. Information products, such as
news, data and research, can be downloaded directly to a personal computer,
minimizing the cost of physical reproduction, packaging and distribution of
these products. Buyers are motivated to accept these new offerings because they
improve the likelihood of viewing information and receiving merchandise offers
of specific interest to them. The Internet provides Buyers with the potential to
conveniently locate and initiate purchases in a single marketplace which is
easily accessible from home or office.
Consumers have accepted credit cards as a payment method for most mail
order, catalogue and similar transactions, and the majority of consumers hold at
least one credit card. In addition, credit card payment processing, refund
procedures and legal regulations are well established. As a result, the Company
believes that accommodating secure credit card usage on the Internet is one of
the key elements of Internet commerce. Several companies are seeking to provide
a viable secure transaction-based payment system to enable credit card
processing and business-to-consumer Internet commerce. In general, these payment
systems can be classified into two broad categories: those using off-line
process-based technologies, which process and maintain sensitive financial
information off the Internet, and those using encryption-based technologies,
which encode sensitive financial information for transmission on the Internet.
31
<PAGE> 35
BARRIERS TO INTERNET COMMERCE AND INTERACTIVE INTERNET COMMUNICATION
The Company believes that there are a number of barriers to the
proliferation of Internet commerce and related interactive Internet
communication applications including (i) developing effective methods of
Internet advertising to stimulate consumer interest, (ii) developing direct
marketing and merchandising capabilities and (iii) developing a secure and
effective transaction processing system.
Lack of effective methods of advertising to stimulate consumer
interest. Currently, Sellers are generally restricted to providing passive
advertising similar to that offered in traditional media. The effectiveness of
advertising on the Internet would likely be increased substantially by the
ability to proactively present advertising to specific Internet subscribers and
to incorporate interactive, stimulating images and sounds within Web
advertisements.
Lack of direct marketing and merchandising capability. The Company believes
that Sellers are becoming increasingly aware that having a Web site does not, of
itself, result in effective Internet commerce. Currently, Sellers lack the means
of effectively marketing directly to potential Buyers who fit specific profiles.
Buyers have the burden of actively searching the vast information and numerous
Web sites on the Internet, often in inefficient and time consuming ways, for
specific products or services. In addition, a purchase transaction may be more
time consuming, require moving through multiple Web sites or disconnecting from
the Internet to place a toll-free call.
Lack of a secure and effective transaction processing system. The Company
believes that an effective transaction processing system for Internet commerce
must successfully address the following:
- Lack of security. The Internet is a public network which potentially
allows third parties to gain unauthorized access to data as it is routed
to its intended destination or stored in databases. Current solutions
generally require encryption and specialized hardware or software
solutions which may be expensive, difficult to use and susceptible to
penetration by proficient and determined hackers.
- Lack of privacy. The open and public nature of the Internet reduces the
ability of the consumer to maintain the privacy of the personal data
typically submitted and compiled in order to process a commercial
transaction.
- Transaction fraud. The Internet may facilitate transaction fraud by
parties posing as legitimate merchants, collecting payment without
delivering goods or services, or as consumers, acquiring goods or
services without making a payment for such goods or services.
- Consumer reluctance to use new payment systems. In order for Buyers to
adopt Internet commerce on a widespread basis, purchasing and selling
over the Internet must be as convenient and easy-to-use as traditional
purchasing methods.
- Difficulty of widespread system deployment and acceptance. The interface
which enables Internet commerce must be compatible with existing hardware
and software and inexpensive and easy-to-use for the average consumer.
The payment systems must also interoperate with established financial
networks and protocols since financial institutions may be reluctant to
adopt and implement entirely new processing and payment methods.
32
<PAGE> 36
THE FIRST VIRTUAL SOLUTION
First Virtual has developed and implemented the VirtualPIN architecture
which facilitates Internet commerce and is designed to facilitate other forms of
interactive Internet communications. The VirtualPIN, an alphanumeric sequence
unique to each user, allows the user to establish and maintain identity on the
Internet in a controlled and confidential manner. FVIPS is the Company's first
application of the VirtualPIN architecture. To initiate a transaction using
FVIPS, the Buyer transmits a VirtualPIN to the Seller, who accepts it as a form
of payment for the Buyer's order and relays it to First Virtual for
verification. After the Buyer responds affirmatively to the Company's automated
request for E-mail confirmation of the transaction, First Virtual initiates
financial settlement through the established and secure credit card transaction
processing networks.
In order to bring the retail environment to any Web page, the Company has
prototyped the VirtualTAG, its second application of the VirtualPIN
architecture. The Company believes the VirtualTAG, currently scheduled for
release in the first quarter of 1997, will be one of the first solutions that
takes full advantage of the Internet's unique attributes by combining
advertising, selling and paying in one application. The VirtualTAG uses Java or
Shockwave software to create stimulating, interactive advertisements within
banners or "store fronts" which are designed to allow Buyers to initiate the
purchase and payment and arrange for the delivery of a product being advertised
without leaving the Web page on which the advertisement appears. The Company
believes that the VirtualPIN architecture, FVIPS and anticipated VirtualTAG
applications provide the following key advantages:
Targeted and interactive advertising. The Company's VirtualPIN architecture
is designed to enable merchandisers to target specific registered users with the
users' consent and without revealing the users' sensitive personal or
demographic data. The Company's VirtualTAG application is designed to provide an
interactive and engaging message by combining sound and motion which is
activated by the Buyer as the cursor moves near or on the advertisement.
Direct marketing and merchandising facility. The Company believes the
VirtualTAG application may enable Sellers to directly market and merchandise
their products and services to Buyers. For example, if the advertisement were in
a newspaper, the VirtualTAG would be comparable to touching the hardware store
advertisement and buying the leaf blower, without having to stop reading the
newspaper and drive to the store.
Enhanced transaction processing system. By transmitting only a Buyer's
VirtualPIN over the Internet, using E-mail verification and processing and
storing sensitive information off-line, FVIPS offers a simple and effective
transaction processing solution with the following attributes:
- Security. Confidential information, such as credit card numbers, are
stored on servers which cannot be accessed from the Internet and are
never transmitted over the Internet by First Virtual. All that is
transmitted over the Internet is the non-confidential VirtualPIN.
Therefore, the Company believes that FVIPS virtually eliminates the risk
of credit card theft on the Internet.
- Privacy. The Buyer's E-mail address, VirtualPIN and any other personal
information that is willingly disclosed when registering are stored on a
Company database which is connected to the Internet but is protected by
enhanced commercial fire walls and by restricted log-in access. In
addition, the Company's registered users maintain their privacy by using
their VirtualPIN in FVIPS transactions.
- Transaction safeguards. On receipt of the Seller's transactions request,
the Company automatically sends E-mail to the Buyer to confirm that the
Buyer authorizes the order, thereby ensuring authenticity without the
need to transmit confidential information.
- Familiarity and accessibility. The VirtualPIN architecture and FVIPS
relies on E-mail, a widespread, proven and accepted technology with
established standards, and does not require Buyers to purchase or install
any additional hardware or software. The architecture is also based on
the PIN concept, which is widely understood and accepted. Once a Buyer
has completed the simple registration process with the Company, the Buyer
can purchase goods and information services from home or office, 24 hours
a day, through the familiar point-and-click process.
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- Interoperability and adaptability. The VirtualPIN is designed for
integration with a broad set of Internet applications and evolving
platforms and protocols. In contrast to other Internet commerce and
communications solutions which require complex computer architectures
capable of deciphering intricate encrypted messages, the VirtualPIN can
be used on virtually any standard personal computer or Internet access
appliance. FVIPS uses traditional financial payment mechanisms and
enables financial institutions to maintain their existing financial
networks and back office operations and still participate in the
potential growth opportunities offered by Internet commerce. As a result,
financial institutions incur little additional cost in adopting FVIPS.
STRATEGY
The Company's objective is to become a leading facilitator for Internet
commerce and other forms of interactive Internet communications. The Company's
strategy includes the following key elements:
Leverage technological expertise. The Company intends to leverage its
technological expertise to accelerate the development of new and enhanced
products and services. The Company has world-class expertise in E-mail
technology, with particular emphasis on E-mail-based distributed services, and
has invested significant resources to develop the VirtualPIN architecture to
operate seamlessly with most E-mail systems around the world. The Company also
has substantial expertise in other key areas of Internet-related technology,
such as Java and VRML technology and cryptography, as well as in the development
of scalable and reliable distributed systems. See "Business -- Management."
Rapidly deploy VirtualPINs through strategic partners and other
distribution channels. The Company intends to establish a large installed base
of Buyer and Seller VirtualPINs through multiple channels including on-line and
Internet service providers, value added integrators, businesses with large
direct response customer bases, consumers through a variety of direct marketing
programs and customers of credit card companies and other financial
institutions. To accelerate the distribution of the VirtualPIN, the Company has
entered into strategic relationships with several major financial institutions
including First USA Paymentech, GE Capital and First Data. These relationships
include financial investments in the Company and, in certain instances,
distribution and marketing arrangements. See "Certain Transactions."
Further enhance FVIPS. The Company intends to further enhance FVIPS to
include a wider variety of pay-in and pay-out options, and features to expand
its globalization. These pay-in methods may include credit cards other than the
currently accepted Visa and MasterCard cards, direct bank withdrawals, checks,
debit cards, digital cash, purchase orders, money orders and wire transfers. The
Company intends to enhance its pay-out mechanisms by adding additional merchant
acquirors and accommodating Sellers who do not currently have a U.S. bank
account. The Company intends to further expand the international features of
FVIPS to include foreign currencies, languages, banking systems and phone access
for registration.
Leverage the VirtualPIN architecture for additional applications. The
Company believes it may be able to expand the VirtualPIN architecture to address
a number of new applications including interactive advertising, targeted direct
marketing and consumer research. For example, the Company's VirtualTAG
application is designed to enable Sellers to create stimulating, interactive
advertisements within banners or "store fronts" which allow Buyers to initiate
the purchase and payment and arrange for the delivery of a product being
advertised without leaving the Web page on which the advertisement appears. The
Company expects to pursue the development of FVIPS enhancements and new
applications through internal product development, the establishment of joint
ventures with businesses in complementary fields and the acquisition of related
products or businesses.
Expand transaction-based business model providing recurring revenues. The
VirtualPIN architecture is designed to enable the Company to generate a
recurring revenue stream from Buyers and Sellers through fees from annual
registration, transaction processing, automatic subscription renewal, bill
paying and royalties.
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THE VIRTUALPIN ARCHITECTURE
The VirtualPIN, an alphanumeric sequence unique to each user, allows the
user to establish and maintain identity on the Internet in a controlled and
confidential manner.
The VirtualPIN is designed for integration with a broad set of Internet
applications and evolving platforms and protocols. FVIPS is the first
application of the VirtualPIN architecture and can be used on virtually any
standard personal computer or Internet access appliance. The following table
sets forth existing and currently proposed future applications of the VirtualPIN
architecture.
<TABLE>
<CAPTION>
INTRODUCTION
PRODUCT/SERVICE DATE SUMMARY DESCRIPTION
- -------------------- ---------------------- --------------------------------------------------
<S> <C> <C>
FVIPS October 1994 Secure and easy-to-use Internet payment system
VirtualTAG First Quarter 1997 Interactive advertising applet within banners or
"store fronts" at the Web site
1 Virtual Place First Quarter 1997 "Virtual" store offering products in cooperation
with merchants
Targeted Marketing Second Quarter 1997 Seller-initiated marketing directly to consenting
Buyers, who remain anonymous
Billing Notification Fourth Quarter 1997 Seller-initiated electronic billing notification
including subscription and membership renewal and
recurring bill payments
</TABLE>
The Company's proposed VirtualTAG, 1 Virtual Place, targeted marketing and
billing notification products and services are under development. There can be
no assurance that any of such products or services will be introduced in
accordance with the dates above, or at all, or that if introduced, such products
or services will achieve market acceptance. See "Risk Factors -- Undeveloped and
Rapidly Changing Markets" and "-- Dependence Upon Product and Service
Development; Risks of Technological Change and Evolving Industry Standards."
THE FIRST VIRTUAL INTERNET PAYMENT SYSTEM
The VirtualPIN substitutes for the Seller's bank account number and E-mail
address and the Buyer's credit card number and E-mail address during the course
of the FVIPS transaction. Use of the VirtualPIN allows transactions to be
completed on the Internet without exposing sensitive Seller and Buyer
information to unauthorized discovery.
FVIPS functions as a two-tier system of "Purchase" and "Back-Office"
authorization and settlement processes. A secure barrier exists between the
Purchase tier on the Internet and the Back-Office tier on existing credit card
processing networks. This barrier separates the sensitive Seller and Buyer
information from the Internet. The initiation and verification of the
transaction between the Seller and the Buyer occurs on the Purchase tier. The
Company has a Purchase database server that is connected to the Internet and
interacts with Sellers and Buyers to receive transaction details and manage the
transaction process. This server stores limited and non-financial Seller and
Buyer information, including the user's VirtualPIN, E-mail address and data
regarding any FVIPS transaction that has not yet been completed.
Financial authorization and credit card settlement occurs on the
Back-Office tier. The Company maintains a Back-Office database server that is
connected to existing financial networks used for processing Visa and MasterCard
transactions, but is not directly connected to the Internet. Functionally, this
server integrates VirtualPIN transactions with existing financial networks. This
server also stores credit card and bank account numbers and complete VirtualPIN
transaction histories. Since the sensitive information on this server is never
stored on nor transmitted over the Internet by First Virtual, the VirtualPIN
architecture prevents unauthorized access to this sensitive information. Both
the Purchase and Back-Office servers are protected by extensive security
measures. See "Server Security" below.
The Company believes that FVIPS' security and privacy capabilities provide
significant advantages to both the Seller and the Buyer for conducting commerce
over the Internet. The security and privacy of the
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Buyer's sensitive financial information is protected because the use of the
VirtualPIN does not require the transmission of this information over the
Internet. By storing sensitive financial information in the Back-Office tier,
the Company's database of bank account and credit card numbers is protected from
electronic attempts to acquire or compromise the data. The required Buyer
confirmation of the transaction by E-mail renders the unauthorized possession of
a VirtualPIN virtually harmless and deters fraud. Through the use of process-
based security that does not require the protection of the VirtualPIN during
transmission over the Internet, FVIPS avoids the need for complicated encryption
methods characteristic of competing Internet payment systems.
The following description relates to the current operation of FVIPS. The
Company may make changes to the operation of FVIPS in the future as warranted by
business conditions or changes in credit card association operating rules. See
"Risk Factors -- Evolving Financial Industry Policies For Internet Commerce."
Buyer Registration
The registration process for Buyers is quick and simple. FVIPS requires
only that the Buyer possess a valid Visa or MasterCard credit card and have
access to Internet E-mail. No additional hardware or software is needed. Most
Buyers also want access to the Web, where most Sellers maintain retail sites. In
order to register, a Buyer completes an application containing the Buyer's name,
E-mail address and postal address via E-mail or by visiting a Seller's or the
Company's Web site. On receipt of the application, the Company confirms the
validity of the Buyer's E-mail address by sending the applicant E-mail
instructions to call a toll-free automated response unit to provide the Buyer's
credit card information. The Company validates the applicant's financial
information by submitting the registration fee as a charge to the applicant's
credit card. If the credit card information is valid, the Buyer is sent E-mail
issuing his VirtualPIN. If the credit card information is invalid, the Buyer is
notified via E-mail.
Seller Registration
A Seller can be any individual or entity that has an E-mail address and a
valid U.S. bank account. In addition to an account application process similar
to the one outlined for a Buyer above, a Seller applicant must also pay an
initial registration fee and provide the Company with information sufficient to
identify the U.S. bank account into which net sales receipts will be deposited
by the Company after settlement of the transaction. In most cases, a check is
sufficient to meet both requirements. After receiving the bank account
information, and, if applicable, upon qualifying as an Express Seller, the
Company issues a VirtualPIN to the Seller and notifies the Seller of its
VirtualPIN via E-mail.
To qualify as an Express Seller and receive transaction settlement in
approximately three to five business days, the Seller must meet First USA
Merchant Services' traditional credit card merchant qualifications. In addition
to the standard Seller application process outlined above, Express Sellers must
submit an additional hard copy application to First USA Paymentech, the
Company's merchant acquiror, for credit screening, and to the Company for
approval. The Company is contemplating a program which would permit certain
potential Express Sellers to utilize their existing merchant acquiror
arrangements. The Company believes that most established credit card merchants
using FVIPS will apply and qualify for Express Seller status.
No additional hardware is needed and only minimal software is required if
the Seller wishes to integrate the Company's merchant software with the Seller's
Web server for manual processing. However, a Seller who wishes to enhance its
Web server to allow for automatic processing of FVIPS transactions may download
the Company's publicly available code, write customized software using Company
provided specifications or use third party software incorporating FVIPS.
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The Purchase Cycle
The Purchase Cycle of a FVIPS transaction involves the following steps:
[INSERT DIAGRAM HERE.]
1. The Buyer initiates the purchase cycle by transmitting his order and
VirtualPIN to the Seller. This is typically done by accessing the Seller's Web
site. At the Seller's option, the Buyer's VirtualPIN can be verified in real
time with the Company's server, ensuring that the Buyer's VirtualPIN is valid.
2. The Seller submits a transaction request either by E-mail or SMXP
real-time messaging with the following information: the Seller's and Buyer's
VirtualPINs, purchase amount, item name, and an optional request to receive
notification of the credit card authorization result.
3. On receipt of the Seller's transaction request, the Company
automatically sends E-mail to the Buyer to confirm that the Buyer authorizes the
order.
4. The Buyer replies to the Company's confirmation E-mail by answering
"yes," "no," or "fraud." A "yes" response indicates the Buyer authorizes the
order. A "no" response indicates the Buyer does not authorize the order, for
reasons including changing his mind or, in the case of an information product
which has already been transmitted to the Buyer at the time of confirmation,
that the Buyer did not receive what he should have. A "fraud" response indicates
that the Buyer's VirtualPIN was used without his authorization.
5. If the Buyer replies "no," the Company cancels the transaction (however,
repeated "no" replies subject a Buyer to VirtualPIN revocation); if the Buyer
replies "fraud," the Company cancels the transaction and the Buyer's VirtualPIN
to protect the Seller and Buyer from further attempts at fraudulent use; if the
Buyer fails to reply to the confirmation E-mail, several additional attempts
will be made before the Company notifies the Seller of a "no sale." If the Buyer
replies "yes," the Company notifies the Seller by E-mail of the Buyer's
affirmative reply.
6. The Company proceeds to process the transaction through the established
financial networks . . .
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The Back-Office Cycle
The Back-Office Cycle of a financial transaction involves the following
steps:
INSERT DIAGRAM HERE.]
6. . . . Once the Buyer replies "yes," the Company transmits the
transaction information (Seller and Buyer VirtualPINs and transaction details)
to a secure Back-Office server through dedicated lines using a one-way batch
protocol. The Back-Office server is not directly connected to the Internet.
7. At the secure Back-Office server, the Buyer's VirtualPIN is matched with
the Buyer's credit card number and the Seller's VirtualPIN is matched with the
Seller's ACH routing number. The Company never transmits Buyers' and Sellers'
sensitive financial information on the Internet.
8. Credit authorization is requested through the Company's processor, which
in turn processes the credit authorization through the existing Visa/MasterCard
interchange networks.
9. The processor passes back credit authorization results to the Company's
Back-Office server.
10. If the Seller requested notification of credit authorization (see Step
2 above), it is transmitted to the Seller; if the Seller did not request
notification of credit authorization, the Seller will only be notified in the
event of an authorization failure. If such a failure occurs, the transaction is
canceled, the Buyer is notified, and the Buyer's VirtualPIN is suspended.
11. The Buyer's credit card is charged through the Company's processor and
the Visa/MasterCard interchange networks. Transactions of less than $10 are
accumulated until they total more than $10 or have aged more than 10 days, and
the accumulated amount is processed as a single item. The issuing bank will bill
the Buyer on his next monthly statement. The processor bills the Company monthly
for transaction authorization and settlement fees.
12. The Buyer is automatically notified of the charge by E-mail.
13. The following morning, the issuing bank remits the transaction amount
(less its issuing bank interchange fee) to the Company's merchant acquiror, via
the Company's processor. First USA Paymentech is the Company's merchant
acquiror. The funds from the purchase are held at First USA Paymentech: for a
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Pioneer Seller, the funds are held in escrow for 91 calendar days and for an
Express Seller, the funds are paid within three to five business days. The
merchant acquiror bills the Company monthly for transaction fees and a network
assessment fee paid to the credit card association.
14. At the end of the holding period, First USA Merchant Services transfers
the funds to the Company's deposit account held at Northern Trust. The Company
collects its transaction fees before transferring the net proceeds to the
Seller.
15. The following day, the Seller's net funds are transferred to the
Seller's bank account via ACH. Northern Trust bills the Company monthly for ACH
transfer fees.
16. The Seller is automatically notified of the deposit by E-mail.
The Seller may independently choose, depending on his security
requirements, to deliver the product at any of the following four points in the
transaction process: (i) following the verification of the validity of the
Buyer's VirtualPIN by the Purchase server; (ii) when the transaction has been
accepted by the Purchase server, indicating the VirtualPIN is valid and in good
standing; (iii) following the Buyer's confirmation of the transaction; or (iv)
following the receipt of credit card authorization.
Server Security
The Company's Purchase and Back-Office servers are located at facilities
leased from First USA Paymentech. The Company's servers that connect directly to
the Internet (the "Purchase" servers) are protected by Company-modified
commercial firewalls and restricted log-in-access. Remote log-in sessions are
protected through the use of one-time passwords and encrypted communication. The
only information that resides on or passes through the Purchase servers includes
nonsensitive financial information, such as VirtualPINs, E-mail addresses and
recent VirtualPIN transaction histories.
The Company's servers which store and transmit financially sensitive
information, such as bank account and credit card numbers and complete
VirtualPIN transaction histories, are not connected to the Internet. These
Back-Office servers cannot be accessed from the Internet and can only be
accessed in person or by direct telephone connection using specific, unique
cryptographic hardware which only the Company possesses.
Communication between the Purchase servers and the Back-Office servers uses
a proprietary one-way batch protocol that allows extremely limited types of
transmission of information and activity between the servers. The Company
believes that it is virtually impossible for sensitive financial information to
be compromised without physical access to the Company's Back-Office servers.
Further, the Company has implemented a series of sophisticated auditing and
intruder-detection systems. Should an intruder ever be suspected, communications
between the Purchase and Back-Office servers would be severed immediately to
ensure the safety and integrity of the financial information. There can be no
assurance that, due to technological advancements or other factors beyond the
control of the Company, such measures will maintain absolute security.
Disaster Recovery
FVIPS is configured to provide hardware and data redundancy. In the event
that a computer within the system should fail, the Company believes that
adequate redundancy in hardware and data storage units exists to allow FVIPS to
continue operating at a reduced capacity. All data is backed up daily to tape
and stored off-site in a secure storage facility. The Company maintains on-site
duplicates of the system's data storage units, known as "mirrors," to provide
additional data integrity and security. The Company intends to build a second
system in 1997 to reduce the chance of system overload or failure. The second
system will be located at a physical location separate from the existing FVIPS
location.
Digital Signatures
When the Company sends credit authorization results to the Seller (see Step
10 under "The Back Office Cycle" above), the Company can use public key
cryptography to digitally sign authorization notices. This
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procedure is intended to prevent the forging of authorization results and the
subsequent fraudulent inducing of product shipment. Copies of the Company's
public authentication keys are available on the Company's server. For security
purposes, current plans provide that the keys are to be changed monthly and are
to be made available only a few days before they are eligible for use. The
private keys necessary for full digital signing of messages are kept off the
Internet. If the Seller wishes to take advantage of this authentication feature,
additional cryptographic software (both publicly and commercially available) is
required.
Optional Encryption of Seller Messages
FVIPS allows the Seller the option of encrypting messages with purchase
information to the Purchase servers for additional security. This option
requires the Seller to obtain additional cryptographic software and the
Company's public encryption keys, which are available without charge from the
Company's server.
Fraud and Chargebacks
If a credit cardholder purchases a product or service and is dissatisfied
after the purchase, the cardholder may be able to return the product and demand
a refund. Under Federal Reserve Regulation Z, credit cardholders have
significant rights to dispute charges for up to two billing cycles after the
billing period in which the charge appears on the cardholder's statement. If the
merchant, after having received payment from its merchant acquiror, refuses to
issue a refund or properly provide the product or service to the cardholder, the
cardholder may initiate a "chargeback" through the issuing bank. When a
chargeback occurs, the merchant's acquiring bank is responsible for refunding
the amount of the charge to the issuing bank (who then refunds the charge amount
to the consumer) and collecting funds from the merchant. If the merchant does
not have sufficient funds to repay the chargeback, the merchant acquiror is
liable. With respect to the Company's operations, First USA Paymentech is the
merchant acquiror and thus liable to the consumer's issuing bank in the event
the merchant cannot pay the chargeback. First USA Paymentech has required and
the Company has agreed, to indemnify First USA Paymentech in the event any
merchant cannot pay a chargeback.
Pursuant to the terms of an agreement between the parties, the Company is
liable to First USA Paymentech for chargebacks if First USA Paymentech cannot
obtain payment from a Pioneer Seller or an Express Seller. The Company's
customer agreements provide for the allocation of the risk of chargebacks (other
than chargebacks caused by erroneous transmission by the Company) to Pioneer
Sellers and Express Sellers. In addition, under the Pioneer Sellers service,
funds are held for 91 calendar days, thereby minimizing the Company's exposure
to the risk of the Pioneer Seller being unable or unwilling to fund a
chargeback. Under the Express Seller service, funds are held for approximately
three to five business days. The Company believes that the Seller screening
associated with the Express Seller application process mitigates chargeback
exposure.
The Company has experienced negligible fraud (i.e., unauthorized use of
credit card or VirtualPIN) and chargeback rates in its limited operating
history. For Pioneer Sellers, the Company's policy of aging the settlement funds
before paying the Pioneer Seller protects the Company from having to seek
collection of chargebacks from Pioneer Sellers. In all cases, the Pioneer Seller
is responsible for refunds and any refunds are deducted by the Company from
future payments to the Pioneer Seller. If there are no covering payments to the
Pioneer Seller, the Pioneer Seller is liable to pay the Company for such refund.
While the Company believes that the design of FVIPS and its Seller application
process reduces the risk of fraud and chargebacks, there can be no assurance
that the low fraud and chargeback rates the Company has experienced historically
will continue in the future. A substantial increase in fraudulent activity or
chargebacks could have a material adverse effect on the Company's business,
financial condition and results of operation.
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ADDITIONAL PRODUCTS AND SERVICES
VirtualTAG
In order to bring the retail environment to any Web page, the Company has
prototyped the VirtualTAG, its second application of the VirtualPIN. Upon its
introduction, the Company believes VirtualTAG will be one of the first solutions
that takes full advantage of the Internet's unique attributes by combining
advertising, selling and paying in one application. The VirtualTAG uses Java or
Shockwave software to create stimulating, interactive advertisements within
banners or "store fronts" which are designed to allow Buyers to initiate the
purchase, payment and arrange for the delivery of a product being advertised
without leaving the Web page on which the advertisement appeared. If the
advertisement were in a newspaper, the VirtualTAG would be comparable to being
able to touch the hardware store advertisement and buy the leaf blower, without
having to stop reading the newspaper and drive to the store.
1 Virtual Place
The Company intends to introduce 1 Virtual Place, a service through which
Buyers can purchase retail items directly from First Virtual in the first
quarter of 1997. The Company plans to sell the merchandise through the use of
VirtualTAG, advertising banners and the Company's 1 Virtual Place Web site. The
Company intends to sell retail products through 1 Virtual Place potentially
ranging from electronic computer products to gourmet foods and corporate gifts.
The Company is currently testing 1 Virtual Place through an agreement with Juno
whereby limited products such as gift baskets and Casio watches are being
offered to Juno customers. The Company believes that 1 Virtual Place may be an
effective means of testing technologies and concepts as well as increasing the
numbers of VirtualPIN holders and FVIPS transactions.
Presently, the Company intends to order only from vendors following
confirmed Buyer purchase requests, thereby eliminating purchase commitments and
the cost of carrying inventory. The Company plans to generally negotiate rights
of return with the vendor for goods ultimately rejected by the Buyer. However,
with respect to goods ultimately rejected by the Buyer or lost in transit, the
Company will have financial exposure for shipping costs, chargebacks and, in the
event the goods cannot be satisfactorily returned to the vendor, the Company's
cost of the product.
Targeted Marketing
The Company's Purchase server has a "relay" capability which enables the
forwarding of messages from Sellers directly to Buyers using the Buyer's
VirtualPIN as an E-mail address ([email protected]). This function was
designed to enable Sellers to transmit targeted marketing materials or
questionnaires while maintaining the Buyer's anonymity. The Buyer has the option
of declining to receive any of these communications from Sellers. If the Buyer
wishes to receive promotional offers from Sellers, this "relay" function will
not disclose the Buyer's name or E-mail address. Currently, FVIPS enables
Sellers to use this capability with respect to Buyers who have previously
purchased from them. The Company is planning FVIPS enhancements to enable
Sellers to use this capability on a widespread basis.
Billing Notification
FVIPS enables Sellers to initiate electronic billing notifications for
Buyer confirmation. This capability facilitates a number of applications,
including subscription or membership renewals and recurring bill payments.
Subscription and membership renewal. In the magazine publishing industry,
publishers typically begin sending monthly renewal notices six months prior to
the expiration of the consumer's subscription which results in the incursion of
postal and printing costs for each notice. In addition, many subscribers respond
with a physical check which must then be processed by the fulfillment house or
publisher. Using FVIPS, fulfillment houses and publishers can simply E-mail a
"confirmation-request" to the Buyer, to which a response of "yes" will renew the
subscription and initiate a FVIPS transaction. This procedure has the potential
to significantly reduce billing costs for the Seller, while providing the Buyer
with a convenient and less costly method to effect a renewal. An example of such
a capability is the Company's contract with Network Solutions, Inc.
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("Network Solutions"), a nationwide provider of domain name registration and
renewal services which it administers from the InterNIC domain site. As a result
of development work undertaken by the Company, the InterNIC site will be
configured to enable those seeking registration and renewal of domain names to
pay with their VirtualPINs. Those not having VirtualPINs are expected to be able
to link to the Company's Web site to register for a VirtualPIN. In addition,
Network Solutions intends to notify each registrant in its billing statements
that VirtualPINs are accepted for payment. Network Solutions has also agreed to
work with the Company in devising outbound "value added" messages that can be
sent to its 500,000 plus mailing list of domain name registrants.
Recurring bill payments. As public utilities prepare to face a deregulated
environment and operate outside their traditional geographic locale, FVIPS could
provide a system and a process to facilitate convenient billing on a national
scale. As in the case of subscription renewals, utility companies can benefit
from reduced billing costs by using FVIPS to save on printing, mailing and
processing charges. In addition to the convenience of having utility payments
itemized on a credit card bill, the Buyer would also benefit from reduced
postage cost. In the telecommunications, cable, electric, and gas industries,
FVIPS offers utilities the potential to facilitate consumer billing by using the
Buyer's existing E-mail account, regardless of where that account may be held.
Although the current capability of FVIPS would enable Sellers to utilize the
subscription membership renewal and recurring billing payment services with
respect to a limited number of Buyers, the Company intends to enhance FVIPS to
enable Sellers and Buyers to utilize these services on a widespread basis.
The Company is currently in the process of developing VirtualTAG, 1 Virtual
Place and additional products and services which enable targeted marketing and
facilitate billing notification and recurring bill payments. There can be no
assurance that any of such products will be introduced or, if introduced,
achieve market acceptance. See "Risk Factors -- Undeveloped and Rapidly Changing
Markets" and "-- Dependence Upon Product and Service Development; Risk of
Technological Change and Evolving Industry Standards."
InfoHaus
For Sellers who offer information products and do not wish to establish
their own Web site, the Company offers the InfoHaus shared Web server
("InfoHaus"). InfoHaus is an on-line retail environment designed to provide
electronic store fronts for Sellers of information products. InfoHaus eliminates
the need for a Seller to maintain any hardware, software or continuous Internet
connection. InfoHaus, in conjunction with FVIPS, manages all aspects of the
selling process, including confirmation of purchases, distribution of
information goods, accounting, settlement and collection and payment of
proceeds. InfoHaus has been a part of the Company's services since the
deployment of FVIPS and had approximately 300 Sellers as of June 30, 1996. In
addition to the standard transaction processing fees, InfoHaus Sellers also pay
an additional surcharge as a percent of the transaction amount and a monthly
storage fee for keeping files on the Company's server.
MARKETING AND DISTRIBUTION
First Virtual's marketing objective is to become the leading facilitator of
Internet commerce and other forms of interactive Internet communications. The
Company intends to rapidly deploy VirtualPINs to all potential Buyers and
Sellers. The Company intends to establish a large installed base of VirtualPINs
issued to Buyers and Sellers through multiple channels including on-line and
Internet service providers, value added integrators, businesses with large
direct response customer bases, consumers through a variety of direct marketing
programs and customers of credit card companies and other financial
institutions. The Company intends to market its services, including VirtualTAG,
to merchants regardless of their Web presence. Initially the Company plans to
work cooperatively with advertising agencies and their clients to develop the
creative content and placement of VirtualTAGs.
The Company believes that a variety of factors will motivate widespread
adoption of FVIPS. Buyers will register with the Company to ensure a secure and
convenient method for on-line purchasing and to take advantage of premium offers
from well-known merchants. Merchants will become Sellers to offer a secure and
highly efficient sales channel that provides the opportunity for two-way
interaction with a broad customer
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base. The Company intends to enact initiatives in a number of channels to
promote universal availability and adoption of FVIPS, including the following:
BUYER ENROLLMENT
Credit card companies and other financial institutions. The Company intends
to work with First USA Bank, one of the largest credit card issuers in the U.S.,
GE Capital, a major financial services company with one of the world's largest
portfolios of private label credit cards, First Data, the largest credit card
processor in the U.S., and other major credit card companies and financial
institutions to deploy VirtualPIN marketing campaigns tied to credit card
billing and solicitations. The Company will provide the credit card companies
and other financial institutions with the opportunity to issue VirtualPINs to
their customers on a "co-branded" basis.
On-line and Internet service providers. The Company intends to offer
on-line and Internet service providers the opportunity to provide their
customers co-branded VirtualPINs that will enable their customers to buy and
sell over the Internet. Internet service providers' customers have a
demonstrated interest in using the Internet for diverse applications. In
addition, because they are currently using the Internet, these customers already
have the capability of conducting commercial transactions using FVIPS.
Information technology product firms. The Company plans to launch a variety
of co-marketing campaigns with firms communicating with, servicing and selling
products to on-line, computer literate consumers. These include iCat, Farcast,
Earthweb, Network Solutions and other personal computer hardware, software and
peripheral production and distribution companies. The Company anticipates that
these companies will bundle the Company's promotional material with their
products, either as a ride-along with product delivery or as an added inducement
or premium to encourage purchase.
Existing and future FVIPS Sellers. The Company expects that a portfolio of
Sellers who support FVIPS will contribute significantly to the rate of Buyer
registration. Individual consumers who use the Web will be motivated to register
as Buyers when they encounter Web merchants who accept payment using FVIPS.
Direct sales. The Company expects to attract VirtualPIN Buyers through
direct marketing programs including solo direct mail, co-op direct mail, disk
inserts in publications, space advertising and direct marketing public
relations. Any consumer can become a Buyer simply by visiting the Company's Web
site or sending E-mail to [email protected].
SELLER ENROLLMENT
Credit card companies and other financial institutions. The Company has
established relationships with leading credit card companies and financial
institutions to enhance the value of the services these groups provide to their
merchant customers. The Company and credit card companies and financial
institutions, together with Web developers, can provide a turnkey solution to
enabling Internet commerce. The Company intends to pursue relationships with
additional credit card companies and financial institutions.
Value-added integrators. As previously described, the Company has
established a relationship with iCat and is establishing relationships with
additional Web development firms, software development firms which provide
packaged point-of-sale solutions, computer service companies, and advertising
and marketing agencies which provide services and assistance to merchants
establishing or maintaining Web sites. The Company will provide training,
software development tools and technical support to these firms to encourage
them to integrate FVIPS into their clients' Web sites. These firms are
potentially an effective sales force for the Company, reaching a large base of
potential Sellers.
Existing and future FVIPS Buyers. As the number of Buyers and FVIPS
transactions increases, the Company believes that additional Sellers will be
attracted to the potential expanding user base.
Direct sales. The Company has an internal sales force which identifies
businesses with large direct response customer bases (including those businesses
with an online presence). This sales force pursues opportunities through
personal contact, direct marketing, E-mail, and industry events. The Company
believes
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that businesses which rely on a renewal revenue model, such as magazine
publishers and public utilities, are particularly good prospects, as they will
recognize the value of providing their customers with a means to pay their bills
easily and electronically. Supporting payment through FVIPS will allow these
companies to bill, receive and process payment from their customers at a
significantly reduced cost. The sales force will also focus on software
companies, which have the opportunity to distribute their products online and
rely on a renewal revenue model with maintenance fees and upgrades. Any person
or organization can become a Seller simply by visiting the Company's Web site or
sending E-mail to [email protected].
CUSTOMER SERVICE AND TECHNICAL SUPPORT
The Company's customer service and support activities are designed to
provide timely, high quality technical support to meet the diverse needs of
customers and to facilitate the adoption and use of its products and services.
The Company's customer service and support organization relies on a continuous
monitoring system that enables the Company to provide support services 24 hours
a day, seven days a week. Sellers and Buyers also have access to numerous
self-help reference materials at the Company's Web and FTP sites.
The Company's customer services and support organization is comprised of
three groups, responsible for customer support, services administration and
systems administration. Customer support staff members are the first line of
support for the Company's customers. Customer support is provided 24 hours a
day, seven days a week by E-mail and facsimile. A toll-free telephone support
service is provided from 6 a.m. to 6 p.m. (west coast time), seven days a week.
The vast majority of customer support inquiries are made via E-mail. Through the
use of an innovative customer support application, database, and E-mail process,
customer support inquiries are recorded, linked automatically with pertinent
customer account history, and dispatched to customer support representatives.
Responses to inquiries are closely monitored for accuracy and timeliness, and an
escalation procedure allows for urgent issues to be resolved by senior
personnel. Management reporting enables regular monitoring of customer support
efficiency. Customer support staff members also provide routine support for the
Company's internal staff and systems.
Services administrators serve as liaisons between the Company's technical
staff and financial partners and resolve escalated support requests from
customer support staff. Services administrators also work closely with the
Company's development teams and financial partners to provide smooth transitions
of enhanced or upgraded products and services.
Systems administrators pro-actively monitor critical Company computing
systems 24 hours a day, seven days a week to assure maximum uptime and system
efficiency.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are focused on the design
and development of new products and services for the Internet commerce market,
as well as on increasing the capacity and reliability of existing products and
services. The Company has devoted a significant portion of its resources to
research and development programs. As of September 30, 1996, the Company had 18
persons engaged in research and development activities. The Company's research
and development expenses were $307,000, $531,000 and $544,000 for the period
from inception to December 31, 1994, the year ended December 31, 1995 and the
six months ended June 30, 1996, respectively. The Company believes that
significant research and development expenditures will be required in order for
the Company to remain competitive. Accordingly, the Company expects that
research and development expenses will increase substantially in the future.
The Company's research and development and marketing departments work
closely in the selection of research projects. Current research activities
include projects in the following four areas:
- Extension of VirtualPIN architecture.
- Development of a suite of Seller tools that facilitate various activities
using FVIPS.
- Development of a suite of tools using the Company's E-mail confirmation
technology for automated electronic mail dialogues with customers for a
variety of applications.
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- Development of advanced application-level services, including systems for
permitting extremely small payments (micro-transactions), systems for the
collection of royalties on copyrighted materials, systems for the
facilitation of pay-per-use software (including games) and systems for
the management of cryptographic keys.
There can be no assurance, however, that any of these services will be made
commercially available on a timely and cost-effective basis, or at all, or that
if introduced, these services will achieve market acceptance. See "Risk
Factors -- Undeveloped and Rapidly Changing Markets" and "-- Dependence Upon
Product and Service Development; Risk of Technological Change and Evolving
Industry Standards."
The Company believes that its software development team represents a
significant competitive advantage. The Company has world-class expertise in
E-mail technology with particular emphasis on E-mail-based distributed services.
The Company also has substantial expertise in other key areas of
Internet-related technology, including Web technology and cryptography, as well
as in the development of scalable, reliable, distributed systems. The Company's
research and product development team includes among others Nathaniel
Borenstein, the primary author of a number of Internet E-mail standards, and
Marshall Rose, an expert in a number of Internet technologies. The Company's
ability to attract and retain highly qualified employees will be the principal
determinant of its success in maintaining technological leadership.
The Company's ability to design, develop, test and support new software
products and enhancements on a timely basis that meet changing customer needs
and respond to technological developments and emerging industry standards is
critical to the Company's future success. There can be no assurance that the
Company will be successful in developing and marketing new software products and
enhancements that meet changing customer needs and respond to such technological
changes or evolving industry standards. The Company's current services are
designed around certain widely used and accepted standards, including the MIME
and SMTP E-mail standards and upon process-based security via an E-mail
confirmation. Current and future use of the Company's services will depend, in
part, on industry acceptance of such standards and practices as they apply to
the Internet and Internet commerce.
COMPETITION
The market for products and services that enable the sale of goods and
services over the Internet is expected to be intensely competitive and, to the
extent commercial activity over the Internet increases, the Company expects
competition to increase significantly. There are no substantial barriers to
entry into the Company's business, and the Company expects established and new
entities to enter the Internet payment system and interactive Internet
communication market business in the near future. Although the Company believes
that the diverse segments of the Internet will provide opportunities for more
than one supplier of products and services similar to the Company's, it is
possible that a single supplier will dominate one or more market segments.
Furthermore, since there are many potential entrants to the field, it is
extremely difficult to assess which companies are likely to offer competitive
products and services in the future, and in some cases it is difficult to
discern whether an existing service is competitive with the Company's current
services.
The Company's principal competitors in the market for consumer-initiated
purchases over the Internet include providers of encrypted credit card
transaction systems such as CyberCash, Checkfree, Open Market, Netscape and GC
Tech and providers of electronic cash payment systems such as DigiCash. The
Company expects that credit card processors and acquiring banks will also offer
credit card-based payment systems if SET protocols proposed by Visa, MasterCard,
Microsoft and Netscape are adopted and/or accepted as a standard for Internet
commerce. SET comprises openly published communication and process protocols
intended to facilitate encrypted credit card transactions over the Web. The
Company may experience additional competition from Internet Service providers
who enter the market for Internet payment services. Companies such as AOL,
CompuServe, Microsoft, IBM, AT&T and Federal Express, which possess large,
existing customer bases or ready distribution channels, could develop, market or
resell a number of payment alternatives including, but not limited to, encrypted
credit card payment and digital cash payment systems. Additionally, competitors
may emerge to provide payment systems based on alternative systems or methods
other than credit cards or digital cash, such as Internet checking transaction
systems. The Company also
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competes with the direct transmission of unprotected credit card information for
commercial transactions over the Internet (i.e., "in the clear" transactions),
which is currently the primary method for Internet commercial transactions that
use a credit card as a form of payment. The Company believes that mail order
companies and companies that sell from catalogues using "800" telephone numbers
also compete with Internet payment systems. As the Company expands the
applications of its VirtualPIN architecture, it will compete with a broader
range of companies including traditional advertising, merchandising and direct
marketing companies as well as additional entrants into the interactive Internet
communications market.
Several of the Company's current and potential competitors have longer
operating histories, greater name recognition, larger installed customer bases,
more diversified lines of products and services and significantly greater
financial, technical, marketing and other resources than the Company. Such
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive pricing policies and make more attractive offers to individuals,
businesses and financial institutions. In addition, many of the Company's
current or potential competitors have broad distribution channels that may be
used to bundle competing products directly to end-users or purchasers. If such
competitors were to bundle competing products for their customers, the demand
for the Company's services might be substantially reduced, and the ability of
the Company to successfully effect the distribution of its products and the
utilization of its services would be substantially diminished. As a result of
the foregoing or other factors, there can be no assurance that the Company will
be able to compete effectively with current or future competitors or that the
competitive pressures faced by the Company will not have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Risk Factors -- Competition."
PROPRIETARY RIGHTS
The Company's success and ability to compete is dependent in part upon its
proprietary technology. The Company relies primarily upon copyright, trade
secret and trademark law to protect its technology. The Company has no patents.
The Company has applied for two U.S. patents on portions of its FVIPS system.
While the Company believes that its pending patent applications relate to
patentable inventions, the Company's set of claims with respect to its first
patent application was rejected by the PTO. While the Company is vigorously
protesting the PTO's position, there can be no assurance that patents will be
granted pursuant to the Company's applications, or that if granted, such patents
would survive a legal challenge to their validity, or provide adequate
protection. The Company generally enters into confidentiality and assignment
agreements with its employees, consultants and vendors and generally controls
access to and distribution of its software, documentation and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use the Company's services or technology without
authorization or to develop similar services or technology independently. In
addition, effective copyright and trade secret protection may be unenforceable
or limited in certain foreign countries, and the global nature of the Internet
makes it difficult to control the ultimate destinations of the Company's
services. To license its software to Sellers, the Company often relies upon
on-screen licenses that are not manually signed by the end users and, therefore,
may be unenforceable under the laws of certain jurisdictions. Despite the
Company's efforts to protect its proprietary rights, third parties may attempt
to copy aspects of the Company's products or services or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's products and services is difficult, particularly in a global
environment in which the Company operates, and the laws of other countries may
afford the Company little or no effective protection of its intellectual
property. There can be no assurance the steps taken by the Company will prevent
misappropriation of its technology or that such agreements will be enforceable.
In addition, litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such litigation, whether
successful or unsuccessful, could result in substantial costs and diversions of
resources, either of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
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The Company is aware of patents held by independent third parties in the
area of Internet payment systems. No assurance can be given as to the
applicability of such patents to the Company's services and technologies. The
assertion of these patent rights, if successful, could result in substantial
cost to the Company. There can be no assurance that the Company's services are
not, or in the future will not be, within the scope of such patents or any other
existing or future patents, and any litigation arising thereunder, even if
successfully contested, could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company was named
as a defendant in a patent infringement suit filed by E-data in August 1995. The
suit was dismissed without prejudice in March 1996 and the Company now holds an
exclusive license under the Freeny patent for Internet payment systems, E-data's
applicable patent for Internet payment systems. In addition, the Company from
time to time has received, and may receive in the future, other notices of
claims of infringements of other parties' proprietary rights. There can be no
assurance that additional claims for infringement or invalidity (or claims for
indemnification resulting from infringement claims) will not be asserted or
prosecuted against the Company. If any such claims or actions are asserted, the
Company may again seek to obtain a license under a third party's intellectual
property rights. There can be no assurance that such a license would be
available on reasonable terms or at all, and the assertion or prosecution of any
such claims could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Limited
Intellectual Property Protection."
GOVERNMENT REGULATION
With the dramatic growth of Internet commerce, the Company expects that new
laws and regulations will be enacted that may have an effect on its business and
financial results. The Company currently operates as a facilitator of
transactions over the Internet and does not engage in electronic funds transfers
from consumer accounts. Accordingly, the Company does not believe that its
current activities subject it directly to regulation.
The Company transacts business with credit card issuers and other financial
services companies which are subject to comprehensive regulations, including
consumer lending regulations and regulations governing electronic funds
transfers. Regulation E, promulgated by the Federal Reserve Board pursuant to
the Electronic Fund Transfer Act, governs transfers of funds from consumer
accounts by various means, primarily electronic. Among other things, Regulation
E limits the liability of consumers for unauthorized electronic withdrawals from
their accounts; provides procedures for resolving errors; and requires regulated
institutions to provide disclosures, terminal receipts and account statements.
Although the Company believes that its current services are not subject to
Regulation E, there is no assurance that the Federal Reserve Board will not
require all or certain of the Company's services to comply with Regulation E,
revise Regulation E or adopt new rules and regulations affecting electronic
commercial transactions that could result in increased operating costs for the
Company or for the principal users of its services and could also reduce the
convenience and functionality of the Company's services, possibly resulting in
reduced market acceptance. For example, the Federal Reserve Board is considering
regulatory changes to Regulation E as it affects stored value systems. Stored
value systems provide a user with a device or mechanism to purchase goods and
services with a prepaid account (e.g., prepaid long distance telephone cards).
These changes may affect the Company's business in a manner which is currently
difficult to predict. Congress has directed the Federal Reserve Board to study
whether provisions of the Electronic Fund Transfer Act could be applied to
stored value products without adversely impacting the cost, development and
operation of such products, and whether alternatives to regulation could more
efficiently achieve the objectives embodied in that Act. The Federal Reserve
Board may not finalize any amendments to Regulation E that would regulate stored
value products until the later of (a) three months after the study is submitted
to Congress, or (b) June 30, 1997. In addition, if the Federal Reserve Board
were to challenge the Company's position, responding to such a challenge could
result in significant expenditures of the Company's financial and management
resources, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Because of the growth in the electronic commerce market, Congress has
debated whether or not to regulate providers of services and transactions in
this market, and Federal or state authorities could enact laws, rules or
regulations affecting the Company's business or operations. Senior officials
from several regulatory
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agencies, including the Federal Reserve Board and the Office of the Comptroller
of the Currency, have indicated that those agencies have refrained from
promulgating regulations in order to encourage continued development of
electronic commerce, but will monitor this area closely in the future. Other
government agencies in addition to the banking agencies, including the Federal
Trade Commission and the Federal Communications Commission, may promulgate rules
and regulations affecting the Company's activities or those of the users of the
Company's products and services. The Company also may be subject to Federal,
state and foreign money transmitter laws which impose record-keeping and
registration and bonding requirements. In addition, the Company may be affected
by the efforts of states to tax online service providers even when they have no
presence within the state. If enacted or deemed applicable to the Company, such
laws, rules or regulations could be imposed on the Company's activities or its
business, thereby rendering the Company's business or operations more costly or
less efficient, either of which would have a material adverse effect on the
Company's business, financial condition and results of operations.
EMPLOYEES
As of September 30, 1996, the Company had a total of 86 employees,
including 34 in operations, 18 in research and development, 18 in marketing and
sales and 16 in general and administration. In addition, the Company had under
contract 17 consultants and contractors.
The Company's future success depends to a significant extent upon the
continued service of its key technical and senior management personnel and upon
its ability to attract and retain additional highly skilled creative, technical,
financial and strategic marketing personnel. Competition for such personnel is
intense. There can be no assurance that the Company will be successful in
attracting and retaining such personnel, and the failure to do so could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management." None of the Company's employees are
represented by a labor union. The Company has never experienced a work stoppage
and believes that its relationships with its employees are good.
FACILITIES
The Company's corporate facility consists of approximately 20,000 square
feet of leased space in San Diego, California. Of this space, approximately
2,900 square feet is subleased through July 1997, 10,600 square feet is leased
through May 1999 and 6,500 square feet is leased through September 1999. The
Company also leases 2,390 square feet in Ann Arbor, Michigan. This space is
leased through April 30, 1999. The Company leases space from First USA
Paymentech within its facilities in Dallas, Texas. The Company believes that
sufficient additional space will be available as needed.
The Company's operations are dependent in part upon its ability to protect
its operating systems against physical damage from fire, floods, earthquakes,
power loss, telecommunications failures, break-ins and similar events. The
Company does not presently have redundant, multiple site capacity in the event
of any such occurrence. Despite the implementation of network security measures
by the Company, its servers are also potentially vulnerable to computer viruses,
break-ins and similar disruptions from unauthorized tampering with the Company's
computer system. The occurrence of any of these events could result in
interruptions, delays or cessations in service to users of the Company's
products and services, which could have a material adverse effect on the
Company's business, results of operations and financial condition. "See Risk
Factors -- Risks of Systems Failures; Lack of Insurance and Security Risks."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
October 17, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------- --- ---------------------------------------------
<S> <C> <C>
Lee H. Stein 43 Chairman of the Board and Chief Executive
Officer
Michael D. Schauer 35 President of Financial Services
Thomas Daniel 36 Vice President of Merchant Services
Nathaniel S. Borenstein 39 Chief Scientist
John J. Donegan 56 Vice President, Operations
Marshall T. Rose 35 Technical Advisor, Office of the Chairman
John M. Stachowiak 44 Vice President, Finance & Administration and
Chief Financial Officer
Robert S. Epstein(1) 44 Director
Tawfiq N. Khoury(1)(2) 66 Director
John McKinley 38 Director
Pamela H. Patsley(2) 39 Director
Jon Rubin(2) 28 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
MR. STEIN has served as Chairman of the Board of the Company since January
1996 and as a director and Chief Executive Officer of the Company since March
1994. Since 1980, Mr. Stein has also been Chairman of Stein & Stein,
Incorporated, a firm which, has provided advisory and management services to a
selected clientele of high net worth and entertainment industry individuals, and
is general partner of the Stein Company, Ltd., an investment partnership. Mr.
Stein is a director of Scripps Foundation for Medicine and Science, a former
director of the American Cancer Society and former chairman of Jack Murphy
Stadium Authority, City of San Diego. Mr. Stein is a member of the bar of the
State of California and the Commonwealth of Pennsylvania.
MR. SCHAUER has served as the Company's President of Financial Services
since September 1996. From 1993 to September 1996, Mr. Schauer was President,
Consumer Financial Services of GE Capital. Prior to joining GE Capital, Mr.
Schauer was with Valley National Bank where he was Senior Vice President --
Retail Lending from 1989 to 1992 and Executive Vice President -- Retail Lending
from 1992 to 1993. Mr. Schauer also served as a director of the Mastercard U.S.
Region Board from March 1994 through September 1996.
MR. DANIEL has served as the Company's Vice President of Merchant Services
since October 1996. From April 1994 to September 1996, Mr. Daniel served as
President and Chief Operating Officer of Intuit Services Corp. Prior to joining
Intuit Services Corp., Mr. Daniel worked at Automatic Data Processing, Inc. from
1982 through March 1994, serving as Senior Director of the Software Services
Division as his last position.
DR. BORENSTEIN has served as the Company's Chief Scientist since March
1994. Dr. Borenstein was also a member of the technical staff in the
Interpersonal Communication Group at Bellcore from 1989 through 1994. In 1985,
Dr. Borenstein joined Carnegie Mellon University where he served as a system
designer until 1988, a lecturer until 1989 and as manager of applications
development from 1988 to 1989. Dr. Borenstein is a director of Computer
Professionals for Social Responsibility and the Institute for Global
Communication.
DR. DONEGAN has served as the Company's Vice President of Operations since
July 1996 and served as a consultant to the Company from March 1996 to July
1996. He has been President of John Donegan Associates, Inc., a computer systems
and network consulting firm, since October 1994. Dr. Donegan retired from the
United States Navy in August 1994 as a Rear Admiral. From January 1992 to August
1994, Rear Admiral Donegan was the first Commander of the Naval Command, Control
and Ocean Surveillance Center,
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a major Navy warfare center and laboratory in San Diego. From June 1989 to
December 1991, he served as the Commanding Officer of the Naval Research
Laboratory in Washington, D.C.
DR. ROSE has served as Technical Advisor, Office of the Chairman of the
Company since July 1996. From March 1994 to July 1996, Dr. Rose was a consultant
to the Company. Dr. Rose has also been a Principal and owner of Dover Beach
Consulting, Inc., an Internet consulting company, since August 1991. From
January 1990 to May 1991, Dr. Rose was the principal scientist, and, from April
1989 to December 1989, a senior scientist at PSI, Inc. (formerly NYSERNet,
Inc.), an Internet services company.
MR. STACHOWIAK has served as the Company's Vice President, Finance and
Administration and Chief Financial Officer since October 1996. Mr. Stachowiak
also served as a consultant to the Company from May 1996 to September 1996. Mr.
Stachowiak served as Vice President, Finance and Administration and Chief
Financial Officer of NeoPath, Inc, a medical device company, from October 1994
to April 1996. Mr. Stachowiak served as Vice President, Administration and
Process Improvement of US West New Vector Group, Inc. from January 1991 to
October 1994 and as Vice President, Finance and Administration and Chief
Financial Officer from July 1987 to December 1990.
DR. EPSTEIN has served as a director of the Company since December 1995.
Dr. Epstein was a founder of Sybase, a database software developer, and has
served as Executive Vice President and a director of Sybase since November 1984.
Prior to that, he served as Vice President of Product Development for
Britton-Lee, Inc., a relational database hardware manufacturer.
MR. KHOURY has served as a director of the Company since March 1994 and was
Chairman of the Board of Directors from March 1994 to January 1996. Mr. Khoury
has also served as Chairman of the Board of Directors and Chief Executive
Officer of Pacific Scene, Inc., a company which was a diversified builder
headquartered in San Diego, since August 1971; as Chairman of the Board of
Directors of 2111 Corporation, a property management company, since June 1985;
and a managing director of K Enterprises, an investment company, since August
1991.
MR. MCKINLEY has served as a director of the Company since July 1996. Mr.
McKinley has been the Chief Technology and Information Officer of GE Capital
since October 1995. From February 1982 to September 1995, Mr. McKinley served as
a consultant for Ernst & Young, including serving as a consulting partner from
October 1992 to September 1995.
MS. PATSLEY has served as a director of the Company since December 1995.
Ms. Patsley has been President, Chief Executive Officer and a director of First
USA Paymentech since December 1995. She has also served as President and Chief
Executive Officer of First USA Merchant Services, a wholly-owned subsidiary of
First USA Paymentech, since December 1991 and Executive Vice President and
Manager since July 1990, and as Chairman of the Board of First USA Financial
Services, Inc., a wholly-owned subsidiary of First USA Paymentech, since August
1994. Ms. Patsley has also served as Executive Vice President and Secretary of
First USA, Inc. since July 1989. Ms. Patsley was Chief Financial Officer of
First USA, Inc. and its predecessor from January 1987 to April 1994 and a Senior
Vice President prior to such time. Ms. Patsley currently serves on the Delivery
Systems Advisors' Committees of VISA USA, Inc. and VISA International, Inc. Ms.
Patsley has also served as a director of First USA Bank since November 1993.
MR. RUBIN has served as a director of the Company since September 1994. Mr.
Rubin has been President and a director of Next Century Communications Corp., a
direct marketing agency and holding company for numerous direct marketing
businesses and related investments, since June 1993, and was President of its
Strategic Response division from October 1990 to June 1993.
Effective upon the closing of this offering, the Board of Directors will be
divided into three classes with each director serving a three-year term and one
class being elected at each year's annual meeting of stockholders. The initial
members of such classes will be determined at a meeting of stockholders in
October 1996. There are no family relationships between any directors or
executive officers of the Company.
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BOARD COMMITTEES
The Audit Committee of the Board of Directors was formed in July 1996 to
review the internal accounting procedures of the Company and consult with and
review the services provided by the Company's independent auditors. The
Compensation Committee of the Board of Directors was formed in January 1996 to
review and recommend to the Board the compensation and benefits of all officers
of the Company and review general policy 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 stock plans.
DIRECTOR COMPENSATION
Directors of the Company receive reimbursement of expenses for attending
meetings of the Board of Directors. In April 1996, Lee H. Stein, Tawfiq N.
Khoury and Jon Rubin received fully-vested stock options to purchase 475,000,
100,000 and 90,000 shares of the Company's Common Stock, respectively, and NCCC,
an affiliate of Mr. Rubin's, received an option to purchase 135,000 shares of
Common Stock; each such option has an exercise price of $6.30 per share.
Directors are also eligible to receive stock option grants under the Company's
1995 Stock Plan. On October 8, 1996, each of the Company's non-employee
directors was granted a fully vested option to purchase 5,000 shares of the
Company's Common Stock at an exercise price of $10.50 per share. In October 1996
the Board determined that, in the future, non-employee directors shall receive a
fully vested option to purchase 5,000 shares of the Company's Common Stock upon
such director's election to the Board (the "Initial Grant") and a fully vested
option to purchase 2,000 shares of the Company's Common Stock immediately
following the Company's annual meeting of stockholders (the "Annual Grant").
Initial Grants and Annual Grants shall be made under the Company's 1995 Stock
Plan. Each of the Company's current non-employee directors is eligible to
receive Annual Grants, commencing on the Company's 1997 annual meeting of
stockholders.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was formed in January 1996 to review
and approve the compensation and benefits for the Company's executive officers,
administer the Company's stock option plans and make recommendations to the
Board of Directors regarding such matters. The committee is currently composed
of Ms. Patsley, Mr. Khoury and Mr. Rubin. Ms. Patsley serves as President and
Chief Executive Officer of First USA Paymentech, a beneficial owner of more than
5% of the Company's capital stock. Mr. Khoury beneficially owns more than 5% of
the Company's capital stock. Mr. Rubin is President of NCCC, a holder of more
than 5% of the Company's capital stock. See "Principal Stockholders." For a
description of certain transactions involving the Company and NCCC, Mr. Khoury
and a corporate affiliate of First USA Paymentech, see "Certain Transactions."
No interlocking relationship exists between the Company's Board of Directors or
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
EXECUTIVE COMPENSATION
No executive officer of the Company received compensation in excess of
$100,000 during the fiscal year ended December 31, 1995, except Nathaniel S.
Borenstein, Chief Scientist of the Company (the "Named Officer"), who received a
salary of $130,000 during such period. Lee H. Stein, Chairman and Chief
Executive Officer of the Company, received no salary during such period. Mr.
Stein, Mr. Borenstein, Michael Schauer, the Company's President of Financial
Services, John M. Stachowiak, the Company's Vice President, Finance and
Administration and Chief Financial Officer and Marshall T. Rose, Technical
Advisor, Office of the Chairman, are currently compensated at annual rates of
$240,000, $200,000, $275,000, $200,000 and $200,000, respectively. Up to 50% of
Mr. Stein's compensation may be deferred until such time as the Company's
Preferred Stock is converted into Common Stock pursuant to the Company's
Certificate of Incorporation, which is expected to occur at the closing of this
offering. Any deferred amount accrues interest at an annual rate of 7.0%.
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<PAGE> 55
OPTION GRANTS AND AGGREGATE OPTIONS EXERCISES DURING 1995 FISCAL YEAR
During the fiscal year ended December 31, 1995 the Company issued (i) an
option to purchase 16,700 shares of the Company's Common Stock to Nathaniel S.
Borenstein, at an exercise price of $0.04 per share and (ii) an option to
purchase 4,550 shares of the Company's Common Stock to Marshall T. Rose, at an
exercise price of $0.04 per share; each of such options expires in May 2005.
Subsequent to December 31, 1995, (i) Lee H. Stein was granted options to
purchase 250,000 shares of the Company's Common Stock at an exercise price of
$1.00 per share and 475,000 shares of Common Stock at an exercise price of $6.30
per share, (ii) Nathaniel S. Borenstein was granted options to purchase 14,500
shares of the Company's Common Stock at an exercise price of $0.32 per share and
100,000 shares of Common Stock at an exercise price of $6.30 per share, (iii)
Marshall T. Rose was granted an option to purchase 100,000 shares of the
Company's Common Stock at an exercise price of $6.30 per share, (iv) John M.
Stachowiak was granted options to purchase an aggregate of 125,000 shares of the
Company's Common Stock at an exercise price of $10.50 per share, and (v) Michael
D. Schauer was granted options to purchase 225,000 shares of the Company's
Common Stock at an exercise price of $10.50 per share. No officer of the Company
has exercised options to purchase the Company's Common Stock.
STOCK PLANS
1994 Stock Plan. The 1994 Incentive and Non-Statutory Stock Option Plan
(the "1994 Stock Plan") provides for the grant of stock options to employees,
officers, directors of and certain other persons providing services to the
Company. Under the 1994 Stock Plan, the Company may grant options that are
intended to qualify as incentive stock options within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code") and options not
intended to qualify as incentive stock options. Incentive stock options may only
be granted to employees of the Company. Under the 1994 Stock Plan, 468,750
shares of Common Stock were subject to outstanding options as of the date of
this Prospectus. Options with respect to 455,913 of such shares have vested as
of October 16, 1996. By resolution of the Board of Directors of the Company, no
additional options may be granted under the 1994 Stock Plan. The 1994 Stock Plan
is administered by the Board of Directors or a committee thereof. Generally,
options vest over two years and must be exercised within ten years. All options
are non-transferable other than by will or the laws of descent and distribution.
The 1994 Stock Plan provides that, in the event the Company is a party to a
reorganization or merger with one or more other corporations, whether or not the
Company is the surviving corporation, or if the Company consolidates with one or
more other corporations or the Company is liquidated or sells or otherwise
disposes of substantially all of its assets to another corporation ("Transfer of
Control"), the Board may accelerate the time for exercise of all unexercised and
unexpired options to and after a date prior to the effective date of a Transfer
of Control. The Board may also cancel all outstanding options, provided that,
holders receive notice and have the right to exercise options then exercisable
(including options accelerated by the Board). If the Board does not cancel such
options, unexercised options shall remain outstanding and shall be exercisable
either for Common Stock or, if applicable, any form of consideration received
pursuant to the terms of the Transfer of Control.
1995 Stock Plan. The 1995 Stock Plan of the Company provides for the grant
of stock options to employees, officers, directors and consultants of the
Company and any subsidiaries. The 1995 Stock Plan, as amended and restated by
the Board in October 1995, is subject to stockholder approval. Under the 1995
Stock Plan, the Company may grant options that are intended to qualify as
incentive stock options within the meaning of Section 422 of the Code and
options not intended to qualify as incentive stock options. Incentive stock
options may only be granted to employees of the Company and any subsidiaries.
Under the 1995 Stock Plan, 3,000,000 shares of Common Stock have been reserved
for issuance upon exercise of granted options, of which 1,233,395 shares of
Common Stock were subject to outstanding options as of October 16, 1996. Options
with respect to 175,547 of such shares have vested as of October 16, 1996.
The 1995 Stock Plan is administered by the Board of Directors or a
committee thereof. Subject to the provisions of the 1995 Stock Plan, the Board
or committee has the authority to select the persons to whom awards are granted
and determine the terms of each award, including (i) the number of shares of
Common
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<PAGE> 56
Stock covered by the award, (ii) when the award becomes exercisable subject to
certain limitations, (iii) the exercise price of the award and (iv) the duration
of the option (which may not exceed ten years and five years in the case of
incentive options granted to stockholders who hold more than ten percent of the
Company's capital stock). Generally, 25% of shares subject to an option vest
during the first year and 1/48 of the shares subject to such option vest each
month thereafter. Generally, options must also be exercised upon the earlier of
(i) 90 days after the termination of the Optionee's employment or (ii) ten
years. All options are non-transferable other than by will or the laws of
descent and distribution.
The 1995 Stock Plan provides that in the event of a merger of the Company
with or into another corporation, the options may be assumed or an equivalent
option substituted by the successor corporation or a parent or subsidiary of
such successor corporation. If the options are not so assumed or substituted
for, the options shall automatically become fully vested and exercisable. In the
event of a proposed dissolution or liquidation of the Company, unexercised
options shall terminate immediately prior to the consummation of such
dissolution or liquidation.
Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
(the "Purchase Plan") provides for the purchase by eligible employees of shares
of the Company's Common Stock. The Purchase Plan was adopted by the Board of
Directors in July 1996 and is subject to stockholder approval. A total of
100,000 shares of Common Stock have been reserved for issuance under the
Purchase Plan. The Purchase Plan, which is intended to qualify under Section 423
of the Code, is administered by the Compensation Committee of the Board of
Directors. Employees (including officers and employee directors) of the Company
or any subsidiary of the Company designated by the Board for participation in
the Purchase Plan are eligible to participate in the Purchase Plan if they are
customarily employed for more than 20 hours per week and more than five months
per calendar year. The Purchase Plan will be implemented during concurrent 24
month offering periods each of which will initially be divided into four
consecutive six-month purchase periods, subject to change by the Board of
Directors. Offering periods generally begin in January and July of each year.
The initial offering period will begin shortly after the effective date of the
offering and will end in December 1997. The Purchase Plan terminates on the
earliest of (i) the last business day of December 2006; (ii) the date on which
all shares available for issuance have been sold or (iii) the date on which all
purchase rights are exercised in connection with an acquisition or change in
control of the Company. The Company has not yet offered or sold shares of Common
Stock to employees pursuant to the Purchase Plan. The Purchase Plan permits
eligible employees to purchase Common Stock through payroll deductions, which
may not exceed 20% of an employee's compensation during a purchase period.
Shares are purchased on the last day of each purchase period. The price at which
stock may be purchased under the Purchase Plan is equal to 85% of the lower of
the fair market value of the Company's Common Stock on the first day of the
offering period or the last day of the purchase period. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company.
In addition, participants generally may not purchase stock having a value
greater than $25,000 in any calendar year.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Stein,
Schauer, Borenstein, Rose and Stachowiak.
Mr. Stein's employment agreement, effective as of January 1996, provides
for an annual base salary of $240,000. The agreement provides that Mr. Stein
shall serve as the Company's Chairman and Chief Executive Officer. The agreement
also provides for a payment to Mr. Stein of one year's salary and vesting of all
unvested options in the event that he is terminated (other than for cause) from
his position as the Company's Chairman of the Board of Directors or in the event
of certain changes of the composition of the Board of Directors or the Company's
stockholder base. In the event Mr. Stein is terminated (other than for cause)
from his employment as Chief Executive Officer and remains Chairman of the Board
of Directors without a reduction in compensation, then all of Mr. Stein's
unvested options shall continue to vest during such time that Mr. Stein
continues to serve as Chairman of the Board of Directors.
Mr. Schauer's employment agreement, dated August 26, 1996, provides for an
annual base salary of $275,000, with eligibility for a bonus of up to 100% of
such annual salary as a bonus, provided that, in
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<PAGE> 57
February 1997, Mr. Schauer shall receive at least 50% of such amount as a
guaranteed bonus. In addition, Mr. Schauer shall receive approximately $23,000
per month during the first six months of the agreement as compensation for
foregone bonus payments from Mr. Schauer's previous employer. Pursuant to the
agreement, the Company granted Mr. Schauer an option to purchase 225,000 shares
of the Company's Common Stock 50,000 shares of which shall vest upon the closing
of this offering. The agreement provides that Mr. Schauer shall receive
severance payment equal to one year's salary plus the greater of $275,000 or the
previous year's bonus in the event Mr. Schauer is terminated (other than for
cause). In addition, if Mr. Schauer is terminated (other than for cause) prior
to the first anniversary of the agreement, then all of Mr. Schauer's unvested
options shall vest and become exercisable; if such termination occurs after such
initial anniversary, then all shares subject to vesting within six months of
such termination shall vest and become exercisable. The agreement also provides
that the foregoing severance benefits shall apply in the event of an adverse
change in Mr. Schauer's employment following a change in control.
Mr. Rose's employment agreement, dated July 15, 1996, provides for an
annual base salary of $200,000. The agreement provides for an employment term of
two years, subject to an additional one-year period at the Company's option.
Following the termination of Mr. Rose's employment for any reason, the Agreement
provides that he shall remain available for one year to perform consulting
services for the Company for up to 15 hours per week at a rate of $1,500 per
hour. The agreement also grants registration rights to Mr. Rose, pursuant to
which Mr. Rose may participate in a Company registration, subject to any
existing registration rights agreement to which the Company is a party and
subject to the ability of underwriters to restrict participation in such
registrations.
Mr. Borenstein's employment agreement, dated August 8, 1996, provides for
an annual base salary of $200,000. The agreement provides for an employment term
of two years, subject to an additional one-year period at the Company's option.
Following the termination of Mr. Borenstein's employment for any reason, the
Agreement provides that he shall remain available for one year to perform
consulting services for the Company for up to 15 hours per week at a rate of
$300 per hour. The agreement also grants registration rights to Mr. Borenstein,
pursuant to which Mr. Borenstein may participate in a Company registration,
subject to any existing registration rights agreement to which the Company is a
party and subject to the ability of underwriters to restrict participation in
such registrations.
Mr. Stachowiak's employment agreement, dated October 14, 1996, provides for
an annual base salary of $200,000. Pursuant to the agreement, the Company
granted Mr. Stachowiak an option to purchase 100,000 shares of the Company's
Common Stock, which vests in accordance with the Company's 1995 Stock Plan, and
an option to purchase 25,000 shares of the Company's Common Stock which vests
six months after the closing of this offering.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law (the "DGCL"), the
Company has included in its Certificate of Incorporation a provision to
eliminate the personal liability of its directors for monetary damages for
breach or alleged breach of their fiduciary duties as directors, subject to
certain exceptions. In addition, the Bylaws of the Company provide that the
Company is required to indemnify its officers and directors under certain
circumstances, including those circumstances in which indemnification would
otherwise be discretionary, and the Company is required to advance expenses to
its officers and directors as incurred in connection with proceedings against
them for which they may be indemnified. The Company has entered into
indemnification agreements with its officers and directors containing provisions
that are in some respects broader than the specific indemnification provisions
contained in the DGCL. The indemnification agreements require the Company, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance if available on reasonable terms. At present, the Company is
not aware of any pending or threatened litigation or proceeding involving a
director, officer, employee or agent of the Company in which indemnification
would be required or permitted. The Company believes that its charter provisions
and indemnification agreements are necessary to attract and retain qualified
persons as directors and officers.
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<PAGE> 58
CERTAIN TRANSACTIONS
Securities Issuances. On March 11, 1994, persons and entities affiliated
with Lee H. Stein, Chairman of the Board and Chief Executive Officer of the
Company, and Tawfiq N. Khoury, a director of the Company, purchased a total of
2,500,000 shares of Common Stock at a purchase price of $0.04 per share. The
persons and entities purchasing shares of Common Stock, and the number of shares
purchased by each, are as follows: Lee H. Stein (625,000 shares); June L. Stein,
the spouse of Mr. Stein (625,000 shares); and trusts for the benefit of Mr.
Khoury and his immediate family (1,250,000 shares).
On September 19, 1994, Jon Rubin, a director of the Company, purchased
1,250,000 shares of the Company's Common Stock for an aggregate purchase price
of $200,000. In January 1996 Mr. Rubin transferred 1,000,000 of such shares to
NCCC. Mr. Rubin is the President of NCCC.
On May 22, 1995, the Company sold an aggregate of 551,500 shares of Series
A Preferred Stock to Sybase and a fund managed by Unterberg Harris, each of
which purchased 275,750 shares for an aggregate purchase price of $485,320. The
Company agreed to redeem the shares purchased by Sybase at cost in the event
First Virtual chooses not to use the Sybase database platform. Such redemption
right remains in effect until such time as the shares purchased by Sybase are
converted into Common Stock, which will occur upon the closing of this offering.
Robert Epstein, a director of the Company, is a director and an Executive Vice
President of Sybase. See "Underwriting."
On December 22, 1995, the Company entered into a Series B Preferred Stock
Purchase Agreement (the "Series B Agreement") with First USA Merchant Services,
pursuant to which the Company sold to First USA Merchant Services 783,945 shares
of its Series B Preferred Stock for an aggregate purchase price of $2.5 million.
In connection with the financing, the Company also issued to First USA Merchant
Services a warrant to purchase up to 852,272 shares of its Series A Preferred
Stock for $1.76 per share (the "Series A Warrant") and up to 940,734 shares of
its Series B Preferred Stock at $3.189 per share (the "Series B Warrant").
Pamela H. Patsley, a director of the Company, is the President and Chief
Executive Officer of First USA Merchant Services. In addition, First USA
Merchant Services received a warrant (the "Incentive Warrant") to purchase a
number of shares of the Company's Common Stock equal to up to four percent of
the Company's outstanding capital stock as of the date of exercise, which
warrant is exercisable only in the event that First USA Merchant Services
induces certain of its merchant customers to establish Internet sites employing
FVIPS. The Incentive Warrant expires immediately prior to the closing of this
offering.
In connection with First USA Merchant Services' investment in the Company,
First Virtual, First USA Merchant Services and certain stockholders of the
Company entered into an Acquisition Option Agreement dated December 22, 1995
(the "Acquisition Option Agreement"), pursuant to which First USA Merchant
Services received the right to purchase all, but not less than all, outstanding
shares of the Company's capital stock held by such stockholders in exchange for
shares of Common Stock of First USA Merchant Services of equal value in
connection with First USA Merchant Services initial public stock offering,
subject to certain minimum valuation thresholds. The Acquisition Option
Agreement further provided for the exchange of options, warrants and other
rights to purchase shares of capital stock of the Company for equivalent rights
with respect to shares of capital stock of First USA Merchant Services, in the
event First USA Merchant Services chooses to exercise its acquisition right
pursuant to the Acquisition Option Agreement. The Acquisition Option Agreement
provided that First USA Merchant Services' rights pursuant to such agreement
terminates upon the earlier of (i) the effective date of a registration
statement relating to the initial public offering of First USA Merchant Services
or the Company or (ii) March 1997. The Company and First USA Merchant Services
entered into an agreement terminating First USA Merchant Services' rights
pursuant to the Acquisition Option Agreement on October 21, 1996.
On March 31, 1996, the Company and First USA Merchant Services entered into
an amendment to the Series B Agreement, pursuant to which (i) First USA Merchant
Services purchased 465,000 shares of Series B Preferred Stock for an aggregate
purchase price of $1,482,885 upon partial exercise of the Series B Warrant, (ii)
the Series A Warrant and the unexercised portion of the Series B Warrant were
canceled, and (iii) in consideration for a cash payment of $3,017,115, the
Company issued to First USA Merchant Services warrants (the "New Warrants") to
purchase up to 852,272 shares of Series A Preferred Stock and up to
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<PAGE> 59
475,734 shares of Series B Preferred Stock at an exercise price of $0.01 per
share. The New Warrants expire in March 2001.
On July 3, 1996, the Company and GE Capital entered into a Securities
Purchase Agreement, pursuant to which GE Capital purchased 130,952 shares of the
Company's Series C Preferred Stock and 107,144 shares of the Company's Common
Stock for an aggregate purchase price of $2.5 million. GE Capital also received
a warrant to purchase an additional $500,000 of Common Stock of the Company. The
per share exercise price of such warrant will be $10.50 in the event the Company
and GE Capital enter into a joint marketing agreement prior to December 31,
1996, and $15.00 otherwise. In connection with the financing, GE Capital agreed
that, for a period ending two years following the offering contemplated hereby,
GE Capital would (i) take such action as may be required so that all shares of
Common Stock owned by it would be voted for the Company's nominees to the Board
of Directors and (ii) refrain from soliciting proxies or participating in any
election contest relating to the election of Directors of the Company. John
McKinley, a director of the Company, is Chief Technology and Information Officer
of GE Capital.
On August 26, 1996 the Company and First Data entered into a Securities
Purchase Agreement, pursuant to which First Data purchased 200,000 shares of the
Company's Series D Preferred Stock at a price of $15.00 per share for an
aggregate purchase price of $3.0 million. First Data also received a warrant to
purchase up to an additional 1,500,000 shares of the Common Stock of the Company
at an exercise price ranging from $2.23 to $5.00 per share of Common Stock. The
right to exercise the warrants and the exercise price is conditioned upon First
Data securing the registration of a certain number of VirtualPINs. In connection
with the financing, First Data agreed that, for a period ending two years
following the offering contemplated hereby, First Data would (i) take such
action as may be required so that all shares of Common Stock owned by it would
be voted for the Company's nominees to the Board of Directors and (ii) refrain
from soliciting proxies or participating in any election contest relating to the
election of Directors of the Company.
Loans from Affiliates. Between the Company's inception and June 30, 1996,
the Company borrowed a total of $400,000 from a trust affiliated with Mr. Khoury
(the "Khoury Trust"), and issued promissory notes (the "Khoury Trust Notes")
with such aggregate principal amount to the Khoury Trust. Between the Company's
inception and June 30, 1996, the Company also borrowed an aggregate of $800,000
from NCCC. The Company issued promissory notes with such an aggregate principal
amount to NCCC (the "NCCC Notes"). The Khoury Trust Notes and the NCCC Notes
bear an annual interest rate of 8% and were due and payable on June 1, 1999. On
May 18, 1995, all outstanding Khoury Trust Notes and NCCC Notes were canceled in
consideration for the issuance to the holders thereof of new promissory notes
(the "New Notes"), which are due and payable upon the closing of this offering.
As of June 30, 1996, total principal and interest outstanding on the New Notes
was approximately $1.3 million.
On November 30, 1995, the Company borrowed $125,000 from each of Sybase and
a fund managed by Unterberg Harris. In connection with the issuance of such
promissory notes (the "Notes"), the Company issued to each such party a warrant
to purchase 71,022 shares of its Series A Preferred Stock at an exercise price
equal to the lesser of $1.76 per share and the price per share paid by investors
in the Company's next round of equity financing. On December 22, 1995, the
parties exercised such warrants and each received 71,022 shares of Series A
Preferred Stock in consideration for cancellation of the principal amount owing
under the Notes.
Services Arrangements. Since September 12, 1994, First USA Merchant
Services has provided credit card transaction acquisition services to the
Company pursuant to a Merchant Credit Card Agreement between the Company and
First USA Merchant Services dated as of that date. The Company paid First USA
Merchant Services $75,300 and $28,200 for the six-month period ended June 30,
1996 and the year ended December 31, 1995, respectively, pursuant to the
agreement.
In addition, pursuant to a Shareholder Rights Agreement dated December 22,
1995 (the "Shareholder Rights Agreement") among the Company and its
stockholders, including First USA Merchant Services, the Company agreed, for a
period of four years, not to enter into an agreement with, or otherwise utilize,
a payment card transaction acquiror other than First USA Merchant Services for
provision of payment processing services that First USA Merchant Services is
willing and capable of providing at a commercially
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reasonable price (the "Processing Right"). In August 1996, in connection with
the amendment and restatement of the Shareholder Agreement, the Company entered
into an agreement with First USA Merchant Services for the waiver of the
Processing Right. In exchange for such waiver, the Company agreed to pay First
USA Merchant Services facility fees totaling $500,000 and transaction surcharges
of no less than $500,000 during the forty month period beginning September 1,
1996, depending upon the number of transactions processed through merchant
acquirors other than First USA Merchant Services. The Company anticipates that
it will incur a charge of $1.0 million in connection with such fees and
surcharges in the quarter ending September 30, 1996; the Company has paid an
initial installment of $250,000 pursuant to the agreement.
From October 1994 through September 1995, NCCC provided certain marketing
and technology consulting services to the Company, for which it had billed the
Company an aggregate of approximately $153,000. As of September 30, 1996,
approximately $12,000 of such amount remained outstanding. Jon Rubin, a director
of the Company, is President of NCCC.
In June 1996, the Company signed a Facilities Agreement with First USA
Paymentech wherein First USA Paymentech agreed to lease space for computer
servers used to operate FVIPS.
In August 1996, the Company entered into a consulting agreement with Sybase
pursuant to which Sybase agreed to provide the Company with supplementary
staffing for a period of approximately six months for fees of approximately
$900,000.
The Company believes that the payments for services provided by Sybase,
First USA Merchant Services and NCCC were no less favorable to the Company than
would be charged for similar services by unrelated third parties. Any future
transaction between the Company and its executive officers, directors and their
affiliates will be on terms no less favorable to the Company than can be
obtained from unaffiliated third parties, and any material transactions with
such persons will be approved by a majority of the disinterested members of the
Board of Directors.
Options Grants to Affiliates. On April 11, 1996, certain officers,
directors and other affiliates of the Company were granted options to purchase
shares of Common Stock of the Company at an exercise price of $6.30 per share.
Each such option has a term of ten years. The persons receiving such option
grants, and the number of shares subject to each grant, are as follows: Mr.
Stein (475,000 shares), Mr. Khoury (100,000 shares), Nathaniel S. Borenstein,
Chief Scientist of the Company (100,000 shares), Marshall T. Rose, Technical
Advisor to the Office of the Chairman of the Company (100,000 shares), Mr. Rubin
(90,000 shares) and NCCC (135,000 shares). The options granted to Messrs. Stein,
Khoury and Rubin and to NCCC were fully exercisable as of the date of grant; the
options granted to Drs. Borenstein and Rose become fully exercisable June 30,
1998 contingent on continued employment with the Company.
Indemnification Agreements. The Company has entered into indemnification
agreements with each of its directors and executive officers. Such agreements
require the Company to indemnify such individuals to the fullest extent
permitted by law. See "Management -- Limitation of Liability and Indemnification
Matters."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 16, 1996, assuming the
conversion of all outstanding shares of the Company's Preferred Stock into
Common Stock on a one-to-one basis and as adjusted to reflect the sale of the
Common Stock offered by the Company hereby, for (i) each of the Company's
directors, (ii) each person who is known by the Company to beneficially own more
than 2% of the Company's Common Stock, (iii) the Named Officer and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
OUTSTANDING(1)
-------------------
NUMBER PRIOR TO AFTER
BENEFICIAL OWNER OF SHARES(1) OFFERING OFFERING
- ---------------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
First USA Merchant Services, Inc.(2)............................ 2,576,951 32.0
1601 Elm Street
Dallas, TX 75201
Lee H. Stein(3)................................................. 1,818,750 21.1
11975 El Camino Real, Suite 300
San Diego, California 92130-2543
Tawfiq N. Khoury(4)............................................. 1,355,000 16.6
2505 Congress Street, Suite 200
San Diego, California 92110
Next Century Communications Corp.(5)............................ 1,135,000 13.9
1400 Key Boulevard, First Floor
Arlington, VA 22209
Sybase, Inc..................................................... 346,772 4.3
Unterberg Harris Interactive Media, L.P......................... 346,772 4.3
General Electric Capital Corporation(6)......................... 285,715 3.5
First Data Corporation(7)....................................... 200,000 2.5
Nathaniel S. Borenstein(8)...................................... 248,592 3.0
Marshall T. Rose(9)............................................. 252,288 3.1
Einar Stefferud(10)............................................. 237,788 3.0
Robert Epstein(11).............................................. 5,000 *
John McKinley(12)............................................... 5,000 *
Pamela H. Patsley(13)........................................... 5,000 *
Jon Rubin(14)................................................... 345,000 4.2
All Executive Officers and Directors as a group (12
persons)(15).................................................. 4,034,630 44.4
</TABLE>
- ---------------
* Indicates less than 1% ownership
(1) Based on 8,043,467 shares of Common Stock outstanding as of October 16,
1996, and assuming the exercise of a warrant to purchase 1,328,006 shares.
Except pursuant to applicable community property laws or as indicated in
the footnotes to this table, to the Company's knowledge, each stockholder
identified in the table possesses sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by such
stockholder.
(2) Includes 1,328,006 shares issuable upon exercise of warrants exercisable in
full within 60 days of October 16, 1996 at an exercise price of $0.01 per
share. Excludes shares issuable upon exercise of an outstanding warrant to
purchase up to four percent of the Company's outstanding capital stock,
which warrant shall only become exercisable upon attainment of certain
marketing-related milestones and will expire immediately prior to the
closing date of this offering. See "Certain Transactions."
(3) Includes 568,750 shares subject to options exercisable within 60 days of
October 16, 1996 and 595,000 shares held by June L. Stein, Mr. Stein's
spouse, for her own account. Also includes 60,000 shares held in trusts for
the benefit of Mr. Stein's children.
58
<PAGE> 62
(4) Includes 312,500 shares held by the TNKRGK Family Trust dated 12/23/76, of
which Mr. Khoury is a beneficiary, 937,500 shares held by the trust for the
benefit of Mr. Khoury's children and 105,000 shares issuable upon exercise
of options exercisable within 60 days of October 16, 1996.
(5) Includes 135,000 shares subject to options exercisable within 60 days of
October 16, 1996. Excludes shares held by Jon Rubin, President of Next
Century Communications Corp. and a director of the Company.
(6) Includes 47,619 shares subject to a warrant.
(7) Excludes 1,500,000 shares subject to a warrant exercisable upon the
achievement of certain marketing milestones.
(8) Includes shares issuable upon exercise of options exercisable within 60
days of October 16, 1996.
(9) Includes 3,413 shares issuable upon exercise of an option exercisable
within 60 days of October 16, 1996.
(10) Includes 234,375 shares held by trusts for the benefit of Mr. Stefferud's
family. Also includes 3,413 shares issuable upon exercise of an option
exercisable within 60 days of October 16, 1996.
(11) Includes 5,000 shares issuable upon exercise of an option exercisable
within 60 days of October 16, 1996. Excludes 346,772 shares held by Sybase.
Dr. Epstein is Executive Vice President and a Director of Sybase and may
therefore be deemed to share voting and investment power with respect to
such shares.
(12) Includes 5,000 shares issuable upon exercise of an option exercisable
within 60 days of October 16, 1996. Excludes shares held by GE Capital. Mr.
McKinley serves as Chief Technology and Information Officer of GE Capital.
(13) Includes 5,000 shares issuable upon exercise of an option exercisable
within 60 days of October 16, 1996. Excludes shares held by First USA
Merchant Services. Ms. Patsley is President and Chief Executive Officer of
First USA Merchant Services and President and Chief Executive Officer of
First USA Paymentech, of which First USA Merchant Services is a
wholly-owned subsidiary, and may therefore be deemed to share voting and
investment power with respect to such shares.
(14) Includes 95,000 shares issuable upon exercise of options exercisable within
60 days of October 16, 1996. Excludes shares held by NCCC. Mr. Rubin is the
President and a director of NCCC and may therefore be deemed to share
voting and investment power with respect to such shares.
(15) Includes 1,035,755 shares subject to options exercisable within 60 days of
October 16, 1996.
59
<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
Following the closing of this offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $0.001 par value, and
5,000,000 shares of Preferred Stock, $0.001 par value.
COMMON STOCK
As of October 16, 1996, there were 8,043,467 shares of Common Stock
outstanding (after giving effect to the conversion of all shares of Preferred
Stock issued and outstanding on a one-to-one basis and assuming the exercise of
outstanding warrants to purchase 1,328,006 shares of Common Stock at an exercise
price of $0.01 per share) held by 27 stockholders of record. The holders of
Common Stock are entitled to one vote per share on all matters to be voted upon
by the stockholders. Subject to preferences that may be applicable to any
outstanding shares Preferred Stock, the holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior liquidation rights of
Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions available to the Common Stock. All outstanding shares of
Common Stock are fully paid and nonassessable, and the shares of Common Stock to
be outstanding upon completion of this offering will be fully paid and
nonassessable.
PREFERRED STOCK
The Company currently has issued and outstanding 2,273,441 shares of
Preferred Stock, divided into Series A, Series B, Series C and Series D. The
Preferred Stock is convertible, at the option of the holder, into Common Stock
on a one-to-one basis, subject to anti-dilution adjustments, and will
automatically convert into Common Stock (the "Automatic Conversion") concurrent
with the closing of an underwritten public offering of Common Stock under the
Securities Act, in which the Company receives at least $10 million in gross
proceeds with a per share price to the public of at least $10.50 per share
(subject to anti-dilution adjustments). Anti-dilution adjustments will be made
in the event that, among other things, the Company issues additional shares of
Common Stock for per share consideration of less than $1.76, $3.189, $15.00 and
$15.00 for the Series A, Series B, Series C and Series D Preferred Stock,
respectively. Assuming that the conditions to the Automatic Conversion are
satisfied, following the closing of this offering, 5,000,000 shares of Preferred
Stock, $0.001 par value, will be authorized and no shares will be outstanding.
The Board of Directors has the authority, without further action by the
stockholders, to issue the Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences and the number of shares constituting any series or the designation
of such series. Preferred Stock could thus be issued quickly with terms
calculated to delay or prevent a change of control of the Company or to serve as
an entrenchment device for incumbent management. Additionally, the issuance of
Preferred Stock may have the effect of decreasing the market price of the Common
Stock, and may adversely affect the voting and other rights of the holders of
Common Stock. At present, the Company has no plans to issue any of the Preferred
Stock.
REGISTRATION RIGHTS
Following the sale of shares offered by this Prospectus, the holders of
approximately 7,750,000 shares of Common Stock (the "Holders") will be entitled
to certain rights with respect to the registration of such shares under the
Securities Act. Under the terms of agreements between the Company and the
Holders, if the Company proposes to register any of its securities under the
Securities Act, either for its own account or the account of other security
holders exercising registration rights, the Holders are entitled to notice of
such registration and are entitled to include, at the Company's expense, shares
of such Common Stock therein, provided, among other conditions, that the
underwriters of any offering have the right to limit the number of such shares
included in such registration. In addition, certain Holders (holding
approximately 5,250,000
60
<PAGE> 64
shares of Common Stock) may require the Company, on not more than three
occasions, to file a registration statement under the Securities Act at the
Company's expense with respect to such shares, and the Company is required to
use its best efforts to effect such registration, subject to certain conditions
and limitations; such Holders may require the Company to register all or a
portion of their shares with registration rights on Form-S-3, when the Company
is eligible to use such form, subject to certain conditions and limitations.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to Section 203 of the DGCL, an anti-takeover law. In
general, Section 203 of the DGCL prevents a person owning 15% or more of a
corporation's outstanding voting stock ("Interested Stockholder") from engaging
in a "business combination" (as defined in the DGCL) with a Delaware corporation
for three years following the date such person became an Interested Stockholder,
subject to certain exceptions such as the approval of the board of directors and
of the holders of at least two-thirds of the outstanding shares of voting stock
not owned by the interested stockholder. The existence of this provision would
be expected to have the effect of discouraging takeover attempts, including
attempts that might result in a premium over the market price for the shares of
Common Stock held by stockholders.
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of preventing, discouraging or delaying any change in the
control of the Company and may maintain the incumbency of the Board of Directors
and management. The Company's Certificate of Incorporation provides that any
action required or permitted to be taken by the stockholders of the Company may
be taken only at a duly called annual or special meeting of the stockholders and
does not provide for cumulative voting in the election of directors. The
Certificate of Incorporation and Bylaws also restrict the right of stockholders
to change the size of the Board of Directors and to fill vacancies on the Board
of Directors. The Bylaws also establish procedures, including advance notice
procedures, with regard to the nomination, other than by or at the direction of
the Board of Directors, of candidates for election as directors or for
stockholder proposals to be submitted at stockholder meetings. The authorization
of undesignated Preferred Stock makes it possible for the Board of Directors to
issue Preferred Stock with voting or other rights or preferences that could
impede the success of any attempt to change control of the Company. In addition,
the division of the Board of Directors into three classes (with each class
serving a staggered three-year term) following the closing of the offering could
have the effect of making it more difficult for a third party to effect a change
in the control of the Board of Directors and therefore may discourage another
person or entity from making a tender offer for the Company's Common Stock,
including offers at a premium over the market price of the Common Stock, and
might result in a delay in changes in control of management. In addition, these
provisions could have the effect of making it more difficult for proposals
favored by the stockholders to be presented for stockholder consideration. The
amendment of any of these provisions would require approval by holders of 66.67%
or more of the outstanding Common Stock.
The Company has also included in its Certificate of Incorporation
provisions to eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by the DGCL and to indemnify its directors and officers to the fullest extent
permitted by Section 145 of the DGCL.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company. Its telephone number is (212) 936-5100.
LISTING
The Company has applied to list its Common Stock on the Nasdaq National
Market under the trading symbol "FVHI."
61
<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock of the Company, and there can be no assurance that a significant public
market for the Common Stock will develop or be sustained after the offering.
Future sales of substantial amounts of Common Stock in the public market could
adversely affect market prices prevailing from time to time and could impair the
Company's ability to raise capital through sale of its equity securities. As
described below, no shares currently outstanding will be available for sale
immediately after this offering due to certain contractual restrictions on
resale. Sales of substantial amounts of Common Stock of the Company in the
public market after the restrictions lapse could adversely affect the prevailing
market price and the ability of the Company to raise equity capital in the
future.
Upon completion of this offering, the Company will have outstanding
shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options or warrants (except
for the exercise of outstanding warrants to purchase 1,328,006 shares of Common
Stock at an exercise price of $0.01 per share). Of these shares, the
shares sold in this offering will be freely tradable without restriction under
the Securities Act unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 under the Securities Act. The remaining shares held by
existing stockholders ("Restricted Shares") are subject to lock-up agreements
providing that, with certain limited exceptions, the stockholder will not offer,
sell, contract to sell, grant an option to purchase, make a short sale 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 Bear, Stearns & Co. Inc. The Company has also agreed that, with
certain limited exceptions, for a period of 180 days after the date of this
Prospectus, it will not offer, sell, contract to sell or otherwise dispose of,
any securities of the Company that are substantially similar to the Common
Stock, including but not limited to any securities that are convertible into,
exchangeable for, or that represent the right to receive Common Stock or any
such substantially similar securities. As a result of the lock-up agreements,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, no shares of Common Stock will be salable until 180
days after the date of this Prospectus. As a result of the lock-up agreements,
and assuming no exercise of outstanding options or warrants (except for the
exercise of outstanding warrants to purchase 1,328,006 shares of Common Stock at
an exercise price of $0.01 per share), only the shares of Common Stock
sold in this offering will be eligible for sale on the date of this Prospectus;
approximately 3,319,062 additional Restricted Shares will first be eligible for
sale beginning 180 days after the date of this Prospectus, approximately
3,000,000 of which will be subject to certain volume limitations, and the
remaining Restricted Shares will not be eligible for sale until the expiration
of their two-year holding periods.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least two years (including
the holding period of any prior owner except an affiliate) would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of: (i) 1% of the number of shares of Common Stock then outstanding
(which will equal approximately shares immediately after this
offering); or (ii) the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least three
years (including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. The Securities
and Exchange Commission has recently proposed to reduce the Rule 144 holding
periods. If enacted, such modification will have a material effect on the timing
of when shares of Common Stock will become eligible for resale.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period requirement,
of Rule 144. Any employee, officer or director of or
62
<PAGE> 66
consultant to the Company who purchased his or her shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
Prospectus before selling such shares.
Immediately after this offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock subject to
outstanding options under the Company's 1994 Stock Plan and 1995 Stock Plan or
reserved for issuance under such plans or the Purchase Plan. Based on the number
of shares subject to outstanding options as of October 8, 1996 and currently
reserved for issuance under all such plans, such registration statement would
cover approximately 3,568,750 shares. Such registration statement will
automatically become effective upon filing. Accordingly, shares registered under
such registration statement will, subject to Rule 144 volume limitations
applicable to affiliates of the Company, be available for sale in the open
market immediately after the 180-day lock-up agreements expire. Also, beginning
six months after the closing of this offering, the holders of approximately
7,750,000 shares of Common Stock will be entitled to certain rights with respect
to registration of such shares for sale in the public market. See "Description
of Capital Stock -- Registration Rights."
63
<PAGE> 67
UNDERWRITING
The Underwriters named below, for whom Bear, Stearns & Co. Inc., Cowen &
Company, Lehman Brothers Inc. and Unterberg Harris are acting as representatives
(the "Representatives"), have severally agreed, subject to the terms and
conditions set forth in the Underwriting Agreement, to purchase from the Company
the number of shares of Common Stock set forth opposite their respective names
below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------- ---------
<S> <C>
Bear, Stearns & Co. Inc. ..........................................
Cowen & Company....................................................
Lehman Brothers Inc. ..............................................
Unterberg Harris ..................................................
-------
Total....................................................
=======
</TABLE>
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters have agreed to purchase all of the shares of Common Stock being
sold pursuant to the Underwriting Agreement if any are purchased (other than
shares of Common Stock covered by the over-allotment option described below).
The Representatives have advised the Company that the Underwriters propose
to offer the Common Stock to the public initially at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession of not more than $ per share, of which
$ may be reallowed to other dealers. After the initial public offering,
the public offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted the Underwriters an option, exercisable during the
30-day period after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus, solely to
cover over-allotments, if any. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
Certain affiliates of the Company are expected to purchase up to
approximately shares of Common Stock in this offering at the public
offering price set forth on the cover page of this Prospectus. The number of
shares available for sale to the general public will be reduced to the extent
that such persons purchase such shares. Any shares not so purchased will be
offered by the Underwriters to the general public on the same basis as the other
shares offered by this Prospectus.
64
<PAGE> 68
The Company has agreed not to offer, issue, sell, contract to sell, grant
any option for the sale of, or otherwise dispose of, directly or indirectly, any
shares of Common Stock, options or warrants to acquire shares of Common Stock,
or securities exchangeable for or convertible into shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Bear, Stearns & Co. Inc., subject to certain limited exceptions. The
officers and directors of the Company and other stockholders of the Company, who
collectively hold 8,043,467 shares of Common Stock (assuming exercise of a
warrant to purchase 1,328,006 shares), have agreed that, subject to certain
exceptions, they will not offer, sell, transfer, assign, or otherwise dispose
of, any such shares of Common Stock, options or warrants to acquire shares of
Common Stock, or securities exchangeable for or convertible into shares of
Common Stock owned by them for a period of 180 days after the date of this
Prospectus without the prior written consent of Bear Stearns & Co. Inc.
The Representatives have informed the Company that the Underwriters do not
expect sales to discretionary accounts by the Underwriters to exceed 5% of the
number of shares of Common Stock offered hereby.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price was determined by negotiations among
the Company and the Representatives. Among the factors considered in such
negotiations were the history of, and the prospects for, the Company and the
industry in which it competes, an assessment of the Company's management, its
past and present operations, its past and present earnings and the trend of such
earnings, the prospects for future earnings, the present state of the Company's
development, the general condition of the economy and the securities markets at
the time of this offering, the market conditions for new offerings of securities
and the recent market prices and price/earnings multiples of publicly traded
common stocks of comparable companies.
On May 22, 1995 and December 22, 1995 Unterberg Harris Interactive Media,
L.P., ("UHIM"), a fund managed by Unterberg Harris, purchased 275,750 shares and
71,022 shares of Series A Preferred Stock, respectively, which will convert into
346,772 shares of Common Stock upon the completion of this offering,
representing 4.3% of the shares of Common Stock outstanding. UHIM is not selling
any of its shares of Common Stock in the offering.
LEGAL MATTERS
The validity of the issuance of shares of Common Stock offered hereby will
be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, P.C., Palo
Alto, California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom, New
York, New York. As of June 30, 1996, an investment partnership of which members
of Wilson Sonsini Goodrich & Rosati, P.C. are partners, beneficially owned
27,000 shares of the Company's Common Stock.
EXPERTS
The financial statements of the Company as of December 31, 1994 and 1995,
and June 30, 1996 and for the period from March 11, 1994 (date of inception)
through December 31, 1994, the year ended December 31, 1995 and the six-month
period ended June 30, 1996, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and in the
Registration Statement and are included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
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<PAGE> 69
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and such
Common Stock, reference is made to the Registration Statement and the exhibits
and schedules filed as part thereof. 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, if such contract or document is
filed as an exhibit, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each statement being
qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the Commission's principal office in Washington D.C., and copies of
all or any part thereof may be obtained from such office after payment of fees
prescribed by the Commission.
66
<PAGE> 70
FIRST VIRTUAL HOLDINGS INCORPORATED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996..................... F-3
Statements of Operations for the period from March 11, 1994 (date of inception)
through December 31, 1994, the year ended December 31, 1995 and the six months ended
June 30, 1995 (unaudited) and June 30, 1996......................................... F-4
Statements of Shareholders' Equity (Net Capital Deficiency) for the period from March
11, 1994 (date of inception) through December 31, 1994, the year ended December 31,
1995 and the six months ended June 30, 1995 (unaudited) and June 30, 1996........... F-5
Statements of Cash Flows for the period from March 11, 1994 (date of inception)
through December 31, 1994, the year ended December 31, 1995 and the six months ended
June 30, 1995 (unaudited) and June 30, 1996......................................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 71
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
First Virtual Holdings Incorporated
We have audited the accompanying balance sheets of First Virtual Holdings
Incorporated as of December 31, 1994 and 1995 and June 30, 1996, and the related
statements of operations, stockholders' equity (net capital deficiency), and
cash flows for the period March 11, 1994 (date of inception) through December
31, 1994, the year ended December 31, 1995 and for the six months ended June 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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 financial statements referred to above present fairly, in
all material respects, the financial position of First Virtual Holdings
Incorporated at December 31, 1994 and 1995 and June 30, 1996, and the results of
its operations and its cash flows for the period March 11, 1994 (date of
inception) through December 31, 1994, the year ended December 31, 1995 and the
six months ended June 30, 1996, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
San Diego, California
July 15, 1996
except for Note 8, as to which the date is
October 16, 1996
F-2
<PAGE> 72
FIRST VIRTUAL HOLDINGS INCORPORATED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
----------------------- JUNE 30, EQUITY AT
1994 1995 1996 JUNE 30,
-------- ---------- ---------- 1996
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 14,847 $2,091,651 $3,287,616
Short-term investment, available-for-sale........... -- -- 200,000
Accounts receivable................................. -- -- 89,966
Prepaid expenses and other.......................... 12,000 10,953 233,004
--------- ----------- -----------
Total current assets.................................. 26,847 2,102,604 3,810,586
Furniture and equipment, net (Note 2)................. 213,305 304,320 1,110,141
Information technology, net (Note 5).................. 48,333 113,333 81,000
Organization and other costs, net..................... 31,936 50,569 77,297
Deposits and other.................................... -- 4,000 36,483
--------- ----------- -----------
$320,421 $2,574,826 $5,115,507
========= =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable.................................... $102,255 $ 513,893 $ 847,305
Accrued compensation and related liabilities........ 30,087 8,170 129,694
Accrued interest.................................... 16,330 100,340 148,340
Other accrued liabilities........................... -- -- 117,188
--------- ----------- -----------
Total current liabilities............................. 148,672 622,403 1,242,527
Notes payable to stockholders (Note 3)................ 713,400 1,200,000 1,200,000
Commitments (Note 5)
Stockholders' equity (net capital deficiency) (Note
6):
Preferred stock, Series A convertible, $0.001 par
value; 1,545,816 shares authorized, 693,544
shares issued and outstanding with liquidation
preference totaling $1,220,637 at December 31,
1995 and June 30, 1996........................... -- 694 694 $ --
Preferred stock, Series B convertible, $0.001 par
value; 1,724,679 shares authorized, 783,945 and
1,248,945 shares issued and outstanding at
December 31, 1995 and June 30, 1996, respectively
with liquidation preferences totaling $2,500,000
and $3,982,886 at December 31, 1995 and June 30,
1996, respectively............................... -- 784 1,249 --
Common stock, $0.001 par value; 40,000,000 shares
authorized, 4,083,350, 4,273,250 and 4,332,987
shares issued and outstanding at December 31,
1994 and 1995 and June 30, 1996, respectively
(6,275,476 pro forma)............................ 4,083 4,273 4,333 6,276
Additional paid-in-capital.......................... 289,945 3,852,332 5,307,486 5,307,486
Warrants............................................ -- -- 3,017,115 3,017,115
Deferred compensation............................... -- -- (46,403) (46,403)
Accumulated deficit................................. (835,679) (3,105,660) (5,611,494) (5,611,494)
--------- ----------- ----------- -----------
Total stockholders' equity (net capital deficiency)... (541,651) 752,423 2,672,980 $ 2,672,980
===========
--------- ----------- -----------
$320,421 $2,574,826 $5,115,507
========= =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 73
FIRST VIRTUAL HOLDINGS INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MARCH 11, 1994 SIX MONTHS ENDED JUNE 30,
(DATE OF INCEPTION) ---------------------------
THROUGH YEAR ENDED 1995
DECEMBER 31, DECEMBER 31, -----------
1994 1995 1996
------------------- ------------ (UNAUDITED) -----------
<S> <C> <C> <C> <C>
Revenues........................... $ 3,580 $ 197,902 $ 31,390 $ 401,082
Operating expenses:
Marketing and sales.............. 143,678 346,400 198,567 322,060
Research and development......... 307,315 530,809 101,902 543,950
General and administrative....... 375,117 1,522,784 827,306 2,063,564
--------- ----------- ----------- -----------
Total operating expenses........... 826,110 2,399,993 1,127,775 2,929,574
--------- ----------- ----------- -----------
Loss from operations............... (822,530) (2,202,091) (1,096,385) (2,528,492)
Interest income (expense), net..... (13,149) (67,890) (36,753) 22,658
--------- ----------- ----------- -----------
Net loss........................... $(835,679) $ (2,269,981) $(1,133,138) $(2,505,834)
========= =========== =========== ===========
Pro forma net loss per share....... $ $ $
=========== =========== ===========
Shares used in computing pro forma
net loss per share...............
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 74
FIRST VIRTUAL HOLDINGS INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'
PREFERRED STOCK COMMON STOCK ADDITIONAL EQUITY (NET
----------------- ----------------- PAID-IN DEFERRED ACCUMULATED CAPITAL
SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS COMPENSATION DEFICIT DEFICIENCY)
--------- ------ --------- ------ ---------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
to founders, net of
issuance costs of
$5,250.................. -- $ -- 2,500,000 $2,500 $ 92,250 $ -- $ -- $ -- $ 94,750
Issuance of common stock
for services............ -- -- 333,350 333 13,001 -- -- -- 13,334
Issuance of common stock,
net of issuance costs of
$14,056................. -- -- 1,250,000 1,250 184,694 -- -- -- 185,944
Net loss.................. -- -- -- -- -- -- -- (835,679 ) (835,679)
--------- ------ --------- ------ ---------- ---------- ------------ ----------- -------------
Balance at December 31,
1994.................... -- -- 4,083,350 4,083 289,945 -- -- (835,679 ) (541,651)
Issuance of common stock
for services............ -- -- 135,400 135 5,281 -- -- -- 5,416
Issuance of Series A
convertible preferred
stock at $1.76 per share
for cash, net of
issuance costs
of $71,791.............. 551,500 552 -- -- 898,297 -- -- -- 898,849
Issuance of Series A
convertible preferred
stock at $1.76 per share
for retirement of notes
payable,
net of issuance costs of
$7,257.................. 142,044 142 -- -- 242,598 -- -- -- 242,740
Issuance of Series B
convertible preferred
stock at $3.189 per
share,
net of issuance costs of
$100,390................ 783,945 784 -- -- 2,398,826 -- -- -- 2,399,610
Issuance of common stock
for services............ -- -- 54,500 55 17,385 -- -- -- 17,440
Net loss.................. -- -- -- -- -- -- -- (2,269,981 ) (2,269,981)
--------- ------ --------- ------ ---------- ---------- ------------ ----------- -------------
Balance at December 31,
1995.................... 1,477,489 1,478 4,273,250 4,273 3,852,332 -- -- (3,105,660 ) 752,423
Issuance of common stock
for cash
and services............ -- -- 59,737 60 39,277 -- -- -- 39,337
Issuance of Series B
convertible preferred
stock at $3.189 per
share,
net of issuance costs of
$117,110................ 465,000 465 -- -- 1,365,310 -- -- -- 1,365,775
Issuance of warrants...... -- -- -- -- -- 3,017,115 -- -- 3,017,115
Deferred compensation
related to grant of
certain stock options... -- -- -- -- 50,567 -- (50,567) -- --
Amortization of deferred
compensation............ -- -- -- -- -- -- 4,164 -- 4,164
Net loss.................. -- -- -- -- -- -- -- (2,505,834 ) (2,505,834)
--------- ------ --------- ------ ---------- ---------- ------------ ----------- -------------
Balance at June 30,
1996.................... 1,942,489 $1,943 4,332,987 $4,333 $5,307,486 $3,017,115 $(46,403) $(5,611,494) $ 2,672,980
======== ======= ======== ======= ========= ========= ============ =========== ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 75
FIRST VIRTUAL HOLDINGS INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MARCH 11, 1994 SIX MONTHS ENDED JUNE 30,
(DATE OF INCEPTION) ---------------------------
THROUGH YEAR ENDED 1995
DECEMBER 31, DECEMBER 31, -----------
1994 1995 1996
------------------- ------------ (UNAUDITED) -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................... $(835,679) $ (2,269,981) $(1,133,138) $(2,505,834)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization.... 17,994 106,628 35,785 135,638
Common stock issued for
services...................... 13,334 22,856 5,416 7,500
Changes in operating assets and
liabilities:
Accounts receivable........... -- -- -- (89,966)
Prepaid expenses and other.... (12,000) 1,047 (3,860) (222,051)
Information technology
charge...................... (50,000) (100,000) (100,000) --
Deposits and other............ -- (4,000) (4,000) (32,483)
Accounts payable.............. 102,255 411,638 624,747 355,649
Accrued compensation and
related liabilities......... 30,087 (21,917) 15,372 121,524
Accrued interest.............. 16,330 84,010 37,562 48,000
Other accrued liabilities..... -- -- -- 117,188
--------- ----------- ----------- -----------
Net cash flows used in operating
activities....................... (717,679) (1,769,719) (522,116) (2,064,835)
INVESTING ACTIVITIES
Additions to furniture and
equipment........................ (225,858) (151,148) (24,901) (897,642)
Purchase of short-term
investment....................... -- -- -- (200,000)
Organization and other costs....... (35,710) (30,128) (15,610) (34,048)
--------- ----------- ----------- -----------
Net cash flows used in investing
activities....................... (261,568) (181,276) (40,511) (1,131,690)
FINANCING ACTIVITIES
Proceeds from issuance of Series A
preferred stock, net of issuance
costs............................ -- 1,141,589 898,849 --
Proceeds from issuance of Series B
preferred stock, net of issuance
costs............................ -- 2,399,610 -- 1,365,775
Proceeds from issuance of common
stock, net of issuance costs..... 280,694 -- -- 9,600
Proceeds from issuance of
warrants......................... -- -- -- 3,017,115
Proceeds from borrowings from
stockholders and bank............ 713,400 486,600 425,000 486,111
Repayment of loan from bank........ -- -- -- (486,111)
--------- ----------- ----------- -----------
Net cash flows provided by
financing activities............. 994,094 4,027,799 1,323,849 4,392,490
Net increase in cash and cash
equivalents...................... 14,847 2,076,804 761,222 1,195,965
Cash and cash equivalents at the
beginning of period.............. -- 14,847 14,847 2,091,651
--------- ----------- ----------- -----------
Cash and cash equivalents at the
end of period.................... $ 14,847 $ 2,091,651 $ 776,069 $ 3,287,616
========= =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 76
FIRST VIRTUAL HOLDINGS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Activity
The Company, formed on March 11, 1994, has developed and implemented the
VirtualPIN architecture which facilitates Internet commerce and is designed to
facilitate other forms of interactive Internet communications. The VirtualPIN
architecture utilizes E-mail which has the widest reach and broadest use of any
Internet application. The First Virtual Internet Payment System ("FVIPS"), a
secure and easy-to-use payment system launched in October 1994, is the Company's
first application of the VirtualPIN architecture.
On August 11, 1995, the Company declared a twenty five-for-one stock split
of the Company's common stock and Series A convertible preferred stock. All
applicable share and stock option information have been restated to reflect the
split.
Basis of Presentation
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of conducting business. The Company anticipates that it will
require additional funds to continue the Company's research and development
activities; expand the Company's marketing and sales, and customer services and
support capabilities; fund the Company's capital expenditures necessary to
accommodate the anticipated increase of sellers and buyers; and expand certain
financial and administrative functions. Management believes that the funds
necessary to meet its capital requirements for the next twelve months will be
raised either from the offering contemplated by this Prospectus or by private
equity or debt financing. Without the additional financing, the Company will be
required to delay, reduce the scope of and eliminate one or more of its research
and development projects; and significantly reduce its expenditures on
infrastructure and product upgrade programs that enhance the VirtualPIN
architecture and more specifically FVIPS.
The Company was classified as a development stage company through December
31, 1995.
Interim Financial Data
The financial statements for the six months ended June 30, 1995 are
unaudited. The unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary to state fairly the financial information set forth therein, in
accordance with generally accepted accounting principles.
While the Company has experienced growth in its revenues to approximately
$400,000 for the six months ended June 30, 1996, this increase and the interim
results of operations are not necessarily indicative of results to be expected
for the entire year.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of less than three months to be cash equivalents.
Short-Term Investment, Available-for-Sale
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Debt and Equity Securities," the Company's short-term
investment is classified as available-for-sale. Available-for-sale securities
consist of certificates of deposit with maturities greater than three months and
are stated at cost, as the difference between cost and fair value is immaterial.
F-7
<PAGE> 77
FIRST VIRTUAL HOLDINGS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Concentration of Credit Risk
Because the Company acts as an intermediary and facilitator for credit card
transactions, the Company is exposed to the credit risks associated with credit
card payment systems. These credit risks include returned transactions, merchant
fraud and transmission of erroneous information. Through June 30, 1996, the
Company has not incurred significant losses for these credit risks.
Furniture and Equipment
Furniture and equipment are stated at cost and depreciated over the
estimated useful lives of the assets (three to five years) using the
straight-line method.
Organization Costs
Organization costs are being amortized over five years. Accumulated
amortization at December 31, 1994 and 1995 and June 30, 1996 amounted to $3,774,
$11,495 and $18,815, respectively.
Asset Impairment
The Company adopted Statement of Financial Accounting Standards No. 121
(SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," effective January 1, 1996. SFAS 121
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. There was no effect on the financial
statements from the adoption of SFAS 121.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123), requires use of option valuation models that were not developed for use in
valuing employee stock options. As a result, deferred compensation is recorded
for the excess of the fair value of the stock on the date of the option grant,
over the exercise price of the option. The deferred compensation is amortized
over the vesting period of the option.
Income Taxes
On May 24, 1995, in conjunction with the issuance of Series A preferred
stock (Note 6), the Company changed its status for federal and state income tax
purposes from an S Corporation (whereby the Corporation's activities flowed
through to the stockholders) to become a C Corporation (whereby the Company is
subject to federal and state income taxes). The Company accounts for income
taxes in accordance with Statement of Financial Accounting Standards No. 109.
Revenue Recognition
Revenues include registration fees from buyers and sellers, transaction
processing fees and co-marketing fees. The Company recognizes revenue when
services are performed.
As part of processing certain transactions, the Company earns interest from
the time money is collected from buyers until the time payment is made to the
applicable sellers.
F-8
<PAGE> 78
FIRST VIRTUAL HOLDINGS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Pro Forma Net Loss Per Share
The Company's pro forma net loss per share calculations are based upon the
weighted average number of shares of common stock outstanding. Pursuant to the
requirements of the Securities and Exchange Commission Staff Accounting Bulletin
No. 83, convertible preferred stock, convertible preferred stock warrants,
common stock, and options to purchase common stock issued at prices below the
estimated initial public offering price during the twelve months immediately
preceding the contemplated initial filing of the registration statement relating
to the initial public offering ("IPO"), have been included in the computation of
net loss per share as if they were outstanding for all periods presented (using
the treasury method assuming repurchase of common stock at the estimated IPO
price). The pro forma calculation also gives effect to the conversion of
convertible preferred shares not included above that will automatically convert
upon completion of the Company's IPO (using the if-converted method) from the
original date of issuance. Other shares issuable upon the exercise of stock
options have been excluded from the computation because the effect of their
inclusion would be antidilutive. Subsequent to the Company's IPO, options under
the treasury stock method will be included to the extent they are dilutive. Net
loss per share prior to 1995 has not been presented since such amounts are not
deemed meaningful due to the significant change in the Company's capital
structure that will occur in connection with the IPO.
Pro Forma Stockholders' Equity
If the offering contemplated by this Prospectus is consummated, all of the
convertible preferred stock outstanding as of the closing date will
automatically be converted into 1,942,489 shares of common stock, based on the
shares of convertible preferred stock outstanding as of June 30, 1996. Pro forma
stockholders' equity at June 30, 1996, as adjusted for the conversion of
preferred stock, is disclosed on the balance sheet.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
2. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Furniture and equipment................... $225,858 $377,006 $1,274,648
Less accumulated depreciation............. (12,553) (72,686) (164,507)
-------- -------- ----------
$213,305 $304,320 $1,110,141
======== ======== ==========
</TABLE>
3. RELATED PARTY TRANSACTIONS
In conjunction with the sale of 1,250,000 shares of common stock to a
stockholder on September 16, 1994 for $200,000, the Company obtained a two-year
unsecured line of credit commitment from the stockholder for borrowings up to
$800,000. The Company also has an unsecured line of credit from a stockholder
which allows for maximum borrowings of $400,000. The borrowings plus interest at
8% are due upon the earliest to occur of (i) June 15, 2003, (ii) the closing of
an initial public offering or (iii) the consent of certain holders of Series A
Preferred Stock. At June 30, 1996, $1,200,000 has been drawn against these lines
of credit.
F-9
<PAGE> 79
FIRST VIRTUAL HOLDINGS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The stockholders who have provided these lines of credit have agreed to
subordinate the debt to future institutional financing. Pursuant to these
agreements, no dividends will be paid by the Company until the borrowings are
paid in full and the lines of credit have been terminated.
The Company's credit card transaction acquisition services are provided by
First USA Merchant Services, Inc., a preferred stockholder. Fees for these
services amounted to $28,198 and $75,284 for the year ended December 31, 1995
and the six months ended June 30, 1996, respectively.
Certain marketing and technology consulting services were provided by a
company whose president is a director of the Company. These services amounted to
$20,235 and $132,521 for the period from March 11, 1994 (date of inception)
through December 31, 1994 and the year ended December 31, 1995, respectively. No
services were provided during the six months ended June 30, 1996.
4. NOTE PAYABLE
On February 27, 1996, the Company entered into a promissory note to borrow
up to $500,000 at the prime rate plus 2% from a financial institution. The loan
was repaid in full in April 1996.
5. COMMITMENTS
Leases
The Company leases its office facilities in San Diego, California under
operating leases which expire in 1999. The leases generally require the Company
to pay all maintenance, insurance and property taxes and are subject to certain
minimum escalation provisions. Rent expense for all operating leases was
approximately $38,400 and $55,016 for the year ended December 31, 1995 and the
six months ended June 30, 1996, respectively.
Future minimum operating lease payments as of June 30, 1996 are as follows:
<TABLE>
<S> <C>
1996 (six months)................................. $ 98,000
1997.............................................. 172,000
1998.............................................. 148,000
1999.............................................. 60,000
--------
$478,000
========
</TABLE>
Information Service Agreement
In October 1994, the Company entered into a technology service agreement
with another company to receive information technology services from the other
company beginning in 1994. Minimum monthly payments of $5,000 for services
commenced upon full system implementation. The Company was required to pay an
implementation charge of $150,000, $50,000 of which has been paid. The remaining
$100,000 is included in accounts payable at June 30, 1996. The implementation
charge is being amortized over three years. Accumulated amortization at December
31, 1994 and 1995 and June 30, 1996 amounted to $1,667, $36,667 and $69,000,
respectively. In June 1996, this agreement was amended, reducing the information
technology services to be received, and as a result, effective July 1, 1996,
minimum monthly charges no longer apply.
F-10
<PAGE> 80
FIRST VIRTUAL HOLDINGS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY
Preferred Stock
In May 1995, the Company sold 551,500 shares of Series A preferred stock at
$1.76 per share. An additional 142,044 shares were issued at $1.76 per share to
retire certain notes payable in December 1995. In December 1995, the Company
sold 783,945 shares of Series B preferred stock at $3.189 per share.
The holders of the Series A and Series B preferred stock are entitled to
receive dividends at the rate of $0.162 per share and $0.32 per share per annum,
respectively, if and when such dividends are declared by the Board of Directors.
The right to such dividends is not cumulative. No dividends have been declared
to date.
The preferred stock is convertible, at the option of the holder, into the
Company's common stock on a one-for-one basis, subject to antidilution
adjustments, and will automatically convert into common stock concurrent with
the closing of an underwritten public offering of common stock under the
Securities Act of 1933 in which the Company receives at least $10,000,000 in
gross proceeds and a per share price to the public of at least $10.50 per share
(subject to antidilution adjustments). The holder of each preferred share is
entitled to one vote for each common share into which it would convert.
As part of the agreement to sell 275,750 shares of Series A preferred
stock, the Company acknowledged that if it elects not to utilize the purchaser's
technology products, the purchaser will have the option to redeem its shares at
$1.76 per share plus all declared but unpaid dividends. In August 1996, the
Company entered into a consulting agreement with this Series A stockholder to
provide the Company with supplementary staffing for a period of approximately
six months for fees of approximately $900,000.
Total issuance costs for all preferred stock amounted to $179,438 and
$296,548 at December 31, 1995 and June 30, 1996, respectively.
Warrants
In connection with the sale of Series B preferred stock in December 1995 to
a financial institution, the Company issued warrants to purchase shares of
Series A and Series B preferred stock. In April 1996, the Series B preferred
stockholder partially exercised this warrant by purchasing 465,000 shares of
Series B preferred stock at $3.189 per share. In addition, the Series B
preferred stockholder paid the Company $3,017,115 for warrants to purchase
852,272 shares of Series A preferred stock and 475,734 shares of Series B
preferred stock at $0.01 per share. These new warrants are currently exercisable
and will expire on March 4, 2001. The Company received total proceeds of
approximately $4.5 million in connection with this transaction. Furthermore, all
of the unexercised warrants originally issued on December 22, 1995 have been
canceled.
The Company also issued to the Series B preferred stockholder an incentive
warrant to purchase shares of common stock for $0.01 per share up to 4% of the
number of shares of common stock outstanding at the exercise date assuming
conversion of all preferred stock into common stock. The number of shares that
may be purchased under this warrant is contingent upon the achievement of
certain milestones, which relate to establishing merchant accounts by customers
of the financial institution, as defined in the incentive warrant agreement. As
set forth in SFAS 123, this warrant must be accounted for based on its fair
value. The Financial Accounting Standards Board's Emerging Issues Task Force has
met recently and has reached a consensus that the grant date is the appropriate
time to value such warrants. Accordingly, the Company obtained an independent
valuation to determine the fair value for this warrant. Based upon this
valuation the value of the warrant was determined to be $0.09 per share. The
value of the warrant will be recorded as an expense as merchant accounts are
established by the financial institution. Since no milestones contemplated by
this agreement have been achieved by the financial institution through June 30,
1996, the expense, if any, resulting from this transaction will occur in
subsequent periods. This warrant expires upon the earlier of the closing of an
initial public offering of the Company's common stock or June 30, 1998.
F-11
<PAGE> 81
FIRST VIRTUAL HOLDINGS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Stock Option Plan
The Company's 1994 Incentive and Non-Statutory Stock Option Plan (1994
Plan), under which options to purchase 468,750 shares of common stock were
granted, was replaced with the 1995 Stock Plan (1995 Plan). Under the 1995 Plan,
the Company is authorized to issue up to 2,000,000 common shares to officers,
employees, directors and certain other individuals providing services to the
Company. Options granted under the 1995 Plan generally vest over four years and
are exercisable for a period of up to ten years from the date of grant.
Incentive stock options are granted at prices which approximate the fair value
of the shares at the date of grant as determined by the board of directors.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
------- --------------
<S> <C> <C>
Options granted during period ended December 31, 1994....... 288,875 $0.04
-------
Balance at December 31, 1994................................ 288,875 0.04
Options granted........................................... 179,875 0.04 - 0.176
-------
Balance at December 31, 1995................................ 468,750 0.04 - 0.176
Options granted........................................... 525,083 0.32 - 5.00
Options canceled.......................................... (10,000) 0.32
-------
Balance at June 30, 1996.................................... 983,833 $ 0.04 - $5.00
=======
</TABLE>
As of June 30, 1996, options to purchase 503,738 shares are exercisable and
1,484,917 shares are available for future grant under the 1995 Plan.
Pursuant to the terms of the December 22, 1995 Series B Preferred Stock
Purchase Agreement, on April 11, 1996, the Company's board of directors granted
options to purchase 475,000 shares of common stock at $6.30 per share to an
officer and director of the Company. The options vest immediately and expire on
April 11, 2006. Two directors of the Company were granted options to purchase
225,000 and 100,000 shares under the same terms. In addition, the board of
directors granted options to purchase 200,000 shares of common stock at $6.30
per share to two key employees of the Company. The options to these two key
employees vest on June 30, 1998 provided that each remains an employee of the
Company at that date and expire in ten years. These options to purchase
1,000,000 shares were not granted under the 1995 Plan. No deferred compensation
was deemed appropriate for the April 1996 option grants. The fair value of
common stock was determined by an independent valuation.
As of June 30, 1996, the Company has reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Stock options..................................... 3,468,750
Preferred stock................................... 1,942,489
Warrants.......................................... 1,328,006
---------
6,739,245
=========
</TABLE>
Through June 30, 1996, the Company recorded deferred compensation expense
for the difference between the exercise price and the deemed fair value for
financial statement presentation purposes of the Company's common stock, as
determined in part by an independent valuation, for options granted during 1996.
Such options were granted at $0.32 per share with a deemed fair value of $0.40
per share and at $1.00 per share with a deemed fair value of $3.00 per share.
This deferred compensation expense aggregates to $50,567, which will be
amortized over the vesting period of the related options, generally four years.
Adjusted pro forma information regarding net loss is required by SFAS 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the "minimum value" method for
F-12
<PAGE> 82
FIRST VIRTUAL HOLDINGS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
option pricing with the following weighted-average assumptions for both 1995 and
the six months ended June 30, 1996: risk-free interest rates of 6%; dividend
yields of 0%; and a weighted-average expected life of the option of seven years.
For purposes of adjusted pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Company's adjusted pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER ENDED
31, JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
Adjusted pro forma net loss....................................... $(2,276,119) $(2,513,850)
Adjusted pro forma loss per share:................................ $ $
</TABLE>
7. INCOME TAXES
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets as of December 31, 1995 and June 30, 1996 are
shown below. A valuation allowance for the entire deferred tax asset has been
recognized as realization of such assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
Deferred tax assets:
Net operating losses carryforwards.............................. $ 530,000 $ 1,539,000
Other........................................................... 48,000 97,000
--------- -----------
578,000 1,636,000
Valuation allowance for deferred tax assets....................... (578,000) (1,636,000)
--------- -----------
Net deferred tax assets........................................... $ -- --
========= ===========
</TABLE>
At June 30, 1996, the Company has federal and state net operating loss
carryforwards of approximately $3,800,000. These federal and state carryforwards
will begin to expire in 2010 and 2000, respectively, unless previously utilized.
The Company also has federal and state research credit carryforwards of
approximately $7,000 and $24,000, respectively, which will begin expiring in
2010, unless previously utilized.
Pursuant to Internal Revenue Code Section 382 and 383, use of the Company's
net operating loss and tax credit carryforwards may be limited if a cumulative
change in ownership of more than 50% occurs within a three year period.
8. SUBSEQUENT EVENTS
Preferred Stock
On July 3, 1996, the Company sold 130,952 shares of Series C preferred
stock at $15.00 per share and 107,144 shares of common stock at $5.00 per share
for total proceeds of approximately $2,500,000. The holders of the Series C
preferred stock are entitled to receive dividends at the rate of $1.50 per share
per annum if and when declared by the Board of Directors. The right to such
dividends is not cumulative. The holders of the Series C preferred stock are
entitled to a liquidation preference of $19.00 per share, plus any declared but
unpaid dividends. The preferred stock is convertible, at the option of the
holder, into the Company's common stock on a one-for-one basis, subject to
antidilution adjustments, and will automatically convert into common stock
concurrent with the closing of an underwritten public offering of common stock
under the Securities Act of 1933 in which the Company receives at least
$10,000,000 in gross proceeds and a
F-13
<PAGE> 83
FIRST VIRTUAL HOLDINGS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
per share price to the public of at least $10.50 per share (subject to
antidilution adjustments). The holder of each preferred share is entitled to one
vote for each common share into which it would convert.
In connection with the sale of the Series C preferred stock, the Company
issued a warrant to purchase shares of the Company's common stock. The number of
shares will be equal to $500,000 divided by the exercise price. The exercise
price will be $10.50 per share if the Company and the Series C stockholder have
entered into a marketing agreement prior to the earlier of the date of exercise
of the warrant or December 31, 1996. Otherwise, the exercise price will be
$15.00 per share. The warrant expires on July 3, 1997.
On August 20, 1996, the Company entered into an agreement with the Series B
stockholder for the waiver of a previous agreement to use the Series B
stockholder as an exclusive services provider. In return for the waiver, the
Company agreed to pay the Series B stockholder facility fees totaling $500,000
and transaction surcharges of no less than $500,000 during the 40-month period
beginning September 1, 1996, dependent upon the number of transactions processed
through service providers other than the Series B stockholder. The Company will
charge the $1,000,000 associated with this agreement to operations during the
third quarter of 1996.
On August 26, 1996, the Company sold 200,000 shares of Series D preferred
stock at $15.00 per share for total proceeds of approximately $3,000,000. The
holders of the Series D preferred stock are entitled to receive dividends at the
rate of $1.50 per share per annum if and when declared by the Board of
Directors. The right to such dividends is not cumulative. The holders of the
Series D preferred stock are entitled to a liquidation preference of $19.00 per
share, plus any declared but unpaid dividends. The preferred stock is
convertible, at the option of the holder, into the Company's common stock on a
one-for-one basis, subject to antidilution adjustments, and will automatically
convert into common stock concurrent with the closing of an underwritten public
offering of common stock under the Securities Act of 1933 in which the Company
receives at least $10,000,000 in gross proceeds and a per share price to the
public of at least $10.50 per share (subject to antidilution adjustments). The
holder of each preferred share is entitled to one vote for each common share
into which it would convert.
In connection with the sale of Series D preferred stock, the Company issued
a warrant to purchase shares of the Company's common stock. The number of shares
and exercise price are contingent upon the Series D stockholder achieving
certain performance criteria with respect to the issuance of VirtualPINs to its
customer base as outlined in the following schedule:
<TABLE>
<CAPTION>
DEADLINE FOR
ACHIEVING
PERFORMANCE INCREMENTAL EXERCISE PRICE
CRITERIA SHARES PER SHARE
- ----------------- ----------- --------------
<S> <C> <C>
May 31, 1997 375,000 $ 5.00
August 31, 1997 375,000 3.33
October 31, 1997 375,000 2.50
December 30, 1997 375,000 2.23
</TABLE>
The performance warrant expires on December 30, 1997. The Company will
value this warrant as set forth in SFAS 123 and will report it as an expense as
the VirtualPIN distribution performance criteria are met.
Reincorporation
On July 3, 1996, the Company was reincorporated in Delaware. In connection
with the reincorporation, the Company is authorized to issue 40,000,000 shares
of common stock and 3,401,447 shares of preferred stock. In addition, on August
26, 1996 in connection with the sale of Series D preferred stock, the Company's
F-14
<PAGE> 84
FIRST VIRTUAL HOLDINGS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
certificate of incorporation was amended to authorize the issuance of 3,601,447
shares of preferred stock. All of the accompanying financial statements have
been restated to reflect the reincorporation.
1996 Employee Stock Purchase Plan
On July 18, 1996, the Company adopted the 1996 Employee Stock Purchase Plan
(Purchase Plan) subject to stockholder approval. A total of 100,000 shares of
common stock have been reserved for issuance under the Purchase Plan.
Stock Option Plan
On October 16, 1996, the Board of Directors of the Company increased the
number of shares of common stock reserved for issuance under the 1995 Stock Plan
from 2,000,000 shares to 3,000,000 shares. The increase is subject to
stockholder approval.
F-15
<PAGE> 85
[ART]
<PAGE> 86
INSIDE FRONT COVER:
The graphic describes the VirtualPIN architecture in the form of a triangle
with dotted lines for sides. The heading of the graphic reads "VirtualPIN
Architecture." The upper left corner of the triangle is a square including the
words "Buyer's Computer." The upper right corner of the triangle is a square
including the words "Seller's Computer." The bottom corner of the triangle is a
square including the First Virtual logo. The middle contains the word
"VirtualPIN" and includes the VirtualPIN logo.
INSIDE FRONT COVER (LEFT FOLDOUT):
The graphic describes the First Virtual Internet Payment System with seven
rectangles representing the different components of such system. The heading of
the graphic reads "First Virtual Internet Payment System." The graphic
demonstrates the flow and sequence of functions in a FVIPS transaction with
dotted lines connecting the rectangles. The top of the graphic includes text
that reads "FV enables Buyers and Sellers to conduct secure, private
transactions over the Internet." The middle of the graphic includes text that
reads "FV uses dedicated, secure lines to transfer transaction information to
established financial networks." The bottom of the graphic includes text that
reads "FV integrates seamlessly with established financial networks to authorize
and settle transactions."
INSIDE FRONT COVER (RIGHT FOLDOUT):
The graphic describes the Company's VirtualTAG application of the
VirtualPIN architecture. The graphic depicts the VirtualTAG in use on the
Internet, which contains an advertisement within a banner on a World Wide Web
page. The display demonstrates the steps taken in purchasing a product or
service on the Internet. The heading of the graphic contains the words
"VirtualTAG CLICK HERE."
PAGE 37:
The graphic contains a diagram setting forth the steps, numbered in order,
of the purchase cycle of a financial transaction using FVIPS. The graphic
contains three squares, connected by numbered arrows forming a triangle. The
numbers on the arrows correspond to the numbers in the text. The square at the
top left of the triangle contains the words "Buyer's Computer." The square at
the top right of the triangle contains the words "Seller's Computer." The square
at the bottom of the triangle contains the words "FV Purchase Server." The
triangle is connected by an arrow to a rectangle below. Such rectangle contains
the words "The Back-Office."
PAGE 38:
The graphic contains a diagram setting forth the steps, numbered in order,
of the "Back-Office Cycle" of a financial transaction using FVIPS. The graphic
contains six squares, two of which are placed above the other four. The top
right square is connected by an arrow to text reading "The Purchase Cycle." The
squares are connected by numbered arrows corresponding to the text. The squares
contain, in counter-clockwise order, text which reads "FV Back-Office Server,"
"Credit Card Processor," "Issuing Bank," "FV Merchant Acquiror," "FV Deposit
Account," and "Seller Bank Account."
INSIDE BACK COVER:
The graphic contains a square containing the First Virtual logo within a
larger rectangle. The large rectangle contains six squares, each containing
customer Web pages. The heading of the graphic contains the words "FIRST VIRTUAL
HOLDINGS INCORPORATED." The bottom of the graphic contains the words "LEADING
THE CHARGE TO INTERNET COMMERCE."
<PAGE> 87
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER 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 BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. UNDER NO CIRCUMSTANCES
SHALL THE DELIVERY OF THIS PROSPECTUS, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 22
Dividend Policy....................... 22
Capitalization........................ 23
Dilution.............................. 24
Selected Financial Data............... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 31
Management............................ 49
Certain Transactions.................. 55
Principal Stockholders................ 58
Description of Capital Stock.......... 60
Shares Eligible for Future Sale....... 62
Underwriting.......................... 64
Legal Matters......................... 65
Experts............................... 65
Additional Information................ 66
Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES
LOGO
COMMON STOCK
---------------------
PROSPECTUS
---------------------
BEAR, STEARNS & CO. INC.
COWEN & COMPANY
LEHMAN BROTHERS
UNTERBERG HARRIS
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All amounts shown are estimates except
the Securities and Exchange Commission registration fees, the NASD filing fees
and the Nasdaq National Market application fee.
<TABLE>
<CAPTION>
TO BE PAID
BY THE
REGISTRANT
-----------
<S> <C>
Securities and Exchange Commission registration fee............... 30,000
NASD filing fees.................................................. 10,000
Nasdaq National Market application fee............................ 50,000
Accounting fees and expenses...................................... 180,000
Printing and engraving expenses................................... 100,000
Transfer agent and registrar fees................................. 2,500
Blue Sky fees and expenses........................................ 15,000
Legal fees and expenses........................................... 360,000
Officer and Director Liability Insurance.......................... 400,000
Miscellaneous expenses............................................ 152,500
----------
Total................................................... 1,300,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the Delaware General Corporation Law (the "DGCL")
provides in relevant part that "[a] corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful." With
respect to derivative actions, Section 145(b) of the DGCL provides in relevant
part that "[a] corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its
favor . . . [by reason of his service in one of the capacities specified in the
preceding sentence] against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expense
which the Court of Chancery and such other court shall deem proper."
Article V of the Registrant's Bylaws provides that the Company may
indemnify each person who is or was a director of the Company to the full extent
permitted by the DGCL. Such Article also provides
II-1
<PAGE> 89
that the Registrant may, but is not required to, indemnify its employees and
agents (other than directors and officers) to the extent and in the manner
permitted by the DGCL.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
the Underwriters of the Registrant, its directors and executive officers and
other persons for certain liabilities, including liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act").
The Registrant has entered into an indemnification agreement with each of
its directors and officers and intends to maintain insurance for the benefit of
its directors and officers insuring such persons against certain liabilities,
including liabilities under the securities laws.
See also the undertakings set out in response to Item 17 herein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Common Stock, Preferred Stock, options and warrants of the Registrant
issued to stockholders, option holders and warrant holders of First Virtual
Holdings Incorporated, a Wyoming corporation, in connection with the
reincorporation in Delaware were not deemed "sold" as a result of Rule 145(a)(2)
promulgated under the Securities Act. The following table includes information
regarding all securities sold by the Registrant's Wyoming predecessor from March
11, 1994 through the date of such incorporation and all securities sold by the
Registrant since such reincorporation.
<TABLE>
<CAPTION>
NUMBER
DATE OF AGGREGATE PURCHASE PRICE
CLASS OF PURCHASERS OF SALE TITLE OF SECURITIES SECURITIES AND FORM OF CONSIDERATION
- ------------------------------ -------- -------------------------- ------------- ---------------------------
<S> <C> <C> <C> <C>
Lee H. Stein, an officer and 3/11/94 Common Stock 1,250,000 $50,000 cash
director, and June L. Stein
(spouse of Mr. Stein)
Trusts affiliated with Tawfiq 3/11/94 Common Stock 1,250,000 $50,000 cash
N. Khoury, a director
Marshall T. Rose, an officer 5/23/94 Common Stock 166,675 For services rendered
A consultant 5/26/94 Common Stock 166,675 For services rendered
Jon Rubin, a director 9/19/94 Common Stock 1,250,000 $200,000 cash
Marshall T. Rose, an officer 5/12/95 Common Stock 67,700 Waiver of certain
preemptive rights
A consultant 5/12/95 Common Stock 67,700 Waiver of certain
preemptive rights
Sybase, Inc., an affiliate 5/22/95 Series A Preferred Stock 275,750 $485,320 cash
Unterberg Harris Interactive 5/22/95 Series A Preferred Stock 275,750 $485,320 cash
Media, L.P.
First USA Merchant Services, 12/22/95 Series B Preferred Stock, 783,945(1) $2,500,000 cash
Inc., an affiliate Warrant to purchase Series
A Preferred Stock at $1.76
per share, Warrant to
purchase Series B
Preferred Stock at $3.189
per share, and Warrant to
purchase Common Stock at
$0.32 per share
Sybase, Inc., an affiliate 12/22/95 Series A Preferred Stock 71,022 Cancellation of $125,000 of
indebtedness
Unterberg Harris Interactive 12/22/95 Series A Preferred Stock 71,022 Cancellation of $125,000 of
Media, L.P. indebtedness
An employee 12/28/95 Common Stock 10,000 For services rendered
A consultant 12/28/95 Common Stock 30,000 For services rendered
Marshall T. Rose, an officer 12/28/95 Common Stock 14,500 For services rendered
A consultant 2/28/96 Common Stock 27,000 $8,640 cash
A consultant 2/28/96 Common Stock 3,000 $960 cash
</TABLE>
II-2
<PAGE> 90
<TABLE>
<CAPTION>
NUMBER
DATE OF AGGREGATE PURCHASE PRICE
CLASS OF PURCHASERS OF SALE TITLE OF SECURITIES SECURITIES AND FORM OF CONSIDERATION
- ------------------------------ -------- -------------------------- ------------- ---------------------------
<S> <C> <C> <C> <C>
First USA Merchant Services, 4/22/96 Series B Preferred 465,000 $1,482,885 cash
Inc., an affiliate
First USA Merchant Services, 4/22/96 Warrants to purchase 1,328,006(2) $3,017,115 cash and
Inc., an affiliate Series A Preferred Stock surrender of Series A
and Series B Preferred Preferred Stock and Series
Stock at $0.01 per share B Preferred Stock warrants
issued on December 22, 1995
A consultant 4/11/96 Common Stock 14,425 For services rendered
A consultant 4/11/96 Common Stock 7,812 For services rendered
A consultant 4/11/96 Common Stock 2,500 For services rendered
A consultant 4/11/96 Common Stock 2,500 For services rendered
A consultant 4/11/96 Common Stock 2,500 For services rendered
General Electric Capital 7/3/96 Series C Preferred Stock, 238,096(3) $2,500,000 cash
Corporation, an affiliate Common Stock and Warrant
to purchase Common Stock
An employee 7/18/96 Common Stock 1,389 For services rendered
An employee 10/02/96 Common stock 500 Exercise of option
First Data Corporation 8/26/96 Series D Preferred Stock 200,000(4) $3,000,000 cash
and Warrant to purchase
Common Stock
All directors, employees and 3/30/94- Options to purchase Common 2,702,145 Options granted for no cash
consultants 10/16/96 Stock(5) consideration. Exercise
prices range from $0.04 to
$10.50 per share.
</TABLE>
- ---------------
(1) Represents outstanding shares of Series B Preferred Stock. Does not include
852,272 shares of Series A Preferred Stock issuable upon exercise of a
warrant, up to 940,734 shares of Series B Preferred Stock issuable upon
exercise of a warrant (which warrants were subsequently canceled) and shares
of Common Stock equivalent to up to four percent of the Company's
outstanding capital stock issuable upon exercise of a warrant subject to the
satisfaction of certain marketing-related performance milestones (which
warrant will terminate upon completion of the offering).
(2) Includes 852,272 shares of Series A Preferred Stock and 475,734 shares of
Series B Preferred Stock issuable upon exercise of outstanding warrants at
an exercise price of $0.01 per share.
(3) Represents 130,952 shares of Series C Preferred Stock and 107,144 shares of
Common Stock. Does not include up to 47,619 shares of Common Stock
exercisable upon exercise of a warrant.
(4) Does not include up to 1,500,000 shares of Common Stock issuable upon
exercise of a warrant, subject to the achievement of certain
marketing-related milestones.
(5) All stock option grants, and all sales of Common Stock pursuant to the
exercise of stock options granted, were made pursuant to the exemption from
the registration requirements of the Securities Act afforded by Rule 701
promulgated under the Securities Act as transactions pursuant to a
compensatory benefit plan or a written contract relating to compensation.
Unless otherwise noted, all sales were made in reliance on Section 4(2) of
the Securities Act and/or Regulation D or Rule 701 promulgated under the
Securities Act. The securities were sold to a limited number of people with no
general solicitation or advertising.
II-3
<PAGE> 91
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------ --------------------------------------------------------------------------
<S> <C>
1.1 Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the Registrant
3.2 Amended and Restated Certificate of Incorporation of Registrant to be
filed after closing of offering
3.3 Bylaws of the Registrant
4.1* Form of Stock Certificate
5.1* Opinion and Consent of Wilson Sonsini Goodrich & Rosati, P.C., with
respect to the Common Stock being registered
10.1 Form of Indemnification Agreement entered into between Registrant and its
officers and directors
10.2 The Registrant's 1994 Incentive and Non-Statutory Stock Option Plan.
10.3 The Registrant's 1995 Stock Plan
10.4 The Registrant's 1996 Employee Stock Purchase Plan
10.5* Lee H. Stein Employment Agreement
10.6 Nathaniel S. Borenstein Employment Agreement
10.7 Marshall T. Rose Employment Agreement
10.8 John M. Stachowiak Employment Agreement
10.9 Michael D. Schauer Employment Agreement
10.10 Series A Preferred Stock Purchase Agreement dated as of May 22, 1995
between the Registrant and the purchasers named therein
10.11 Series B Preferred Stock Purchase Agreement dated as of December 22, 1995
between the Registrant and First USA Merchant Services, Inc.
10.12 Securities Purchase Agreement between the Registrant and General Electric
Capital Corporation dated July 3, 1996
10.13 Warrant to Purchase 47,619 shares of Common Stock, issued to General
Electric Capital Corporation as of July 3, 1996
10.14 Series D Preferred Stock Purchase Agreement between the Registrant and
First Data Corporation, dated August 26, 1996
10.15 Amended and Restated Shareholder Rights Agreement dated August 26, 1996 by
and among Registrant and certain of its stockholders
10.16* Warrant to Purchase up to 1,500,000 shares of Common Stock, issued to
First Data Corporation as of August 26, 1996
10.17* Marketing and Product Development Agreement dated as of August 26, 1996
between the Registrant and First Data Corporation
10.18 Warrant to purchase 852,272 shares of Series A Preferred Stock, issued to
First USA Merchant Services
10.19 Warrant to purchase 475,734 shares of Series B Preferred Stock, issued to
First USA Merchant Services
10.20 Lease Agreement dated as of February 1, 1996 by and between Registrant and
Carmel Valley Partners I (now Spieker Properties, L.P.), as amended
10.21 Sublease Agreement dated as of June 15, 1996 by and between Registrant and
Integrated Medical Systems
10.22 Lease Agreement dated as of April 18, 1996 by and between Registrant and
KMD Foundation
</TABLE>
II-4
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------ --------------------------------------------------------------------------
<S> <C>
10.23 Facilities Agreement dated as of August 14, 1996 between the Registrant
and First USA Merchant Services, Inc.
10.24 Waiver and Amendment dated as of August 20, 1996 between the Registrant
and First USA Merchant Services, Inc.
10.25* Merchant Credit Card Agreement dated as of September 12, 1994, between the
Registrant and First USA Merchant Services, as amended
10.26* Agreement dated as of May 20, 1996 between the Registrant and E-Data
Corporation
10.27 Agreement for Information Technology Services dated as of October 12, 1994
between the Registrant and Electronic Data Systems Corporation, as amended
10.28 Consulting and Development Agreement dated as of August 16, 1996 between
the Registrant and Sybase, Inc.
11.1* Statement re: Computation of Per Share Earnings
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (included on the signature page of this Registration
Statement)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedule.
All other schedules are omitted because they are not required, are not
applicable or the information is included in the Financial Statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions referenced in Item 14 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling persons of the Registrant in the successful defense of any action,
suite or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, 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 policy as expressed in
the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule July 29, 1996 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
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.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the Closing, as 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.
II-5
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California, on October 21, 1996.
FIRST VIRTUAL HOLDINGS INCORPORATED
By: /s/ LEE H. STEIN
Lee H. Stein, Chairman and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Lee H. Stein and John M. Stachowiak and
each of them, his or her true and lawful attorneys-in-fact and agents with full
power of substitution, for him or her and in his or her name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by the Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act, and all post-effective amendments thereto,
and to file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing 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
attorneys-in-fact and agents or any of them, or his or her or their substitute
or substitutes, may lawfully do or cause to be done or by virtue hereof.
Pursuant to the requirements of the Securities Act, this 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>
/s/ LEE H. Chairman and Chief Executive October 21, 1996
STEIN Officer (Principal Executive
Lee H. Stein Officer)
/s/ JOHN M. STACHOWIAK Vice President, Finance and October 21, 1996
John M. Stachowiak Administration and Chief
Financial Officer (Principal
Financial and Accounting
Officer)
/s/ ROBERT S. EPSTEIN Director October 21, 1996
Robert S. Epstein
/s/ TAWFIQ N. KHOURY Director October 21, 1996
Tawfiq N. Khoury
/s/ JOHN McKINLEY Director October 21, 1996
John McKinley
/s/ PAMELA H. PATSLEY Director October 21, 1996
Pamela H. Patsley
/s/ JON Director October 21, 1996
RUBIN
Jon Rubin
</TABLE>
II-6
<PAGE> 94
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT TITLE PAGE
- ------ -----------------------------------------------------------------------------------
<S> <C> <C>
1.1 Underwriting Agreement................................................
3.1 Amended and Restated Certificate of Incorporation of the Registrant...
3.2 Amended and Restated Certificate of Incorporation of Registrant to be
filed after closing of offering.......................................
3.3 Bylaws of the Registrant..............................................
4.1* Form of Stock Certificate.............................................
5.1* Opinion and Consent of Wilson Sonsini Goodrich & Rosati, P.C., with
respect to the Common Stock being registered..........................
10.1 Form of Indemnification Agreement entered into between Registrant and
its officers and directors............................................
10.2 The Registrant's 1994 Incentive and Non-Statutory Stock Option Plan.
10.3 The Registrant's 1995 Stock Plan......................................
10.4 The Registrant's 1996 Employee Stock Purchase Plan....................
10.5* Lee H. Stein Employment Agreement.....................................
10.6 Nathaniel S. Borenstein Employment Agreement..........................
10.7 Marshall T. Rose Employment Agreement.................................
10.8 John M. Stachowiak Employment Agreement...............................
10.9 Michael D. Schauer Employment Agreement...............................
10.10 Series A Preferred Stock Purchase Agreement dated as of May 22, 1995
between the Registrant and the purchasers named therein...............
10.11 Series B Preferred Stock Purchase Agreement dated as of December 22,
1995 between the Registrant and First USA Merchant Services, Inc......
10.12 Securities Purchase Agreement between the Registrant and General
Electric Capital Corporation dated July 3, 1996.......................
10.13 Warrant to Purchase 47,619 shares of Common Stock, issued to General
Electric Capital Corporation as of July 3, 1996.......................
10.14 Series D Preferred Stock Purchase Agreement between the Registrant and
First Data Corporation, dated August 26, 1996.........................
10.15 Amended and Restated Shareholder Rights Agreement dated August 26,
1996 by and among Registrant and certain of its stockholders..........
10.16* Warrant to Purchase up to 1,500,000 shares of Common Stock, issued to
First Data Corporation as of August 26, 1996..........................
10.17* Marketing and Product Development Agreement dated as of August 26,
1996 between the Registrant and First Data Corporation................
10.18 Warrant to purchase 852,272 shares of Series A Preferred Stock, issued
to First USA Merchant Services........................................
10.19 Warrant to purchase 475,734 shares of Series B Preferred Stock, issued
to First USA Merchant Services........................................
10.20 Lease Agreement dated as of February 1, 1996 by and between Registrant
and Carmel Valley Partners I (now Spieker Properties, L.P.), as
amended...............................................................
10.21 Sublease Agreement dated as of June 15, 1996 by and between Registrant
and Integrated Medical Systems........................................
</TABLE>
<PAGE> 95
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT TITLE PAGE
- ------ -----------------------------------------------------------------------------------
<S> <C> <C>
10.22 Lease Agreement dated as of April 18, 1996 by and between Registrant
and KMD Foundation....................................................
10.23 Facilities Agreement dated as of August 14, 1996 between the
Registrant and First USA Merchant Services, Inc.......................
10.24 Waiver and Amendment dated as of August 20, 1996 between the
Registrant and First USA Merchant Services, Inc.......................
10.25* Merchant Credit Card Agreement dated as of September 12, 1994 between
the Registrant and First USA Merchant Services, as amended............
10.26* Agreement dated as of May 20, 1996 between the Registrant and E-Data
Corporation...........................................................
10.27 Agreement for Information Technology Services dated as of October 12,
1994 between the Registrant and Electronic Data Systems Corporation,
as amended............................................................
10.28 Consulting and Development Agreement dated as of August 16, 1996
between the Registrant and Sybase, Inc................................
11.1* Statement re: Computation of Per Share Earnings.......................
23.1 Consent of Ernst & Young LLP, Independent Auditors....................
23.2* Consent of Counsel (included in Exhibit 5.1)..........................
24.1 Power of Attorney (included on the signature page of this Registration
Statement)............................................................
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
SHARES OF COMMON STOCK
FIRST VIRTUAL HOLDINGS INCORPORATED
UNDERWRITING AGREEMENT
November , 1996
BEAR, STEARNS & CO. INC.
COWEN & COMPANY
LEHMAN BROTHERS, INC.
as Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167
Dear Sirs:
First Virtual Holdings Incorporated, a corporation organized and existing
under the laws of Delaware (the "Company"), proposes, subject to the terms and
conditions stated herein, to issue and sell to the several underwriters named in
Schedule I hereto (the "Underwriters") an aggregate of shares (the
"Firm Shares") of its common stock, par value ($.001) per share (the "Common
Stock") and, for the sole purpose of covering over-allotments in connection with
the sale of the Firm Shares, at the option of the Underwriters, up to an
additional shares (the "Additional Shares") of Common Stock. The Firm
Shares and any Additional Shares purchased by the Underwriters are referred to
herein as the "Shares". The Shares are more fully described in the Registration
Statement referred to below.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriters that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement, and may have filed an
amendment or amendments thereto, on Form S-1 (No. 333- ), for the
registration of the Shares under the Securities Act of 1933, as amended
(the "Act"). Such registration statement, including the prospectus,
financial statements and schedules, exhibits and all other documents filed
as a part thereof, as amended at the time of effectiveness of the
registration statement, including any information deemed to be a part
thereof as of the time of effectiveness pursuant to paragraph (b) of Rule
430A or Rule 434 of the Rules and Regulations of the Commission under the
Act (the "Regulations"), is herein called the "Registration Statement" and
the prospectus, in the form first filed with the Commission pursuant to
Rule 424(b) of the Regulations or filed as part of the Registration
Statement at the time of effectiveness if no Rule 424(b) or Rule 434 filing
is required, is herein called the "Prospectus". The term "preliminary
prospectus" as used herein means a preliminary prospectus as described in
Rule 430 of the Regulations. Neither the Commission nor the Blue Sky or
securities authority of any jurisdiction has issued a stop order suspending
the effectiveness of the Regulation Statement, preventing or suspending the
use of any preliminary prospectus, the Prospectus, the Registration
Statement or any amendment or supplement thereto, refusing to permit the
effectiveness of the Registration Statement or suspending the registration
or qualification of the Shares, nor, to the Company's knowledge, has any of
such authorities instituted or threatened to institute any proceedings with
respect to a stop order.
<PAGE> 2
(b) At the time of the effectiveness of the Registration Statement or
the effectiveness of any post-effective amendment to the Registration
Statement, when the Prospectus is first filed with the Commission pursuant
to Rule 424(b) or Rule 434 of the Regulations, when any supplement to or
amendment of the Prospectus is filed with the Commission and at the Closing
Date and the Additional Closing Date, if any, (as hereinafter respectively
defined), the Registration Statement and the Prospectus and any amendments
thereof and supplements thereto complied or will comply in all material
respects with the applicable provisions of the Act and the Regulations and
does not or will not contain an untrue statement of a material fact and
does not or will not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein (i) in the
case of the Registration Statement, not misleading and (ii) in the case of
the Prospectus, in light of the circumstances under which they were made,
not misleading. When any related preliminary prospectus was first filed
with the Commission (whether filed as part of the registration statement
for the registration of the Shares or any amendment thereto or pursuant to
Rule 424(a) of the Regulations) and when any amendment thereof or
supplement thereto was first filed with the Commission, such preliminary
prospectus and any amendments thereof and supplements thereto complied in
all material respects with the applicable provisions of the Act and the
Regulations and did not contain an untrue statement of a material fact and
did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein in light of the
circumstances under which they were made not misleading. No representation
and warranty is made in this subsection (b), however, with respect to any
information contained in or omitted from the Registration Statement or the
Prospectus or any related preliminary prospectus or any amendment thereof
or supplement thereto in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Underwriter
through you as herein stated expressly for use in connection with the
preparation thereof. If Rule 434 is used, the Company will comply with the
requirements of Rule 434.
(c) Ernst & Young LLP, who have certified the financial statements and
supporting schedules included in the Registration Statement, are
independent public accountants as required by the Act and the Regulations.
(d) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set forth
in the Registration Statement and the Prospectus, there has been no
material adverse change or any development involving a prospective material
adverse change in the business, prospects, properties, operations,
condition (financial or other) or results of operations of the Company and
its subsidiaries taken as a whole, whether or not arising from transactions
in the ordinary course of business, and since the date of the latest
balance sheet presented in the Registration Statement and the Prospectus,
neither the Company nor any of its subsidiaries has incurred or undertaken
any liabilities or obligations, direct or contingent, which are material to
the Company and its subsidiaries taken as a whole, except for liabilities
or obligations which are reflected in the Registration Statement and the
Prospectus.
(e) This Agreement and the transactions contemplated herein have been
duly and validly authorized by the Company and this Agreement has been duly
and validly executed and delivered by the Company.
(f) The execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
(i) conflict with or result in a breach of any of the terms and provisions
of, or constitute a default (or an event which with notice or lapse of
time, or both, would constitute a default) under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of its subsidiaries pursuant to, any
agreement, instrument, franchise, license or permit to which the Company or
any of its subsidiaries is a party or by which any of such corporations or
their respective properties or assets may be bound or (ii) violate or
conflict with any provision of the certificate of incorporation or by-laws
of the Company or any of its subsidiaries or any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their respective properties or assets. No
consent, approval, authorization, order, registration,
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<PAGE> 3
filing, qualification, license or permit of or with any court or any
public, governmental or regulatory agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their respective
properties or assets is required for the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby, including the issuance, sale and delivery of the
Shares to be issued, sold and delivered by the Company hereunder, except
the registration under the Act of the Shares and such consents, approvals,
authorizations, orders, registrations, filings, qualifications, licenses
and permits as may be required under state securities or Blue Skylaws in
connection with the purchase and distribution of the Shares by the
Underwriters.
(g) All of the outstanding shares of Common Stock are duly and validly
authorized and issued, fully paid and nonassessable and were not issued and
are not now in violation of or subject to any preemptive rights. The
Shares, when issued, delivered and sold in accordance with this Agreement,
will be duly and validly issued and outstanding, fully paid and
nonassessable, and will not have been issued in violation of or be subject
to any preemptive rights. The Company had, at June 30, 1996, an authorized
and outstanding capitalization as set forth in the Registration Statement
and the Prospectus. The Common Stock, the Firm Shares and the Additional
Shares conform to the descriptions thereof contained in the Registration
Statement and the Prospectus.
(h) Each of the Company and its subsidiaries has been duly organized
and is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation. Each of the Company and its subsidiaries
is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which the character or location of its properties (owned,
leased or licensed) or the nature or conduct of its business makes such
qualification necessary, except for those failures to be so qualified or in
good standing which will not in the aggregate have a material adverse
effect on the Company and its subsidiaries taken as a whole. Each of the
Company and its subsidiaries has all requisite power and authority, and all
necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public, regulatory or
governmental agencies and bodies, to own, lease and operate its properties
and conduct its business as now being conducted and as described in the
Registration Statement and the Prospectus, and no such consent, approval,
authorization, order, registration, qualifications, license or permit
contains a materially burdensome restriction not adequately disclosed in
the Registration Statement and the Prospectus. All of the outstanding
capital stock of the Company's subsidiaries are duly and validly issued,
fully paid and nonassessable and are owned by the Company free and clear of
any liens, mortgages, pledges, charges, security interests, claims,
encumbrances and other defects in title whatsoever.
(i) Except as described in the Prospectus, there is no litigation or
governmental proceeding to which the Company or any of its subsidiaries is
a party or to which any property of the Company or any of its subsidiaries
is subject or which is pending or, to the knowledge of the Company,
contemplated against the Company or any of its subsidiaries which might
result in any material adverse change or any development involving a
material adverse change or any development involving a material adverse
change in the business, prospects, properties, operations, condition
(financial or other) or, results of operations of the Company and its
subsidiaries taken as a whole or which is required to be disclosed in the
Registration Statement and the Prospectus.
(j) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which constitutes
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the
sale or resale of the Shares.
(k) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the
Prospectus present fairly the financial position of the Company as of the
dates indicated and the results of its operations for the periods
specified; except as otherwise stated in the Registration Statement, said
financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis; and the
supporting schedules included in the Registration Statement present fairly
the information required to be stated therein.
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<PAGE> 4
(l) Except as described in the Prospectus, no holder of securities of
the Company has any rights to the registration of securities of the Company
because of the filing of the Registration Statement or otherwise in
connection with the sale of the Shares contemplated hereby.
(m) The Company is not, and upon consummation of the transactions
contemplated hereby will not be, subject to registration as an "investment
company" under the Investment Company Act of 1940.
(n) Neither the Company nor any of its subsidiaries is in violation of
its certificate of incorporation or by-laws, as the case may be, or in
default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material bond, debenture,
note or other evidence of indebtedness or in any material contract,
indenture, mortgage, deed of trust, loan or credit agreement, lease, joint
venture or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which any of their properties may be bound,
which default would have, singly or in the aggregate, a material adverse
effect on the Company and its subsidiaries taken as a whole, or in
violation of any law, order, rule, regulation, writ, injunction, judgment
or decree of any court or governmental agency or body, the violation of
which would have, singly or in the aggregate, a material adverse effect on
the Company and its subsidiaries taken as a whole.
(o) The Shares have been approved for inclusion on the Nasdaq National
Market, subject to notice of issuance or sale, as the case may be.
(p) The Company and its subsidiaries have good and marketable title to
all the properties and assets reflected as owned in the financial
statements hereinabove described and elsewhere in the Prospectus, subject
to no lien, mortgage, pledge, charge, security interest, claim, encumbrance
or other deficit in title of any kind except those reflected in such
financial statements or elsewhere in the Prospectus or such as are not
material to the Company and its subsidiaries taken as a whole. The Company
and its subsidiaries hold their respective leased properties that are
material to the Company and its subsidiaries taken as a whole under valid
and binding leases, except for such imperfections in title to the leasehold
estates as are not material and do not interfere with the use made and
proposed to be made of such properties by the Company and its subsidiaries.
(q) The Company, together with its subsidiaries, owns and possesses
all right, title and interest in and to, or has duly licensed from third
parties a valid and enforceable right to use, all trademarks, copyrights,
patents, trade secrets and other proprietary rights (collectively, the
"Rights") presently employed by the Company and its subsidiaries in
connection with their business as described in the Prospectus, whether such
Rights are registered or unregistered, except where the failure to own,
possess or license the same would not have a material adverse effect on the
Company and its subsidiaries taken as a whole. None of the Company or its
subsidiaries have received any notice of infringement, misappropriation or
conflict from any third party as to the material Rights which has not yet
been resolved or disposed of and none of the Company or its subsidiaries
have infringed, misappropriated or otherwise conflicted with the Rights of
any third parties, which infringement, misappropriation or conflict would
have a material adverse effect upon the condition (financial or otherwise)
or results of operations of the Company and its subsidiaries taken as a
whole.
(r) There are no agreements, leases or other documents of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement by
the Act or by the Regulations that have not been described or referred to
therein or filed as required.
(s) The Company and its subsidiaries have filed all necessary federal
and state income and franchise tax returns required to be filed through the
date hereof and have paid all taxes when due, except where the failure to
file or pay such taxes, in the aggregate, could not reasonably be expected
to have a material adverse effect on the Company and its subsidiaries taken
as a whole and there is no tax deficiency that has been, or to the
knowledge of the Company might be, asserted against the Company and its
subsidiaries, or their respective properties or assets, that would have a
material adverse effect on
4
<PAGE> 5
the Company's ability to perform its obligations under this Agreement, the
Company's condition (financial or other) or the results of operations of
the Company or its subsidiaries taken as a whole.
(t) The Company and each of its subsidiaries maintain a system of
internal accounting controls that, taken as a whole, are 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.
(u) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks in such
amounts as are prudent and customary in the businesses in which they are
engaged; neither the Company nor any of its subsidiaries has been refused
any insurance coverage sought or applied for; and neither the Company nor
any of its subsidiaries has any reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business.
(v) No labor disputes with the employees of the Company or its
subsidiaries exists or is threatened or imminent that could result in a
material adverse change that would affect the Company's ability to perform
its obligations under this Agreement, the Company's condition (financial or
other) or the results of operations of the Company and its subsidiaries
taken as a whole.
(w) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida), relating to doing
business with the Government of Cuba or any person or affiliate located in
Cuba.
2. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained,but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriters and the
Underwriters, severally and not jointly, agree to purchase from the
Company, at a purchase price per share of $ , the number of Firm
Shares set forth opposite the respective names of the Underwriters in
Schedule I hereto plus any additional number of Shares which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 9 hereof.
(b) Payment of the purchase price for, and delivery of certificates
for, the Shares shall be made at the office of Skadden, Arps, Slate,
Meagher & Flom, 919 Third Avenue, New York, New York 10022, or at such
other place as shall be agreed upon by you and the Company, at 10:00 A.M.
on the third or fourth business day (as permitted under Rule 15c6-1 under
the Exchange Act) (unless postponed in accordance with the provisions of
Section 9 hereof) following the date of the effectiveness of the
Registration Statement (or, if the Company has elected to rely upon Rule
430A of the Regulations, the third or fourth business day (as permitted
under Rule 15c6-1 under the Exchange Act) after the determination of the
initial public offering price of the Shares), or such other time not later
than ten business days after such date as shall be agreed upon by you and
the Company (such time and date of payment and delivery being herein called
the "Closing Date"). Payment shall be made to the Company by wire transfer
in same day funds, against delivery to you for the respective accounts of
the Underwriters of certificates for the Shares to be purchased by them.
Certificates for the Shares shall be registered in such name or names and
in such authorized denominations as you may request in writing at least two
full business days prior to the Closing Date. The Company will permit you
to examine and package such certificates for delivery at least one full
business day prior to the Closing Date.
(c) In addition, the Company hereby grants to the Underwriters the
option to purchase up to Additional Shares at the same purchase
price per share to be paid by the Underwriters to the Company for the Firm
Shares as set forth in this Section 2, for the sole purpose of covering
over-allotments in the sale of Firm Shares by the Underwriters. This option
may be exercised at any time, in
5
<PAGE> 6
whole or in part, on or before the thirtieth day following the date of the
Prospectus, by written notice by you to the Company. Such notice shall set
forth the aggregate number of Additional Shares as to which the option is
being exercised and the date and time, as reasonably determined by you,
when the Additional Shares are to be delivered (such date and time being
herein sometimes referred to as the "Additional Closing Date"); provided,
however, that the Additional Closing Date shall not be earlier than the
Closing Date or earlier than the second full business day after the date on
which the option shall have been exercised nor later than the eighth full
business day after the date on which the option shall have been exercised
(unless such time and date are postponed in accordance with the provisions
of Section 9 hereof). Certificates for the Additional Shares shall be
registered in such name or names and in such authorized denominations as
you may request in writing at least two full business days prior to the
Additional Closing Date. The Company will permit you to examine and package
such certificates for delivery at least one full business day prior to the
Additional Closing Date.
The number of Additional Shares to be sold to each Underwriter shall be the
number which bears the same ratio to the aggregate number of Additional Shares
being purchased as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto (or such number increased as set forth in
Section 9 hereof) bears to Firm Shares, subject, however, to such
adjustments to eliminate any fractional shares as you in your sole discretion
shall make.
Payment for the Additional Shares shall be made by wire transfer in same
day funds) at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third
Avenue, New York, New York 10022, or such other location as may be mutually
acceptable, upon delivery of the certificates for the Additional Shares to you
for the respective accounts of the Underwriters.
3. Offering. Upon your authorization of the release of the Firm Shares,
the Underwriters propose to offer the Shares for sale to the public upon the
terms set forth in the Prospectus.
4. Covenants of the Company. The Company covenants and agrees with the
Underwriters that:
(a) If the Registration Statement has not yet been declared effective
the Company will use its best efforts to cause the Registration Statement
and any amendments thereto to become effective as promptly as possible, and
if Rule 430A is used for the filing of the Prospectus is otherwise required
under Rule 424(b) or Rule 434, the Company will file the Prospectus
(properly completed if Rule 430A has been used) pursuant to Rule 424(b) or
Rule 434 within the prescribed time period and will provide evidence
satisfactory to you of such timely filing. If the Company elects to rely on
Rule 434, the Company will prepare and file a term sheet that complies with
the requirements of Rule 434.
The Company will notify you immediately (and, if requested by you,
will confirm such notice in writing) (i) when the Registration Statement
and any amendments thereto become effective, (ii) of any request by the
Commission for any amendment of or supplement to the Registration Statement
or the Prospectus or for any additional information, (iii) of the mailing
or the delivery to the Commission for filing of any amendment of or
supplement to the Registration Statement or the Prospectus, (iv) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or any post-effective amendment thereto or of
the initiation, or the threatening, of any proceedings therefor, (v) of the
receipt of any comments from the Commission, and (vi) of the receipt by the
Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the initiation
or threatening of any proceeding for that purpose. If the Commission shall
propose or enter a stop order at any time, the Company will make every
reasonable effort to prevent the issuance of any such stop order and, if
issued, to obtain the lifting of such order as soon as possible. The
Company will not file any amendment to the Registration Statement or any
amendment of or supplement to the Prospectus (including the prospectus
required to be filed pursuant to Rule 424(b) or Rule 434) that differs from
the prospectus on file at the time of the effectiveness of the Registration
Statement before or after the effective date of the Registration Statement
to which you shall reasonably object in writing after being timely
furnished in advance a copy thereof.
6
<PAGE> 7
(b) If at any time when a prospectus relating to the Shares is
required to be delivered under the Act any event shall have occurred as a
result of which the Prospectus as then amended or supplemented would, in
the judgment of the Underwriters or the Company include an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it shall be
necessary at any time to amend or supplement the Prospectus or Registration
Statement to comply with the Act or the Regulations, the Company will
notify you promptly and prepare and file with the Commission an appropriate
amendment or supplement (in form and substance satisfactory to you) which
will correct such statement or omission and will use its best efforts to
have any amendment to the Registration Statement declared effective as soon
as possible.
(c) The Company will promptly deliver to you two signed copies of the
Registration Statement, including exhibits and all amendments thereto, and
the Company will promptly deliver to each of the Underwriters such number
of copies of any preliminary prospectus, the Prospectus, the Registration
Statement, and all amendments of and supplements to such documents, if any,
as you may reasonably request.
(d) The Company will endeavor in good faith, in cooperation with you,
at or prior to the time of effectiveness of the Registration Statement, to
qualify the Shares for offering and sale under the securities laws relating
to the offering or sale of the Shares of such jurisdictions as you may
designate and to maintain such qualification in effect for so long as
required for the distribution thereof; except that in no event shall the
Company be obligated in connection therewith to qualify as a foreign
corporation or to execute a general consent to service of process.
(e) The company will make generally available (within the meaning of
Section 11(a) of the Act) to its security holders and to you as soon as
practicable, but not later than 45 days after the end of its fiscal quarter
in which the first anniversary date of the effective date of the
Registration Statement occurs, an earning statement (in form complying with
the provisions of Rule 158 of the Regulations) covering a period of at
least twelve consecutive months beginning after the effective date of the
Registration Statement.
(f) During the period of 180 days from the date of the Prospectus, the
Company will not, without your prior written consent, issue, sell, offer or
agree to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any Common Stock (or any securities convertible
into, exercisable for or exchangeable for Common Stock), and the Company
will obtain the undertaking of each of its officers and directors and such
of its shareholders as have been heretofore designated by you and listed on
Schedule II attached hereto not to engage in any of the aforementioned
transactions on their own behalf, other than (i) the Company's sale of
Shares hereunder, (ii) the Company's issuance of Common Stock upon the
exercise of presently outstanding stock options, (iii) grants of options to
purchase Common Stock or awards of restricted stock pursuant to option and
restricted stock plans in existence on the date hereof, provided such
options are not exercisable within such 180-day period, and (iv) the
pledges of shares of Common Stock by any such officers, directors or
stockholders provided that the pledgee agrees in writing to be bound by the
same restrictions in the event of foreclosure on the pledged shares.
(g) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its shareholders; and (ii) all reports, financial statements and
proxy or information statements filed by the Company with the Commission or
any national securities exchange.
(h) The Company will apply the proceeds from the sale of the Shares as
set forth under "Use of Proceeds" in the Prospectus.
(i) The Company will use its best efforts to cause the Shares to be
quoted on the National Association of Securities Dealers Automated
Quotation National Market System.
(j) The Company will file with the Commission such reports on Form SR
as may be required pursuant to Rule 463 of the Regulations.
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<PAGE> 8
5. Payment of Expense. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company hereunder, including those in connection with (i)
preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
exhibits thereto), and preliminary prospectus, the Prospectus and any amendments
or supplements thereto (including, without limitation, fees and expenses of the
Company's accountants and counsel), the underwriting documents (including this
Agreement and the Agreement Among Underwriters and the Selling Agreement) and
all other documents related to the public offering of the Shares (including
those supplied to the Underwriters in quantities as hereinabove stated), (ii)
the issuance, transfer and delivery of the Shares to the Underwriters, including
any transfer or other taxes payable thereon, (iii) the qualification of the
Shares under state or foreign securities or Blue Sky laws, including the costs
of printing and mailing a preliminary and final "Blue Sky Survey" and the fees
of counsel for the Underwriters and such counsel's disbursements in relation
thereto, (iv) quotation of the Shares on the National Association of Securities
Dealers Automated Quotation National Market System, (v) filing fees of the
Commission and the National Association of Securities Dealers, Inc., (vi) the
cost of printing certificates representing the Shares and (vii) the cost and
charges of any transfer agent or registrar.
6. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warranties of the Company herein contained, as of the date hereof and as of the
Closing Date (for purposes of this Section 6 "Closing Date" shall refer to the
Closing Date for the Firm Shares and any Additional Closing Date, if different,
for the Additional Shares), to the absence from any certificates, opinions,
written statements or letters furnished to you or to Skadden, Arps, Slate,
Meagher & Flom ("Underwriters' Counsel") pursuant to this Section 6 of any
misstatement or omission, to the performance by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., New York time, on the date of this Agreement, or at such
later time and date as shall have been consented to in writing by you; if
the Company shall have elected to rely upon Rule 430A or Rule 434 of the
Regulations, the Prospectus shall have been filed with the Commission in a
timely fashion in accordance with Section 4(a) hereof; and, at or prior to
the Closing Date no stop order suspending the effectiveness of the
Registration Statement or any post-effectiveness of the Registration
Statement or any post-effective amendment thereof shall have been issued
and no proceedings therefor shall have been initiated or threatened by the
Commission.
(b) At the Closing Date you shall have received the opinion of Wilson
Sonsini Goodrich & Rosati, counsel for the Company, dated the Closing Date
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation. Each of the Company
and its subsidiaries is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or location of
its properties (owned, leased or licensed) or the nature or conduct of
its business makes such qualification necessary, except for those
failures to be so qualified or in good standing which will not in the
aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole. Each of the Company and its subsidiaries
has all requisite corporate authority to own, lease and license its
respective properties and conduct its business as now being conducted as
described in the Registration Statement and the Prospectus. All of the
issued and outstanding capital stock of each subsidiary of the Company
has been duly and validly issued and is fully paid and nonassessable and
were not issued in violation of preemptive rights and, is owned directly
or indirectly by the Company, free and clear of any lien, encumbrance,
claim, security interest, restriction on transfer, shareholders'
agreement, voting trust or other defect of title whatsoever.
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<PAGE> 9
(ii) The Company has an authorized capital stock as set forth in
the Registration Statement and the Prospectus. All of the outstanding
shares of Common Stock are duly and validly authorized and issued, are
fully paid and nonassessable and were not issued in violation of or
subject to any preemptive rights. The Shares to be delivered on the
Closing Date have been duly and validly authorized and, when delivered
by the Company in accordance with this Agreement, will be duly and
validly issued, fully paid and nonassessable and will not have been
issued in violation of or subject to any preemptive rights. The Common
Stock, the Firm Shares and the Additional Shares conform to the
descriptions thereof contained in the Registration Statement and the
Prospectus.
(iii) The form of certificates for the Shares complies in all
material respects with the requirements of the Delaware General
Corporation Law and the Company's bylaws. The Shares to be sold under
this Agreement to the Underwriters are duly authorized for quotation, on
the National Association of Securities Dealers Automated Quotation
National Market System.
(iv) This Agreement has been duly and validly authorized, executed
and delivered by the Company.
(v) There is no litigation or governmental or other action, suit,
proceeding or investigation before any court or before or by any public,
regulatory or governmental agency or body pending or to the best of such
counsel's knowledge, threatened against, or involving the properties or
business of, the Company or any of its subsidiaries, which is of a
character required to be disclosed in the Registration Statement and the
Prospectus which has not been properly disclosed therein.
(vi) The execution, delivery, and performance of this Agreement and
the consummation of the transactions contemplated hereby by the Company
do not and will not (A) conflict with or result in a breach of any of
the terms and provisions of, or constitute a default (or an event which
with notice or lapse of time, or both, would constitute a default)
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, any agreement, instrument, franchise, license
or permit known to such counsel to which the Company or any of its
subsidiaries is a party or by which any of such corporations or their
respective properties or assets may be bound or (B) violate or conflict
with any provision of the certificate of incorporation or by-laws of the
Company or any of its subsidiaries, or, to the best knowledge of such
counsel, any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
respective properties or assets. No consent, approval, authorization,
order, registration, filing, qualification, license or permit of or with
any court or any public, governmental, or regulatory agency or body
having jurisdiction over the Company or any of its subsidiaries or any
of their respective properties or assets is required for the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, except for (1) such as may be required
under state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters (as to which such
counsel need express no opinion) and (2) such as have been made or
obtained under the Act.
(vii) The Registration Statement and the Prospectus and any
amendments thereof or supplements thereto (other than the financial
statements and schedules and other financial data included or
incorporated by reference therein, as to which no opinion need be
rendered) comply as to form in all material respects with the
requirements of the Act and the Regulations.
(viii) The Registration Statement is effective under the Act, and,
to the best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any post-effective
amendment thereof has been issued and no proceedings therefor have been
initiated or threatened by the Commission and all filings required by
Rule 424(b) of the Regulations have been made.
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<PAGE> 10
(ix) The descriptions in the Registration Statement and the
Prospectus of the provisions of the certificate of incorporation and
bylaws of the Company accurately reflect, in all material respects, such
provisions.
(x) The descriptions in the Registration Statement and the
Prospectus, as regards any part of the Registration Statement or the
Prospectus not purporting to be made on authority of an expert, of the
provisions of statutes, regulations, government proceedings, agreements
and contracts, if any, accurately reflect, in all material respects,
such provisions, and such counsel does not know of any statutes,
regulations or government proceedings required to be described or
referred to in the Registration Statement or Prospectus that are not
described or referred to therein.
(xi) To the knowledge of such counsel, neither the Company nor any
of its subsidiaries is in violation of its certificate of incorporation
or bylaws and neither the Company nor any of its subsidiaries is in
default under (and no event has occurred which with notice, lapse of
time or both would constitute a breach of or a default under) any
agreement, license, mortgage, deed of trust, loan or credit agreement,
indenture or instrument filed as an exhibit to the Registration
Statement, which violation or default would have a material adverse
effect on the Company and its subsidiaries taken as a whole.
(xii) To the knowledge of such counsel after due inquiry, there are
no agreements, contracts, leases or documents of a character required to
be described or referred to in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement by
the Act or by the Regulations that are not described or referred to
therein or filed as required.
(xiii) Neither the Company nor any of its subsidiaries is an
"investment company" or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940 and,
upon its receipts of any proceeds from the sale of the Shares, will no
become or be deemed to be an "investment company" thereunder.
(xiv) In addition, such opinion shall also contain a statement that
such counsel has participated in conferences with officers and
representatives of the Company, representatives of the independent
public accountants for the Company and the Underwriters at which the
contents and the Prospectus and related matters were discussed and, no
facts have come to the attention of such counsel which would lead such
counsel to believe that either the Registration Statement at the time it
became effective (including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to Rule
430A(b) or Rule 434, if applicable), or any amendment thereof made prior
to the Closing Date as of the date of such amendment, contained an
untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus as of its date (or any
amendment thereof or supplement thereto made prior to the Closing Date
as of the date of such amendment or supplement) and as of the Closing
Date contained or contains an untrue statement of a material fact or
omitted or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being
understood that such counsel need express no belief or opinion with
respect to the financial statements and schedules and other financial
data included or incorporated by reference therein).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States
and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon
an opinion or opinions (in form and substance reasonably satisfactory to
Underwriters' Counsel) of other counsel reasonably acceptable to
Underwriters' Counsel, familiar with the applicable laws; (B) as to matters
of fact, to the extent they deem proper, on certificates of responsible
officers of the Company and certificates or other written statements of
officers of departments of various jurisdictions having custody of
documents respecting the corporate existence or good standing of the
Company and its subsidiaries, provided that copies of any such statements
or certificates shall be delivered to Underwriters' Counsel. The opinion of
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<PAGE> 11
such counsel for the Company shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and, in their opinion, you
and they are justified in relying thereon.
(c) All proceedings taken in connection with the sale of the Firm
Shares and the Additional Shares as herein contemplated shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and
the Underwriters shall have received from said Underwriters' Counsel a
favorable opinion, dated as of the Closing Date with respect to the
issuance and sale of the Shares, the Registration Statement and the
Prospectus and such other related matters as you may reasonably require,
and the Company shall have furnished to Underwriters' Counsel such
documents as they request for the purpose of enabling them to pass upon
such matters.
(d) At the Closing Date you shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of the Company, dated
the Closing Date to the effect that (i) the condition set forth in
subsection (a) of this Section 6 has been satisfied, (ii) as of the date
hereof and as of the Closing Date the representations and warranties of the
Company set forth in Section 1 hereof are accurate, (iii) as of the Closing
Date the obligations of the Company to be performed hereunder on or prior
thereto have been duly performed and (iv) subsequent to the respective
dates as of which information is given in the Registration Statement and
the Prospectus, the Company and its subsidiaries have not sustained any
material loss or interference with their respective businesses or
properties from fire, flood, hurricane, accident or other calamity, whether
or not covered by insurance, or from any labor dispute or any legal or
governmental proceeding, and there has not been any material adverse
change, or any development involving a material adverse change, in the
business prospects, properties, operations, condition (financial or
otherwise), or results of operations of the Company and its subsidiaries
taken as a whole, except in each case as described in or contemplated by
the Prospectus.
(e) At the time this Agreement is executed and at the Closing Date,
you shall have received a letter, from Ernst & Young LLP, independent
public accountants for the Company, dated, respectively, as of the date of
this Agreement and as of the Closing Date addressed to the Underwriters and
in form and substance satisfactory to you, to the effect that: (i) they are
independent certified public accountants with respect to the Company within
the meaning of the Act and the Regulations and stating that the answer to
Item 10 of the Registration Statement is correct insofar as it relates to
them; (ii) stating that, in their opinion, the financial statements and
schedules of the Company included in the Registration Statement and the
Prospectus and covered by their opinion therein comply as to form in all
material respects with the applicable accounting requirements of the Act
and the applicable published rules and regulations of the Commission
thereunder; (iii) on the basis of procedures consisting of a reading of the
latest available unaudited interim consolidated financial statements of the
Company, and its subsidiaries, a reading of the minutes of meetings and
consents of the shareholders and boards of directors of the Company and its
subsidiaries and the committees of such boards subsequent to March 31,
1996, inquiries of officers and other employees of the Company and its
subsidiaries who have responsibility for financial and accounting matters
of the Company and its subsidiaries with respect to transactions and events
subsequent to March 31, 1996 and other specified procedures and inquiries
to a date not more than five days prior to the date of such letter, nothing
has come to their attention that would cause them to believe that: (A) the
unaudited consolidated financial statements and schedules of the Company
presented in the Registration Statement and the Prospectus do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and, if applicable, the Exchange Act and the
applicable published rules and regulations of the Commission thereunder or
that such unaudited consolidated financial statements are not fairly
presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
consolidated financial statements included in the Registration Statement
and the Prospectus; (B) with respect to the period subsequent to June 30,
1996 there were, as of the date of the most recent available monthly
consolidated financial statements of the Company and its subsidiaries, if
any, and as of a specified date not more than five days prior to the date
of such letter, any changes in the capital stock or long-term indebtedness
of the Company or any decrease in the net current assets or stockholders'
equity of the Company, in each case as compared with the amounts shown in
the most recent balance sheet presented in the Registration
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<PAGE> 12
Statement and the Prospectus, except for changes or decreases which the
Registration Statement and the Prospectus disclose have occurred or may
occur or which are set forth in such letter or (C) that during the period
from June 30, 1996 to the date of the most recent available monthly
consolidated financial statements of the Company and its subsidiaries, if
any, and to a specified date not more than five days prior to the date of
such letter, there was any decrease, as compared with the corresponding
period in the prior fiscal year, in total revenues, or total or per share
net income, except for decreases which the Registration Statement and the
Prospectus disclose have occurred or may occur or which are set forth in
such letter; and (iv) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings, and other
financial information pertaining to the Company and its subsidiaries set
forth in the Registration Statement and the Prospectus, which have been
specified by you prior to the date of this Agreement, to the extent that
such amounts, numbers, percentages, and information may be derived from the
general accounting and financial records of the Company and its
subsidiaries or from schedules furnished by the Company, and excluding any
questions requiring an interpretation by legal counsel, with the results
obtained from the application of specified readings, inquiries, and other
appropriate procedures specified by you set forth in such letter, and found
them to be in agreement.
(f) Prior to the Closing Date the Company shall have furnished to you
such further information, certificates and documents as you may reasonably
request.
(g) You shall have received from each person who is a director or
officer of the Company or such shareholder as have been heretofore
designated by you and listed on Schedule II hereto an agreement to the
effect that such person will not, directly or indirectly, without your
prior written consent, offer, sell, offer or agree to sell, grant any
option to purchase or otherwise dispose (or announce any offer, sale, grant
of an option to purchase or other disposition) of any shares of Common
Stock (or any securities convertible into, exercisable for or exchangeable
or exercisable for shares of Common Stock) for a period of 180 days after
the date of the Prospectus other than the pledge of shares of Common Stock
by any such director, officer or shareholder listed on Schedule II,
provided that the pledgee agrees in writing to be bound by such
restrictions in the event of foreclosure on the pledged shares.
(h) At the effective date of the Registration Statement, the Shares
shall have been approved for quotation on the National Association of
Securities Dealers Automated Quotation National Market System.
If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as required by this Agreement, or if any of the certificates,
opinions, written statements or letters furnished to you or to Underwriters'
Counsel pursuant to this Section 6 shall not be in all material respects
reasonably satisfactory in form and substance to you and to Underwriters'
Counsel, all obligations of the Underwriters hereunder may be cancelled by you
at, or at any time prior to, the Closing Date and the obligations of the
Underwriters to purchase the Additional Shares may be cancelled by you at, or at
any time prior to, the Additional Closing Date. Notice of such cancellation
shall be given to the Company in writing, or by telephone, telex or telegraph,
confirmed in writing.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), against any and all losses,
liabilities, claims, damages and expenses whatsoever as incurred (including
but not limited to attorneys' fees and any and all expenses whatsoever
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts
paid in settlement of any claim or litigation), joint or several, to which
they or any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement for the registration of the Shares, as originally
filed or any amendment thereof, or any related preliminary prospectus or
the
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Prospectus, or in any supplement thereto or amendment thereof, 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; provided, however, that the Company will
not be liable in any such case to the extent but only to the extent that
any such loss, liability, claim, damage or expense arises out of or is
based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of any Underwriter through you expressly for use therein. This
indemnity agreement will be in addition to any liability which the Company
may otherwise have including under this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each of the directors of the Company, each
of the officers of the Company who shall have signed the Registration
Statement, and each other person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against any losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to attorneys' fees and any and all
expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever,
and any and all amounts paid in settlement of any claim or litigation),
jointly or several, to which they or any of them may become subject under
the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for
the registration of the Shares, as originally filed or any amendment
thereof, or any related preliminary prospectus or the Prospectus, or in any
amendment thereof 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 any
such loss, liability, claim, damage or expense arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any
Underwriter through you expressly for use therein; provided, however, that
in no case shall any Underwriter be liable or responsible for any amount in
excess of the underwriting discount applicable to the Shares purchased by
such Underwriter hereunder. This indemnity will be in addition to any
liability which any Underwriter may otherwise have including under this
Agreement. The Company acknowledges that the statements set forth in the
last paragraph of the cover page and in the paragraphs under the
caption "Underwriting" in the Prospectus constitute the only information
furnished in writing by or on behalf of any Underwriter expressly for use
in the registration statement relating to the Shares as originally filed or
in any amendment thereof, any related preliminary prospectus or the
Prospectus or in any amendment thereof or supplement thereto, as the case
may be.
(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 each party
against whom indemnification is to be sought in writing of the commencement
thereof (but the failure so to notify an indemnifying party shall not
relieve it from any liability which it may have under this Section 7). In
case any such action is brought against any indemnified party, and it
notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the
extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof with counsel satisfactory to such indemnified
party. Notwithstanding the foregoing, the indemnified party or parties
shall have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel
shall have been authorized in writing by one of the indemnifying parties in
connection with the defense of such action, (ii) the indemnifying parties
shall not have employed counsel to have charge of the defense of such
action within a reasonable time after notice of commencement of the action,
or (iii) such indemnified party or parties shall have reasonably concluded
that there may be defenses available to it or them which are different
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<PAGE> 14
from or additional to those available to one or all of the indemnifying
parties (in which case the indemnifying parties shall not have the right to
direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses shall be borne by
the indemnifying parties. Anything in this subsection to the contrary
notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent was not unreasonably withheld.
8. Contribution. In order to provide for contribution in circumstances in
which the indemnification provided for in Section 7 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified thereunder, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, liabilities and expenses of
the nature contemplated by such indemnification provision (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company any contribution received by
the Company from persons, other than the Underwriters, who may also be liable
for contribution, including persons who control the Company within the meaning
of Section 15 of the Act of Section 20(a) of the Exchange Act, officers of the
Company who signed the Registration Statement and directors of the Company) as
incurred to which the Company and one or more of the Underwriters may be
subject, in such proportions as is appropriate to reflect the relative benefits
received by the Company and the Underwriters from the offering of the Shares or,
if such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Company and the Underwriters in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Underwriters shall be deemed to be in the same proportion
as (x) the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company and (y) the
underwriting discounts and commissions received by the Underwriters,
respectively, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company and of the Underwriters 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 or the
Underwriters 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
contribution pursuant to this Section 8 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. Notwithstanding the provisions of this Section
8, (i) in no case shall any Underwriter be liable or responsible for any amount
in excess of the underwriting discount applicable to the Shares purchased by
such Underwriter hereunder, and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding the provisions of this Section 8 and the
preceding sentence, 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 that such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. For purposes of this Section 8, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20 (a) of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20 (a) of the Exchange Act, each officer of the Company
who shall have signed the Registration Statement and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to clauses (i) and (ii) of this Section 8. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties, notify each party or
parties from whom contribution may be sought, but the omission to so notify such
party or parties shall not
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relieve the party or parties from whom contribution may be sought from any
obligation it or they may have under this Section 8 or otherwise. No party shall
be liable for contribution with respect to any action or claim settled without
its consent; provided, however, that such consent was not unreasonably withheld.
9. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares or Additional Shares hereunder, and if
the Firm Shares or Additional Shares with respect to which such default
relates do not (after giving effect to arrangements, if any, made by you
pursuant to subsection (b) below) exceed in the aggregate 10% of the number
of Firm Shares or Additional Shares, to which the default relates shall be
purchased by the non-defaulting Underwriters in proportion to the
respective proportions which the numbers of Firm Shares set forth opposite
their respective names in Schedule I hereto bear to the aggregate number of
Firm Shares set forth opposite the names of the non-defaulting
Underwriters.
(b) In the event that such default relates to more than 10% of the
Firm Shares or Additional Shares, as the case may be, you may in your
discretion arrange for yourself or for another party or parties (including
any non-defaulting Underwriter or Underwriters who so agree) to purchase
such Firm Shares or Additional Shares, as the case may be, to which such
default relates on the terms contained herein. In the event that within 5
calendar days after such a default you do not arrange for the purchase of
the Firm Shares or Additional Shares, as the case may be, to which such
default relates as provided in this Section 9, this Agreement or, in the
case of a default with respect to the Additional Shares, the obligations of
the Underwriters to purchase and of the Company to sell the Additional
Shares shall thereupon terminate, without liability on the part of the
Company with respect thereto (except in each case as provided in Section 5,
7(a) and 8 hereof) or the Underwriters, but nothing in this Agreement shall
relieve a defaulting Underwriter or Underwriters of its or their liability,
if any, to the other Underwriters and the Company for damages occasioned by
its or their default hereunder.
(c) In the event that the Firm Shares or Additional Shares to which
the default relates are to be purchased by the non-defaulting Underwriters,
or are to be purchased by another party or parties as aforesaid, you or the
Company shall have the right to postpone the Closing Date or Additional
Closing Date, as the case may be for a period, not exceeding five business
days, in order to effect whatever changes may thereby be made necessary in
the Registration Statement or the Prospectus or in any other documents and
arrangements, and the Company agrees to file promptly any amendment or
supplement to the Registration Statement or the Prospectus which, in the
opinion of Underwriters' Counsel, may thereby be made necessary or
advisable. The term "Underwriter" as used in this Agreement shall include
any party substituted under this Section 9 with like effect as if it had
originally been a party to this Agreement with respect to such Firm Shares
and Additional Shares.
10. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Underwriters and the Company
contained in this Agreement, including the agreements contained in Section 5,
the indemnity agreements contained in Section 7 and the contribution agreements
contained in Section 8, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter or any
controlling person thereof or by or on behalf of the Company, any of its
officers and directors or any controlling person thereof, and shall survive
delivery of and payment for the Shares to and by the Underwriters. The
representations contained in Section 1 and the agreements contained in Sections
5, 7, 8 and 11(d) hereof shall survive the termination of this Agreement,
including termination pursuant to Section 9 or 11 hereof.
11. Effective Date of Agreement: Termination.
(a) This Agreement shall become effective, upon the later of when (i)
you and the Company shall have received notification of the effectiveness
of the Registration Statement or (ii) the execution of this Agreement. If
either the initial public offering price or the purchase price per Share
has not been agreed upon prior to 5:00 P.M., New York time, on the fifth
full business day after the Registration Statement shall have become
effective, this Agreement shall thereupon terminate without liability to
the Company
15
<PAGE> 16
or the Underwriters except as herein expressly provided. Until this
Agreement becomes effective as aforesaid, it may be terminated by the
Company by notifying you or by you notifying the Company. Notwithstanding
the foregoing, the provisions of this Section 11 and of Sections 1, 5, 7
and 8 hereof shall at all times be in full force and effect.
(b) You shall have the right to terminate this Agreement at any time
prior to the Closing Date or the obligations of the Underwriters to
purchase the Additional Shares at any time prior to the Additional Closing
Date, as the case may be, if (A) any domestic or international event or act
or occurrence has materially disrupted, or in your opinion will in the
immediate future materially disrupt, the market for the Company's
securities or securities in general; or (B) if trading on the New York or
American Stock Exchanges shall have been suspended, or minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required, on the New York or American Stock
Exchanges by the New York or American Stock Exchanges or by order of the
Commission or any other governmental authority having jurisdiction; or (C)
if a banking moratorium has been declared by a state or federal authority
or if any new restriction materially adversely affecting the distribution
of the Firm Shares or the Additional Shares, as the case may be, shall have
become effective; or E (i) if the United States becomes engaged in
hostilities or there is an escalation of hostilities involving the United
States or there is a declaration of a national emergency or war by the
United States or (ii) if there shall have been such change in political,
financial or economic conditions if the effect of any such event in (i) or
(ii) as in your judgment makes it impracticable or inadvisable to proceed
with the offering, sale and delivery of the Firm Shares or the Additional
Shares, as the case may be, on the terms contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 11 shall be by
telephone, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or
if the sale of the Shares provided for herein is not consummated because
any condition to the obligations of the Underwriters set forth herein is
not satisfied or because of any refusal, inability or failure on the part
of the Company to perform any agreement herein or comply with any provision
hereof, the Company will, subject to demand by you, reimburse the
Underwriters for all out-of-pocket expenses (including the fees and
expenses of their counsel), incurred by the Underwriters in connection
herewith.
12. Notice. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245 Park Avenue,
New York, N.Y. 10167, Attention: Dennis A. Bovin and Michael J. Urfirer; if sent
to the Company, shall be mailed, delivered, or telegraphed and confirmed in
writing to the Company, 11975 El Camino Real, San Diego, California 92130,
Attention: Lee H. Stein.
13. Parties. This Agreement shall insure solely to the benefit of, and
shall be binding upon, the Underwriters and the Company and the controlling
persons, directors, officers, employees and agents referred to in Sections 7 and
8, and their respective successors and assigns, and no other person shall have
or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision herein contained.
The term "successors and assigns" shall not include a purchaser, in its capacity
as such, of Shares from any of the Underwriters.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, but without regard to
principles of conflicts of law.
16
<PAGE> 17
If the foregoing correctly sets forth the understanding between you and the
Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
FIRST VIRTUAL HOLDINGS INCORPORATED
By
Accepted as of the date first above
written
BEAR, STEARNS & CO. INC.
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By
On behalf of themselves and the other
Underwriters named in Schedule I hereto.
17
<PAGE> 18
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
NAME OF UNDERWRITER TO BE PURCHASED
- ------------------------------------------------------------------------- ---------------------
<S> <C>
Bear, Stearns & Co., Inc.................................................
Cowen & Company..........................................................
Lehman Brothers..........................................................
Total..........................................................
---------
=========
</TABLE>
18
<PAGE> 19
SCHEDULE II
[NAMES OF SHAREHOLDERS SUBJECT TO THE LOCK-UP PROVISION]
19
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
FIRST VIRTUAL HOLDINGS INCORPORATED
FIRST VIRTUAL HOLDINGS INCORPORATED, a Delaware corporation (hereinafter
referred to as the "CORPORATION"), hereby adopts this Amended and Restated
Certificate of Incorporation pursuant to the provisions of Sections 228, 242
and 245 of the General Corporation Law of the State of Delaware.
FIRST: The name of the Corporation is First Virtual Holdings Incorporated.
The original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on January 12, 1996.
SECOND: The amendments and additions made by this Amended and Restated
Certificate of Incorporation have been duly authorized and proposed by the
board of directors (the "BOARD OF DIRECTORS") of the Corporation, and have been
approved by the stockholders of the Corporation, in conformity with the
provisions of the General Corporation Law of Delaware.
THIRD: The Certificate of Incorporation of the Corporation and all
amendments and supplements thereto are hereby superseded by the following
Amended and Restated Certificate of Incorporation.
ARTICLE ONE
The name of this corporation is First Virtual Holdings Incorporated.
ARTICLE TWO
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, Wilmington, Delaware 19805, New Castle County. The name
of its registered agent at such address is The Prentice-Hall Corporation
System, Inc.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
<PAGE> 2
ARTICLE FOUR
This Corporation is authorized to issue two classes of shares to be
designated respectively Common Stock and Preferred Stock. The total number of
shares of Common Stock this Corporation (the "COMMON STOCK") shall have
authority to issue is 40,000,000 shares, and shall have a par value of $0.001
per share, and the total number of shares of Preferred Stock this Corporation
(the "PREFERRED STOCK") shall have authority to issue is 3,601,447 shares, and
shall have a par value of $0.001 per share. The Preferred Stock shall be
divided into four series, namely, Series A Preferred Stock (the "SERIES A
PREFERRED STOCK"), which shall consist of 1,545,816 shares, Series B Preferred
Stock (the "SERIES B PREFERRED STOCK") which shall consist of 1,724,679 shares,
Series C Preferred Stock (the "SERIES C PREFERRED STOCK") which shall consist
of 130,952 shares and Series D Preferred Stock (the "SERIES D PREFERRED STOCK")
which shall consist of 200,000 shares.
The Corporation shall from time to time in accordance with the laws of the
State of Delaware increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit conversion of the Preferred Stock.
The order of reference to the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock in the provisions
of this ARTICLE FOUR shall have no bearing on the relative rights, preferences
and restrictions of the individual series of Preferred Stock.
1. Dividend Preferences.
The holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock shall be entitled to receive, out
of funds legally available therefor, dividends on each outstanding share of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock, payable in preference and priority to any payment
of any dividend on the Common Stock, when, as and if declared by the Board of
Directors. The right to such dividends shall not be cumulative, and no right
shall accrue to holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock by reason of the fact
that dividends on such shares are not declared or paid in any prior year, nor
shall any undeclared or unpaid dividends bear or accrue interest. Dividends
may be delivered and paid on the Common Stock in any fiscal year of the
corporation only if dividends are paid with respect to all outstanding shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock equal to at least $0.162 per share, $0.32 per
share, $1.50 per share and $1.50 per share, respectively. No dividend may be
paid on any series of Preferred Stock unless the same percentage of the
respective dividend preference is also paid on each other series of Preferred
Stock. No shares of Common Stock shall receive any dividend at any rate which
is greater than the rate at which dividends are simultaneously paid in respect
of the respective series of Preferred Stock.
-2-
<PAGE> 3
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
this Corporation, either voluntary or involuntary, in which the aggregate value
of all assets, cash and property to be distributed to all shareholders does not
exceed $100,000,000, distributions to the shareholders of this Corporation
shall be made in the following manner:
(i) The holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets, cash or property of this Corporation to holders of the Common Stock,
the amount of $1.76 per share (the "SERIES A LIQUIDATION PRICE"), $3.189 per
share (the "SERIES B LIQUIDATION PRICE"), $19.00 per share (the "SERIES C
LIQUIDATION PRICE") and $19.00 per share (the "SERIES D LIQUIDATION PRICE"),
respectively, plus any declared but unpaid dividends. If upon occurrence of
such event the assets, cash and property thus distributed to the holders of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock shall be insufficient to permit the payment to
such holders of the full preferential amount, then the entire amount of assets,
cash or other property of this Corporation legally available for distribution
shall be distributed among the holders of the Preferred Stock pro rata in
proportion to the product obtained by multiplying, in the case of Series A
Preferred Stock, the number of shares of Series A Preferred Stock held by each
such holder by the Series A Liquidation Price, in the case of Series B
Preferred Stock, the number of shares of Series B Preferred Stock held by each
such holder by the Series B Liquidation Price, in the case of the Series C
Preferred Stock, the number of shares of Series C Preferred Stock held by each
such holder by the Series C Liquidation Price and in the case of the Series D
Preferred Stock, the number of shares of Series D Preferred Stock held by each
such holder by the Series D Liquidation Price.
(ii) After payment has been made to the holders of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock of the amounts to which they shall be entitled as set
forth above, the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Common Stock shall be
entitled to receive an amount of the remaining assets, cash and other property
of the Corporation equal to the amount obtained by multiplying the amount of
the remaining assets, cash and other property of the Corporation by a fraction,
the numerator of which shall be the sum of the number of shares of Common Stock
then held by the holder and the number of shares of Common Stock issuable upon
conversion of the shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock then held by the holder,
and the denominator of which shall be the sum of the total number of shares of
Common Stock then outstanding and the total number of shares of Common Stock
issuable upon conversion of the total number of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock.
(b) In the event of any liquidation, dissolution or winding up of
this Corporation, either voluntary or involuntary, in which the aggregate value
of all assets, cash and
-3-
<PAGE> 4
other property distributed to all shareholders is greater than $100,000,000,
the entire amount of assets, cash and other property of the Corporation
legally available for distribution shall be distributed to the holders of
Common Stock in a manner such that the amount distributed to each holder of
Common Stock shall equal the amount obtained by multiplying the entire assets
and funds of the Corporation legally available for distribution hereunder by a
fraction, the numerator of which shall be the number of shares of Common Stock
then held by each such holder, and the denominator of which shall be the total
number of shares of Common Stock then outstanding.
(c) Shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock shall not be entitled to
be converted into shares of Common Stock in order to participate in any
distribution, or series of distributions, as shares of Common Stock, without
first foregoing participation in the distribution, or series of distributions,
as shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock, as the case may be.
(d) For purposes of this Section 2, a liquidation, distribution or
winding up of this Corporation shall be deemed to occur upon the sale of all or
substantially all of the Corporation's assets or the acquisition of this
Corporation by another person or entity by means of merger, consolidation or
any other transaction or series of related transactions resulting in the
exchange or sale of the outstanding shares of this Corporation or newly issued
shares of this Corporation for securities or other consideration issued or
caused to be issued by the acquiror(s) as a result of which shareholders of
this Corporation own less than 50% of the equity securities of the surviving
Corporation or entity; provided, however, that no acquisition by First USA
Merchant Services, Inc., General Electric Capital Corporation ("GECC"), First
Data Corporation ("FDC"), VISA International Merchant Association (VISA) or any
affiliate of First USA Merchant Services, Inc., GECC, FDC or VISA of this
Corporation or of any shares or assets of this Corporation shall be deemed a
liquidation, distribution or winding up of this Corporation.
(e) The value of assets and property other than cash to be distributed
to holders of this Corporation's stock shall be deemed to be the value as
reasonably determined by the Board of Directors of this Corporation.
(f) Each holder of an outstanding share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
shall be deemed to have consented to distributions made by the Corporation in
connection with the repurchase, at the initial purchase price thereof, or at
any such other price as may be contractually required pursuant to agreements
entered into on or around the time of issuance thereof, of shares of Common
Stock issued to or held by employees or consultants upon termination of their
employment or services pursuant to the agreements providing for the right of
such repurchase between the Corporation and such persons.
3. Conversion Rights. The holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock shall
have conversion rights as follows (the "CONVERSION RIGHTS"):
-4-
<PAGE> 5
(a) Right to Convert. Each share of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock shall
be convertible, without the payment of any additional consideration by the
holder thereof and at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of the Corporation or any
transfer agent for the Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $1.76 in the
case of the Series A Preferred (the "SERIES A ORIGINAL ISSUE PRICE"), $3.189 in
the case of the Series B Preferred (the "SERIES B ORIGINAL ISSUE PRICE"),
$15.00 in the case of the Series C Preferred (the "SERIES C ORIGINAL ISSUE
PRICE") or $15.00 in the case of the Series D Preferred (the "SERIES D ORIGINAL
ISSUE PRICE"), by the applicable Conversion Price, determined as hereinafter
provided and as in effect at the time of conversion. The Conversion Price at
which shares of Common Stock shall be deliverable upon conversion of the Series
A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock
and the Series D Preferred Stock shall initially be equal to the Series A
Original Issue Price, the Series B Original Issue Price, the Series C Original
Issue Price and the Series D Original Issue Price, respectively. The initial
Conversion Prices shall be subject to adjustment as hereinafter provided.
(b) Automatic Conversion.
(i) Initial Public Offering. Each share of Preferred
Stock shall automatically be converted into shares of Common Stock at the then
effective Conversion Price upon the closing ("CLOSING") of a firm commitment
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 to the public at an offering
price to the public of at least $10.50 per share (as adjusted for stock splits,
stock dividends, reclassifications, and like events) and in which the aggregate
gross proceeds received by the corporation (net of underwriting discounts)
equal or exceed $10,000,000. In the event of such an offering, the person(s)
entitled to receive the Common Stock issuable upon such conversion of the
Preferred Stock shall not be deemed to have converted that Preferred Stock
until immediately prior to the Closing and immediately after any adjustment in
the Conversion Price of such Preferred Stock pursuant to subsection 3(d)(iv)
hereof resulting from such offering.
(ii) Election of Holders of Preferred Stock. Each share
of Series A Preferred Stock and Series B Preferred Stock shall automatically be
converted into shares of Common Stock at the then effective Conversion Price
for such series of Preferred Stock upon the affirmative election of the holders
of not less than a majority of the then outstanding shares of Series A
Preferred Stock and Series B Preferred Stock. Each share of Series C Preferred
Stock shall be automatically converted into shares of Common Stock at the then
effective Series C Conversion Price upon the affirmative election of not less
than a majority of the then outstanding shares of Series C Preferred Stock.
Each share of Series D Preferred Stock shall be automatically converted into
shares of Common Stock at the then effective Series D Conversion Price upon the
affirmative election of not less than a majority of the then outstanding shares
of Series D Preferred Stock. In the event of any such election, the person(s)
entitled to receive the Common Stock
-5-
<PAGE> 6
issuable upon such conversion of the Preferred Stock shall not be deemed to
have converted such Preferred Stock until the election (duly approved by not
less than a majority of the shares of Preferred Stock then outstanding) is
received by the Corporation.
(c) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of the Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation at its election shall either pay cash equal to such fraction
multiplied by the then effective Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price or Series D Conversion Price, as the case may
be, or issue one whole share for each fraction of a share outstanding, after
aggregating all fractional shares held by each shareholder; provided, however,
that if the amount of the cash payment in lieu of fractional shares exceeds the
amount of $10,000, the holder shall be entitled to require the Corporation to
issue the whole share in lieu of the cash payment. Before any holder of
Preferred Stock shall be entitled to convert the same into full shares of
Common Stock, pursuant to Section 2(a) hereof, he shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Preferred Stock, and shall give
written notice to the Corporation at such office that he elects to convert the
same and shall state therein his name or the name or names of his nominees in
which he wishes the certificate or certificates for shares of Common Stock to
be issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock, or to his nominee or
nominees, a certificate or certificates for the number of shares of Common
Stock to which he shall be entitled as aforesaid, together with cash in lieu of
any fraction of a share. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Preferred Stock to be converted, and the person or persons entitled
to receive the shares of Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on such date.
(d) Adjustments to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this subsection
3(d), the following definitions shall apply:
(1) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(2) "Original Issuance Date" shall mean the date of
filing of this Amended and Restated Certificate of Incorporation with the
Secretary of State of the State of Delaware;
(3) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities convertible into or exchangeable for
Common Stock or Convertible Securities.
-6-
<PAGE> 7
(4) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 3(d)(iii), deemed to be
issued) by the Corporation after the date hereof, other than the following:
(A) shares issuable upon conversion of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock;
(B) shares issued as a pro rata dividend or
distribution on Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock or as a result of any event for
which adjustment is made pursuant to subparagraph (d)(vi) hereof;
(C) shares, and options to purchase shares, issued or
issuable to officers, directors and employees of, and consultants to, the
Corporation in a manner determined by the Board of Directors and in an amount
not to exceed 1,962,025 shares (as adjusted for stock splits, stock dividends,
recapitalizations and similar events) at any time outstanding;
(D) shares issuable upon exercise of options or
warrants to purchase shares of Series A Preferred Stock, Series B Preferred
Stock and Common Stock of the Corporation issued to First USA Merchant
Services, Inc., National Direct Marketing, Inc., Lee H. Stein, Tawfiq N.
Khoury, Jon Rubin, Nathaniel Boreinstein and Marshall Rose and outstanding as
of the date hereof;
(E) shares issuable upon exercise of warrants to
purchase up to 50,000 shares issued to General Electric Capital Corporation;
(F) up to 2,500,000 shares, and warrants to purchase
any portion of such shares, issued or issuable to First Data Corporation, VISA
International Service Association or other entities, in connection with
marketing relationships entered into with such entities; and
(G) shares issued by way of dividend or other
distribution on shares of Common Stock excluded from the definition of
Additional Shares of Common by the foregoing clause(s) (A), (B), (C), (D), (E),
(F) or this clause (G), provided such dividends or distributions are made pro
rata to all shares of Common Stock.
(ii) No Adjustment of Conversion Price. Notwithstanding
anything to the contrary, no adjustment in the number of shares of Common Stock
into which a particular share of Preferred Share is convertible shall be made,
by adjustment in the Conversion Price of such share in respect of the issuance
of Additional Shares of Common Stock or otherwise,
-7-
<PAGE> 8
unless the consideration per share for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the Conversion
Price applicable to such share in effect on the date of, and immediately prior
to, the issue of such Additional Shares of Common Stock.
(iii) Deemed Issuances of Additional Shares of Common.
(1) Options and Convertible Securities. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date
for the determination of holders of any class of securities entitled to receive
any such Options or Convertible Securities, then the maximum number of shares
(as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common
issued as of the time of such issue or, in the case such a record date shall
have been fixed, as of the close of business on such record date, provided that
Additional Shares of Common shall not be deemed to have been issued with
respect to an adjustment of the Conversion Price for the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock unless the consideration per share (determined pursuant to subsection
3(d)(vi) hereof) of such Additional Shares of Common would be less than the
Conversion Price of the Series A Preferred Stock, the Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock, as the case may be, in
effect on the date of and immediately prior to such issue, or such record date,
as the case may be, and provided further that in any such case in which
Additional Shares of Common are deemed to be issued:
(A) no further adjustment in the applicable
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or decrease or
increase in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange
under such Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the applicable Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto) and any subsequent adjustments based thereon shall, upon such
expiration, be recomputed as if:
-8-
<PAGE> 9
(a) in the case of Convertible Securities or
Options for Common Stock the only Additional Shares of Common issued were the
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of such exercised Options plus the consideration
actually received by the Corporation upon such exercise or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus
the additional consideration, if any, actually received by the Corporation upon
such conversion or exchange, and
(b) in the case of Options for Convertible
Securities only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
deemed to have been then issued was the consideration actually received by the
Corporation for the issue of such exercised Options, plus the consideration
deemed to have been received by the Corporation (determined pursuant to
subsection 3(d)(vi)) upon the issue of the Convertible Securities with respect
to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C)
above shall have the effect of increasing any Conversion Price to an amount
which exceeds the lower of (i) such Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any issuance
of Additional Shares of Common Stock between the original adjustment date and
such readjustment date;
(E) in the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options issued on the same date, whereupon such adjustment shall be made in the
same manner provided in clause (C) above; and
(F) if such record date shall have been fixed and
such Options or Convertible Securities are not issued on the date fixed
therefor, the adjustment previously made in the Conversion Price which became
effective on such record date shall be canceled as of the close of business on
such record date, and thereafter the Conversion Price shall be adjusted
pursuant to this subsection 3(d)(iii) as of the actual date of their issuance.
(2) Stock Dividends, Stock Distributions and
Subdivisions. In the event the Corporation at any time or from time to time
after the Original Issue Date shall declare or pay any dividend or make any
other distribution on the Common Stock payable in Common Stock, or effect a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock), then and in any such
event, Additional Shares of Common shall be deemed to have been issued:
(A) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend or distribution, or
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(B) in the case of any such subdivision, at the close
of business on the date immediately prior to the date upon which such corporate
action becomes effective.
If such record date shall have been fixed and such
dividend shall not have been paid on the date fixed therefor, the adjustment
previously made in any Conversion Price which became effective on such record
date shall be canceled as of the close of business on such record date, and
thereafter such Conversion Price shall be adjusted pursuant to this subsection
3(d)(iii) as of the time of actual payment of such dividend.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common.
(1) In the event the Corporation at any time or from
time to time after the Original Issue Date shall issue Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to subsection 3(d)(iii), but excluding Additional Shares of Common
Stock issued pursuant to subsection 3(d)(iii)(2), which event is dealt with in
subsection 3(f) hereof), without consideration or for a consideration per share
less than the Conversion Price of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock or the Series D Preferred Stock,
as the case may be, in effect on the date of and immediately prior to such
issue, then and in such event, such Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
which, except as provided in Sections 3(d)(iv)(2) and 3(d)(iv)(3), shall be
determined by multiplying such Conversion Price by a fraction (x) the numerator
of which shall be (1) the number of shares of Common Stock outstanding
immediately prior to such issue, plus (2) the number of shares of Common Stock
which the aggregate consideration received by the Corporation for the total
number of Additional Shares of Common Stock so issued would purchase at such
Conversion Price, and (y) the denominator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to such issue plus (2) the
number of such Additional Shares of Common Stock so issued, provided that for
purposes of this subsection (iv) all shares of Common Stock issuable upon
conversion or exchange of then outstanding shares of Preferred Stock shall be
deemed to be outstanding, and such Conversion Price shall not be so reduced at
such time if the amount of such reduction would be an amount less than $0.01,
but any such amount shall be carried forward and reduction with respect thereto
made at the time of and together with any subsequent reduction which, together
with such amount and any other amount or amounts so carried forward, shall
aggregate $0.01 or more.
(2) Notwithstanding the provisions of paragraph
3(d)(iv)(1), in the event that this Corporation shall issue and sell shares of
its Common Stock in an initial public stock offering registered under the
Securities Act of 1933, as amended, for a consideration per share (the "IPO
SHARE PRICE") less than $10.50 (as adjusted for stock splits and similar
events), then and in such event, the Series C Conversion Price shall be reduced,
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concurrently with such issue, to the Series C Conversion Price then in effect
multiplied by a fraction, the numerator of which is 130,952 and the denominator
of which is the difference between (A) the number obtained by dividing
$2,500,000 by the IPO Share Price, and (B) 107,144.
(3) Notwithstanding the provisions of paragraph
3(d)(iv)(1), in the event that this Corporation shall issue and sell shares of
its Common Stock in an initial public stock offering registered under the
Securities Act of 1933, as amended, for an IPO Share Price less than $7.86 (as
adjusted for stock splits and similar events), then and in such event, the
Series D Conversion Price shall be reduced, concurrently with such issue, to
the Series D Conversion Price then in effect multiplied by a fraction, the
numerator of which is 200,000 and the denominator of which is the difference
between (A) the number obtained by dividing $5,500,000 by the IPO Share Price,
and (B) 500,000.
(v) Adjustments for Reclassification, Exchange and
Substitution. If the Common Stock issuable upon the conversion of the
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of
shares provided for above), the Conversion Prices then in effect for the
respective series of Preferred Stock shall, concurrently with the effectiveness
of such reclassification or reorganization, be proportionately adjusted such
that the Preferred Stock shall be convertible into, in lieu of the number of
shares of Common Stock which the holders would have been entitled to receive, a
number of shares of such other class or classes of stock equivalent to the
number of shares of Common Stock that would have been subject to receipt by the
holders upon conversion of such series of Preferred Stock immediately before
that change.
(vi) Determination of Consideration. For purposes of this
subsection 3(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be computed
at the aggregate amount of cash received by the Corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
reasonably determined in good faith by the Board of Directors; and
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(C) in the event Additional Shares of Common are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above,
as reasonably determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to subsection 3(d)(iii)(1),
relating to Options and Convertible Securities, shall be determined by dividing
(A) the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such options for
Convertible Securities and the conversion or exchange of such Convertible
Securities, by
(B) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(e) Upon the occurrence of each adjustment or readjustment of the
number of shares of Common Stock issuable upon conversion of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock pursuant to this Section 3, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock, as the case may be, a certificate executed by the chief executive or
chief financial officer of the Corporation on its behalf setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (i)
such adjustments and readjustments and (ii) the number of shares of Common
Stock which at the time would be received upon the conversion of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock, as the case may be.
(f) In the event the Corporation at any time or from time to time
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
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Common Stock, then and in each such event provisions shall be made so that the
holders of Preferred Stock shall receive concurrently therewith the amount of
such securities which they would have received had their shares of Preferred
Stock been converted into Common Stock on the date of such event.
(g) In case:
(i) the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend, or any
other distribution; or
(ii) the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to subscribe for or purchase
any shares of stock of any class or to receive any other rights; or
(iii) there is any capital reorganization of the
Corporation, reclassification of the capital stock of the Corporation (other
than a subdivision or combination of its outstanding shares of Common Stock),
consolidation or merger of the Corporation with or into another Corporation or
conveyance of all or substantially all of the assets of the Corporation to
another Corporation; or
(iv) there is a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation (including any deemed liquidation,
dissolution or winding up under Section 2 hereof);
then, and in any such case, the Corporation shall cause to be mailed to the
transfer agent for the Preferred Stock, and to the holders of record of the
outstanding shares of Preferred Stock, at least ten days prior to the date
hereinafter specified, a notice stating (A) the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up and (B) in the case of
notices pursuant to Section 3(g)(iv) above, the aggregate value of all assets,
cash and other property to be distributed to shareholders, to the extent that
such value has been ascertained.
(h) In case any shares of Preferred Stock shall be converted pursuant
to this Section 3, the shares so converted shall resume the status of
authorized but unissued shares of Preferred Stock.
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<PAGE> 14
(i) The Corporation will pay all taxes and other governmental charges
(other than taxes based on income) that may be imposed in respect of the issue
or delivery of shares of Common Stock upon conversion of shares of Preferred
Stock to the record holder of Preferred Stock.
(j) The Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation but will at all times in
good faith assist in the carrying out of all the provisions of this Section 3
and in the taking of all such action as may be necessary or appropriate in
order to protect the conversion rights of the holders of a Preferred Stock
against impairment.
(k) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Preferred Stock; and if at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect conversion of all then outstanding shares of the Preferred
Stock, the Corporation will take such corporate action as may, in the opinion
of its legal counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
4. Redemption.
(a) Redemption Rights. If the holders of at least 25,000 shares of
Series C Preferred Stock or 25,000 shares of Series D Preferred Stock request
in writing from time to time the redemption of all or any part of shares of
Preferred Stock held by them, the Corporation shall redeem such shares pursuant
to the schedule set forth below. Such notice of redemption shall be given no
less than 60 days prior to the date at which redemption is requested to
commence. In the event such notice of redemption is given, during each
calendar quarter commencing with the calendar quarter specified in the holders'
written notice but in no event prior to the quarter commencing July 1, 1999,
the Corporation shall redeem during each such quarter on the first day of each
such quarter (each, a "REDEMPTION DATE"), for an amount in cash as determined
below, one twelfth of the shares requested to be redeemed.
(b) Availability of Funds. Notwithstanding the provisions of
subparagraph (a), the Corporation will not be required to redeem shares in any
quarter to the extent funds are not legally available. If funds are not
legally available to consummate a redemption under subparagraph (a), the
Corporation shall redeem the maximum number of shares for which funds are
legally available ratably among the holders of such shares in proportion to
their holdings of Series C Preferred Stock or Series D Preferred Stock elected
for redemption and will continue to do so at any time thereafter when
additional funds are legally available for such redemption until the total
number of shares of Preferred Stock that it has redeemed is equal to the
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total number of shares that it would have redeemed at such time as if it had
redeemed in accordance with the provisions of subparagraph (a). Shares not
redeemed shall remain issued and outstanding and entitled to the rights and
preferences herein.
(c) Redemption Price. The redemption price per share for the Series C
Preferred Stock and the Series D Preferred Stock shall be $19.00 multiplied by
x(n), where n is the number of years (or fraction thereof) between the date of
issuance of the Series C Preferred or the Series D Preferred Stock, as the case
may be, and the date of redemption, and x is equal to (i) 1.10 in the case of
the Series C Preferred Stock in the event GECC and the Corporation shall have
entered into a marketing agreement with the Corporation which contains a
stipulation that such Agreement is a "Qualified Marketing Agreement," and in
the case of the Series D Preferred Stock or (ii) 1.08 in the case of the Series
C Preferred Stock in the event GECC and the Corporation shall not have entered
into a Qualified Marketing Agreement.
(d) Redemption Procedures. The Corporation shall give notice by
certified mail, postage prepaid, return receipt requested, to the holders of
record of the Series C Preferred and the Series D Preferred Stock of any
redemption pursuant to this Section 4, such notice to be addressed to each
holder at the address shown in the Corporation's records which notice shall
specify the date of redemption and the number of shares to be redeemed. At
least five days prior to each Redemption Date, each holder requesting
redemption shall surrender his certificate (or comply with applicable lost
certificate provisions) for the number of shares to be redeemed on such
Redemption Date to this Corporation at the place specified in the notice. If
less than all of the shares represented by such certificate are redeemed, a new
certificate shall forthwith be issued for the unredeemed shares. Provided such
notice is duly given, and provided that on the redemption date specified there
shall be a source of funds legally available for such redemption and funds
necessary for the redemption shall have been paid to the holder with respect to
any shares represented by certificates actually surrendered to the Corporation,
or, in the case of shares for which no certificate is surrendered, deposited in
a bank or trust company, then all rights with respect to such shares shall,
after the specified Redemption Date, terminate, whether or not said
certificates have been surrendered, excepting only in the latter instance the
right of the holder to receive the redemption price thereof, without interest,
upon such surrender (or compliance with lost certificate provisions).
5. Voting Rights.
(a) Each holder of shares of Preferred Stock shall be entitled to vote
on all matters and shall be entitled to the number of votes equal to the number
of shares of Common Stock into which such share of Preferred Stock could be
converted pursuant to Section 3 hereof, on the record date for determination of
the shareholders entitled to vote on such matters, or, if no such record date
is established, at the date such vote is taken or on the effective date of a
written consent of shareholders if action shall be taken by written consent.
Except as provided by law or by the provisions of Section 5(b), 5(c) and 5(d)
below, holders of Preferred Stock shall vote together with the holders of
Common Stock as a single class.
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(b) In addition to any other rights provided by law, so long as at
least 500,000 shares of Preferred Stock shall be outstanding (appropriately
adjusted for stock splits, reverse splits, recapitalizations and similar
events) the Corporation shall not, without first obtaining the affirmative vote
or written consent of the holders of a majority of such outstanding shares of
the Preferred Stock voting as a single class, on an as-converted to Common
Stock basis:
(i) amend or repeal any provision of, or add any provision to,
this Corporation's Certificate of Incorporation or Bylaws if such action would
alter or change the rights, preferences, privileges or restrictions of the
Series A Preferred Stock, Series B Preferred Stock, the Series C Preferred
Stock or the Series D Preferred Stock in a manner which would adversely affect
such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock;
(ii) authorize or issue shares of any class or series of
stock having any preference over or being on a parity with the Series A
Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred stock as to dividends or upon liquidation, dissolution or
winding up or redemption, conversion or voting rights;
(iii) reclassify any Common Stock into shares having any
preference over or being on a parity with the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock or the Series D
Preferred stock as to dividends or upon liquidation, dissolution or winding up
or redemption, conversion or voting rights;
(iv) sell, convey, or otherwise dispose of or encumber all
or substantially all of its assets, or merge with or into or consolidate with
any corporation or effect any transaction or series of related transactions as
a result of which the shareholders of this Corporation own less than 50% of the
equity securities of the surviving corporation or which, pursuant to the
Delaware General Corporation Law, would require a vote of holders of Preferred
Stock, voting as a single class; or
(v) increase the authorized number of shares of Series A
Preferred Stock or Series B Preferred Stock.
(c) In addition to any other rights provided by law, so long as at
least 100,000 shares of Series C Preferred Stock shall be outstanding
(appropriately adjusted for stock splits, reverse splits, recapitalizations and
similar events) the Corporation shall not, without first obtaining the consent
of the holders of a majority of outstanding shares of Series C Preferred Stock:
(i) amend or repeal any provision of this Corporation's
Certificate of Incorporation relating to the dividend, liquidation, redemption,
conversion or voting of the Series C Preferred Stock so as to adversely change
such rights;
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<PAGE> 17
(ii) authorize or issue shares of any class or series of
stock having any preference over the Series C Preferred Stock as to dividends
or upon liquidation, dissolution or winding up or as to redemption, conversion
or voting rights;
(iii) reclassify any Common Stock into shares having any
preference over or being on a parity with the Series C Preferred Stock as to
dividends or upon liquidation, dissolution or winding up or as to redemption,
conversion or voting rights; or
(iv) increase the authorized number of or issue additional
shares of Series C Preferred Stock.
(d) In addition to any other rights provided by law, so long as at
least 150,000 shares of Series D Preferred Stock shall be outstanding
(appropriately adjusted for stock splits, reverse splits, recapitalizations and
similar events) the Corporation shall not, without first obtaining the consent
of the holders of a majority of outstanding shares of Series D Preferred Stock:
(i) amend or repeal any provision of this Corporation's
Certificate of Incorporation relating to the dividend, liquidation, redemption,
conversion or voting of the Series D Preferred Stock so as to adversely change
such rights;
(ii) authorize or issue shares of any class or series of
stock having any preference over the Series D Preferred Stock as to dividends
or upon liquidation, dissolution or winding up or as to redemption, conversion
or voting rights;
(iii) reclassify any Common Stock into shares having any
preference over or being on a parity with the Series D Preferred Stock as to
dividends or upon liquidation, dissolution or winding up or as to redemption,
conversion or voting rights; or
(iv) increase the authorized number of or issue additional
shares of Series D Preferred Stock.
ARTICLE FIVE
This Corporation shall have a Board of Directors consisting of no less than
four and no more than nine persons. The precise number of directors of this
Corporation shall be as set forth in the Bylaws of the Corporation.
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ARTICLE SIX
The Corporation is to have perpetual existence.
ARTICLE SEVEN
Elections of directors need not be by written ballot unless a stockholder
demands election by written ballot at the meeting and before voting begins or
unless the Bylaws of the Corporation shall so provide.
ARTICLE EIGHT
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
ARTICLE NINE
(a) To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(b) The Corporation may indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that such person is or was a director, officer or employee of the Corporation
or any predecessor of the Corporation or serves or served at any other
enterprise as a director, officer or employee at the request of the Corporation
or any predecessor to the Corporation.
(c) Neither any amendment nor repeal of this Article Nine, nor the
adoption of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article Nine, shall eliminate or reduce the effect of
this Article Nine, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article Nine, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
ARTICLE TEN
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision
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contained in the statutes) outside of the State of Delaware at such place or
places as may be designated from time to time by the Board of Directors or in
the Bylaws of the Corporation.
ARTICLE ELEVEN
Vacancies created by the resignation of one or more members of the Board of
Directors and newly created directorships, created in accordance with the
Bylaws of this Corporation, may be filled by the vote of a majority, although
less than a quorum, of the directors then in office, or by a sole remaining
director.
ARTICLE TWELVE
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Corporation.
ARTICLE THIRTEEN
Until a Registration Statement regarding the sale of the Corporation's
Common Stock to the public is declared effective by the Securities and Exchange
Commission, stockholders shall be entitled to cumulative voting rights as set
forth in this Article Thirteen of the Corporation. At all elections of
directors of the Corporation, each holder of stock or of any class or classes
or of a series or series thereof shall be entitled to as many votes as shall
equal the number of votes which (except for this provision as to cumulative
voting) such stockholder would be entitled to cast for the election of
directors with respect to such stockholder's shares of stock multiplied by the
number of directors to be elected, and such stockholder may cast all of such
votes for a single director or may distribute them among the number of
directors to be voted for, or for any two or more of them as such stockholder
may see fit. As of the date that a Registration Statement regarding the sale
of the Corporation's Common Stock to the public is declared effective by the
Securities and Exchange Commission, this Article Thirteen shall no longer be
effective and may be deleted herefrom upon any restatement of this Certificate
of Incorporation.
ARTICLE FOURTEEN
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, and all rights conferred upon stockholders
herein are granted subject to this reservation.
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IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation,
which restates and integrates and further amends the provisions of the
Certificate of Incorporation of the Corporation, having been duly adopted in
accordance with Sections 228, 242 and 245 of the Delaware General Corporation
Law, has been duly executed by its President, and attested by its Assistant
Secretary, this 21st day of August, 1996.
By: /s/ Lee H. Stein
-------------------------------------
Lee H. Stein, Chief Executive Officer
ATTEST:
By: /s/ Philip Bane
----------------------------------
Philip Bane, Secretary
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Exhibit 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
FIRST VIRTUAL HOLDINGS INCORPORATED
FIRST VIRTUAL HOLDINGS INCORPORATED, a Delaware corporation
(hereinafter referred to as the "Corporation"), hereby adopts this Amended and
Restated Certificate of Incorporation pursuant to the provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware.
FIRST: The name of the Corporation is First Virtual Holdings
Incorporated. The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware on January
12, 1996.
SECOND: The amendments and additions made by this Amended and
Restated Certificate of Incorporation have been duly authorized and proposed by
the board of directors (the "Board of Directors") of the Corporation, and have
been approved by the stockholders of the Corporation, in conformity with the
provisions of the General Corporation Law of Delaware.
THIRD: The Certificate of Incorporation of the Corporation and all
amendments and supplements thereto are hereby superseded by the following
Amended and Restated Certificate of Incorporation.
ONE
The name of this corporation is First Virtual Holdings Incorporated.
TWO
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805, New Castle County.
The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
THREE
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
<PAGE> 2
FOURTH
A. The total number of shares which the Corporation shall have
authority to issue is forty million (40,000,000) shares of capital stock.
B. Of such authorized shares, thirty five million (35,000,000)
shares shall be designated "Common Stock", and have a par value of $.001.
C. Of such authorized shares, five million (5,000,000) shares
shall be designated "Preferred Stock", and have a par value of $.001. The
Preferred Stock may be issued from time to time in one or more series. The
Board of Directors of the Corporation is authorized to determine or alter the
powers, preferences and rights and the qualifications, limitations or
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock, and within the limitations or restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting any series, to increase or decrease (but not below the number of
shares of any such series then outstanding) the number of shares of any such
series subsequent to the issuance of shares of that series, to determine the
designation of any series, and to fix the number of shares of any series. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
FIFTH
The Corporation is to have perpetual existence.
SIXTH
Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and before voting
begins.
SEVENTH
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided
in the Bylaws of the Corporation.
EIGHTH
The number of directors which constitute the whole Board of Directors
of the Corporation shall be designated in the Bylaws of the Corporation.
NINTH
<PAGE> 3
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend
or repeal the Bylaws of the Corporation.
TENTH
To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as it may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article, nor the adoption of
any provision of this Restated Certificate of Incorporation inconsistent with
this Article, shall eliminate or reduce the effect of this Article in respect
of any matter occurring, or any cause of action, suit or claim that, but for
this Article, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
ELEVENTH
Section 1. At each annual meeting of stockholders, directors of the
Corporation shall be elected to hold office until the expiration of the term
for which they are elected, and until their successors have been duly elected
and qualified; except that if any such election shall be not so held, such
election shall take place at stockholders' meeting called and held in
accordance with the Delaware General Corporation Law. The directors of the
Corporation shall be divided into three classes as nearly equal in size as is
practicable, hereby designed Class I, Class II and Class III. the term of
office of the initial Class I directors shall expire at the next succeeding
annual meeting of stockholders, the term of office of the initial Class II
directors shall expire at the second succeeding annual meeting of stockholders
and the term of office of the initial Class III directors shall expire at the
third succeeding annual meeting of the stockholders. For the purposes hereof,
the initial Class I, Class II and Class III directors shall be those directors
so designated and elected at the first annual meeting of stockholders. At each
annual meeting after the first annual meeting of stockholders, directors to
replace those of a Class whose terms expire at such annual meeting shall be
elected to hold office until the third succeeding annual meeting and until
their respective successors shall have been duly elected and qualified. If the
number of directors is hereafter changed, any newly created directorships or
decrease in directorships shall be so apportioned among the classes as to make
all classes as nearly equal in number as if practicable.
Section 2. The number of directors which constitute the whole Board
of Directors of the Corporation shall be designed in the Bylaws of the
Corporation.
Section 3. Vacancies occurring on the Board of Directors for any
reason may be filled by vote of a majority of the remaining members of the
Board of Directors, although less than a quorum, at any meeting of the Board of
Directors. A person so elected by the Board of Directors to fill a vacancy
shall hold office until the next succeeding annual meeting of
<PAGE> 4
stockholders of the Corporation and until his or her successor shall have been
duly elected and qualified.
<PAGE> 5
TWELFTH
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
THIRTEENTH
The stockholders of the Corporation may not take action by written
consent in lieu of a meeting but must take any actions at a duly called annual
or special meeting.
FOURTEENTH
Notwithstanding any other provisions of this Restated 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 the
capital stock required by law or this Restated Certificate of Incorporation,
the affirmative vote of the holders of at least two-thirds (2/3) of the
combined voting power of all of the then- outstanding shares of the Corporation
entitled to vote shall be required to alter, amend or repeal Articles ELEVENTH,
THIRTEENTH or FOURTEENTH or any provision thereof, unless such amendment shall
be approved by a majority of the directors of the Corporation not affiliated or
associated with any person or entity holding (or which has announced an
intention to obtain) 26% or more of the voting power of the Corporation's
outstanding capital stock.
FIFTEENTH
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, and all rights conferred upon stockholders
herein are granted subject to this reservation.
<PAGE> 6
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation, which restates and integrates and further amends the provisions
of the Certificate of Incorporation of the Corporation, having been duly
adopted in accordance with Sections 228, 242 and 245 of the Delaware General
Corporation Law, has been duly executed by its President, and attested by its
Secretary, this ______ day of ___________, 1996.
By:
----------------------------------
Lee H. Stein, Chief Executive
Officer
ATTEST:
By:
-----------------------------------
Philip Bane, Secretary
<PAGE> 1
Exhibit 3.3
BYLAWS
OF
FIRST VIRTUAL HOLDINGS INCORPORATED
<PAGE> 2
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ARTICLE I - CORPORATE OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 REGISTERED OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7 ADJOURNED MEETING; NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.8 VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.9 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING
CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.12 PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III - DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 NUMBER OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 RESIGNATION AND VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 FIRST MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.7 REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.8 SPECIAL MEETINGS; NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.9 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.10 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.11 ADJOURNED MEETING; NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.13 FEES AND COMPENSATION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.14 APPROVAL OF LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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ARTICLE IV - COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 COMMITTEES OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 COMMITTEE MINUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.3 MEETINGS AND ACTION OF COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.1 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 ELECTION OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.4 REMOVAL AND RESIGNATION OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.5 VACANCIES IN OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.6 AUTHORITY AND DUTIES OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.7 LIMITATIONS ON POWERS AND DUTIES OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VI - INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.2 INDEMNIFICATION OF OTHERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.3 PREPAYMENT OF EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.4 CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.5 NON-EXCLUSIVITY OF RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.6 OTHER INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.7 AMENDMENT OR REPEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VII - RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.1 MAINTENANCE AND INSPECTION OF RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.2 INSPECTION BY DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VIII - GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.1 CHECKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.4 SPECIAL DESIGNATION ON CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.5 LOST CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.6 CONSTRUCTION; DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.7 DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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8.8 FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.9 SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.10 TRANSFER OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.11 STOCK TRANSFER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.12 REGISTERED STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IX - AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE X - DISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE XI - CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.2 DUTIES OF CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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<PAGE> 5
BYLAWS
OF
FIRST VIRTUAL HOLDINGS INCORPORATED
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Dover, County of Kent, State of Delaware. The name of the registered agent of
the corporation at such location is The Prentice-Hall Corporation System, Inc.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the
twenty-first of March in each year at 9:00 a.m. However, if such day falls on
a legal holiday, then the meeting shall be held at the same time and place on
the next succeeding full business day. At the meeting, directors shall be
elected and any other proper business may be transacted.
<PAGE> 6
2.3 SPECIAL MEETING
Special meetings of stockholders for any purpose or purposes may be
called at any time by the Board of Directors, by a committee of the Board of
Directors which has been duly designated by the Board of Directors and whose
powers and authority, as expressly provided in a resolution of the Board of
Directors, include the power to call such meetings or by one or more
shareholders holding shares in the aggregate entitled to cast not less than 10%
of the votes cast at that meeting, but such special meetings may not be called
by any other person or persons.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and
shall be sent or otherwise given in accordance with Section 2.5 of these bylaws
not less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder entitled to vote at such meeting. The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent
of the corporation that the notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. If mailed, such
notice shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
corporation.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such adjourned meeting
at which a quorum is present or represented, any business may be transacted
that might have been transacted at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact
any business that might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
-2-
<PAGE> 7
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these
bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.8, or as
may be otherwise provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
At a stockholders' meeting at which directors are to be elected, or at
elections held under special circumstances, a stockholder shall be entitled to
cumulate votes (i.e., cast for any candidate a number of votes greater than the
number of votes which such stockholder normally is entitled to cast). Each
holder of stock, or of any class or classes or of a series or series thereof,
who elects to cumulate votes shall be entitled to as many votes as equals the
number of votes which (absent this provision as to cumulative voting) he would
be entitled to cast for the election of directors with respect to his shares of
stock multiplied by the number of directors to be elected by him, and he may
cast all of such votes for a single director or may distribute them among the
number to be voted for, or for any two or more of them, as he may see fit.
2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or
these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the
-3-
<PAGE> 8
General Corporation Law of Delaware if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such
section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without
a meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the board of directors may fix, in advance, a record date, which
shall not be more than sixty (60) nor less than ten (10) days before the date
of such meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed
by the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
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2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the board of directors.
3.2 NUMBER OF DIRECTORS
The authorized number of directors shall be seven (7). The number
may be changed by a duly adopted amendment to this bylaw adopted by resolution
of the board of directors in accordance with these bylaws. No reduction of the
authorized number of directors shall have the effect of removing any director
before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
corporation. When one or more directors so resigns and the resignation is
effective at a future date, a majority of the directors then in
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office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders
in accordance with the provisions of the certificate of incorporation or these
bylaws, or may apply to the Court of Chancery for a decree summarily ordering
an election as provided in Section 211 of the General Corporation Law of
Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as
aforesaid, which election shall be governed by the provisions of Section 211 of
the General Corporation Law of Delaware as far as applicable.
Any and all directors may be removed without cause if the removal is
approved by the affirmative vote of a majority of the outstanding shares of the
corporation entitled to vote. Such approval shall include the affirmative vote
of a majority of the outstanding shares of each class and series entitled to
vote as a class or series on the subject matter being voted upon and shall also
include the affirmative vote of such greater proportion (including all) of the
outstanding shares of any class or series if such greater proportion is
required by the corporation's certificate of incorporation or by applicable
laws.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these bylaws, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting
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of the board of directors, or any committee, by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders
at the annual meeting and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected board of
directors, or in the event such meeting is not held at the time and place so
fixed by the stockholders, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the board of directors, or as shall be specified in a written
waiver signed by all of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or by telegram, it shall be delivered personally or
by telephone or to the telegraph company at least forty-eight (48) hours before
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose or the place of the meeting, if the meeting is to be held at the
principal executive office of the corporation.
3.9 QUORUM
At all meetings of the board of directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
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3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the certificate of incorporation or these bylaws.
3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or
these bylaws, any action required or permitted to be taken at any meeting of
the board of directors, or of any committee thereof, may be taken without a
meeting if all members of the board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or
these bylaws, the board of directors shall have the authority to fix the
compensation of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
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ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist
of one or more of the directors of the corporation. The board may designate
one or more directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
board of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors or in the bylaws of the corporation, shall
have and may exercise all the powers and authority of the board of directors in
the management of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers that may
require it; but no such committee shall have the power or authority to (i)
amend the certificate of incorporation (except that a committee may, to the
extent authorized in the resolution or resolutions providing for the issuance
of shares of stock adopted by the board of directors as provided in Section
151(a) of the General Corporation Law of Delaware, fix any of the preferences
or rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation),
(ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of
the General Corporation Law of Delaware, (iii) recommend to the stockholders
the sale, lease or exchange of all or substantially all of the corporation's
property and assets, (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or (v) amend the bylaws of the
corporation; and, unless the board resolution establishing the committee, the
bylaws or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws,
Section 3.5 (place of meetings and meetings by telephone), Section 3.7 (regular
meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum),
Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of
adjournment), and Section 3.12 (action without a meeting), with such changes in
the context of those bylaws as are necessary to substitute the committee and
its members for the board of directors and its members; provided, however,
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that the time of regular meetings of committees may also be called by
resolution of the board of directors and that notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at
the discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
bylaws, shall be chosen by the board of directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to
appoint, such other officers and agents as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
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5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.
5.6 AUTHORITY AND DUTIES OF OFFICERS
The officers of the corporation shall have such powers and duties in
the management of the corporation as may be prescribed by the Board of
Directors and, to the extent not so provided, as generally pertain to their
respective offices, subject to the control of the Board of Directors. The
Board of Directors may require any officer, agent or employee to give security
for the faithful performance of his duties.
5.7 LIMITATIONS ON POWERS AND DUTIES OF OFFICERS
No officer shall take any action, enter into any agreement, make any
representation or, by purposeful inaction, effect any of the actions or
decisions which the Board of Directors is prohibited or restricted from
enacting pursuant to these Bylaws or the certificate of incorporation and their
further amendments.
ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation
(other than a director or officer) includes any person (i) who is or was an
employee or agent of the corporation, (ii) who is or was serving at the request
of the corporation as an employee
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or agent of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 PREPAYMENT OF EXPENSES
The corporation shall pay the expenses incurred in defending any
proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified under this Article or otherwise.
6.4 CLAIMS
If a claim for indemnification or payment of expenses under this
Article is not paid in full within sixty days after a written claim therefor
has been received by the corporation the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law.
6.5 NON-EXCLUSIVITY OF RIGHTS
The rights conferred on any person by this Article 6 shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the certificate of incorporation, these
by-laws, agreement, vote of stockholders or disinterested directors or
otherwise.
6.6 OTHER INDEMNIFICATION
The corporation's obligation, if any, to indemnify any person who was
or is serving at its request as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, enterprise or
non-profit entity shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture, trust,
enterprise or non-profit enterprise.
6.7 AMENDMENT OR REPEAL
Any repeal or modification of the foregoing provisions of this Article
6 shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
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ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean
a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent to
so act on behalf of the stockholder. The demand under oath shall be directed to
the corporation at its registered office in Delaware or at its principal place
of business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order
the corporation to permit the director to inspect any and all books and
records, the stock ledger, and the stock list and to make copies or extracts
therefrom. The Court may, in its discretion, prescribe any limitations or
conditions with reference to the inspection, or award such other and further
relief as the Court may deem just and proper.
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7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority
granted herein may be exercised either by such person directly or by any other
person authorized to do so by proxy or power of attorney duly executed by such
person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts,
other orders for payment of money, notes or other evidences of indebtedness
that are issued in the name of or payable to the corporation, and only the
persons so authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the
board of directors, every holder of stock represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the corporation by the chairman or
vice-chairman of the board of directors, or the president or vice-president,
and by the treasurer or an assistant treasurer, or the secretary or an
assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such
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officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the
designations, the preferences, and the relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it
on account of the alleged loss, theft or destruction of any such certificate or
the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
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8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions
contained in the certificate of incorporation, may declare and pay dividends
upon the shares of its capital stock pursuant to the General Corporation Law of
Delaware. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of
the corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any
agreement with any number of shareholders of any one or more classes of stock
of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends
and to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of another person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
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ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted,
amended or repealed by the stockholders entitled to vote; provided, however,
that the corporation may, in its certificate of incorporation, confer the power
to adopt, amend or repeal bylaws upon the directors. The fact that such power
has been so conferred upon the directors shall not divest the stockholders of
the power, nor limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation
entitled to vote thereon votes for the proposed dissolution, then a certificate
stating that the dissolution has been authorized in accordance with the
provisions of Section 275 of the General Corporation Law of Delaware and
setting forth the names and residences of the directors and officers shall be
executed, acknowledged, and filed and shall become effective in accordance with
Section 103 of the General Corporation Law of Delaware. Upon such
certificate's becoming effective in accordance with Section 103 of the General
Corporation Law of Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution
consent in writing, either in person or by duly authorized attorney, to a
dissolution, no meeting of directors or stockholders shall be necessary. The
consent shall be filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such consent's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved. If the consent is signed by an
attorney, then the original power of attorney or a photocopy thereof shall be
attached to and filed with the consent. The consent filed with the Secretary
of State shall have attached to it the affidavit of the secretary or some other
officer of the corporation stating that the consent has been signed by or on
behalf of all the stockholders entitled to vote on a dissolution; in addition,
there shall be attached to the consent a certification by the secretary or some
other officer of the corporation setting forth the names and residences of the
directors and officers of the corporation.
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ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may
appoint one or more persons to be custodians and, if the corporation is
insolvent, to be receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the required
vote for action by the board of directors cannot be obtained and the
stockholders are unable to terminate this division; or
(iii) the corporation has abandoned its business and has
failed within a reasonable time to take steps to dissolve, liquidate or
distribute its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
FIRST VIRTUAL HOLDINGS INCORPORATED
Adoption by Incorporator
The undersigned person appointed in the Certificate of Incorporation
to act as the Incorporator of First Virtual Holdings Incorporated hereby adopts
the foregoing bylaws, comprising eighteen (18) pages, as the Bylaws of the
corporation.
Executed this 12th day of January, 1996.
/s/ Ramsey Hanna
-------------------------------------
Ramsey Hanna, Incorporator
Certificate by Secretary of Adoption by Incorporator
The undersigned hereby certifies that he is the duly elected,
qualified, and acting Secretary of First Virtual Holdings Incorporated and
that the foregoing Bylaws, comprising eighteen (18) pages, were adopted as the
Bylaws of the corporation on January 12, 1996, by the person appointed in the
Certificate of Incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this 12 day of January, 1996.
/s/ Richard C. DeGolia
-------------------------------------
Assistant Secretary
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Exhibit 10.1
FIRST VIRTUAL HOLDINGS INCORPORATED
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of this
__ day of ____, 199_, by and between First Virtual Holdings Incorporated, a
Delaware corporation (the "Company"), and ___________________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for its directors, officers, employees, agents
and fiduciaries, the significant increases in the cost of such insurance and
the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been severely
limited;
WHEREAS, Indemnitee does not regard the current protection available
as adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not
be willing to continue to serve in such capacities without additional
protection;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and, in
part, in order to induce Indemnitee to continue to provide services to the
Company, wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law; and
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified by the Company as set forth
herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Indemnification of Expenses. The Company shall
indemnify Indemnitee to the fullest extent permitted by law if Indemnitee was
or is or becomes a party to or witness or other participant in, or is
threatened to be made a party to or witness or other participant in, any
threatened, pending or completed action, suit, proceeding or alternative
dispute resolution mechanism, or any hearing, inquiry or investigation that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternative dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other (hereinafter a "Claim")
by reason of (or arising in part out of) any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was
serving at the
<PAGE> 2
request of the Company as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action or inaction on the part of Indemnitee while serving in
such capacity (hereinafter an "Indemnifiable Event") against any and all
expenses (including attorneys' fees and all other costs, expenses and
obligations incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend,
be a witness in or participate in, any such action, suit, proceeding,
alternative dispute resolution mechanism, hearing, inquiry or investigation),
judgments, fines, penalties and amounts paid in settlement (if such settlement
is approved in advance by the Company, which approval shall not be unreasonably
withheld) of such Claim and any federal, state, local or foreign taxes imposed
on the Indemnitee as a result of the actual or deemed receipt of any payments
under this Agreement (collectively, hereinafter "Expenses"), including all
interest, assessments and other charges paid or payable in connection with or
in respect of such Expenses. Such payment of Expenses shall be made by the
Company as soon as practicable but in any event no later than five (5) days
after written demand by Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i)
the obligations of the Company under Section 1(a) shall be subject to the
condition that the Reviewing Party (as described in Section 10(f) hereof) shall
not have determined (in a written opinion, in any case in which the Independent
Legal Counsel referred to in Section 1(c) hereof is involved) that Indemnitee
would not be permitted to be indemnified under applicable law, and (ii) the
obligation of the Company to make an advance payment of Expenses to Indemnitee
pursuant to Section 2(a) (an "Expense Advance") shall be subject to the
condition that, if, when and to the extent that the Reviewing Party determines
that Indemnitee would not be permitted to be so indemnified under applicable
law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby
agrees to reimburse the Company) for all such amounts theretofore paid;
provided, however, that if Indemnitee has commenced or thereafter commences
legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expense Advance shall
be unsecured and no interest shall be charged thereon. If there has not been a
Change in Control (as defined in Section 10(c) hereof), the Reviewing Party
shall be selected by the Board of Directors, and if there has been such a
Change in Control (other than a Change in Control which has been approved by a
majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control), the Reviewing Party shall be the Independent
Legal Counsel referred to in Section 1(c) hereof. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or
in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any
such determination by the Reviewing Party or any aspect thereof, including the
legal or factual bases therefor, and the Company hereby consents to service of
process and to appear in any such proceeding. Any determination by the
Reviewing Party otherwise shall be conclusive and binding on the Company and
Indemnitee.
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<PAGE> 3
(c) Change in Control. The Company agrees that if there
is a Change in Control of the Company (other than a Change in Control which has
been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control) then with respect to all
matters thereafter arising concerning the rights of Indemnitee to payments of
Expenses and Expense Advances under this Agreement or any other agreement or
under the Company's Certificate of Incorporation or Bylaws as now or hereafter
in effect, Independent Legal Counsel (as defined in Section 10(d) hereof) shall
be selected by Indemnitee and approved by the Company (which approval shall not
be unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any
other provision of this Agreement other than Section 9 hereof, to the extent
that Indemnitee has been successful on the merits or otherwise, including,
without limitation, the dismissal of an action without prejudice, in defense of
any action, suit, proceeding, inquiry or investigation referred to in Section
(1)(a) hereof or in the defense of any claim, issue or matter therein,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in
connection therewith.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance
all Expenses incurred by Indemnitee. The advances to be made hereunder shall
be paid by the Company to Indemnitee as soon as practicable but in any event no
later than five (5) days after written demand by Indemnitee therefor to the
Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall,
as a condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of
this Agreement, the termination of any Claim by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief
or that a court has determined that indemnification is not permitted by
applicable law. In addition, neither the
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<PAGE> 4
failure of the Reviewing Party to have made a determination as to whether
Indemnitee has met any particular standard of conduct or had any particular
belief, nor an actual determination by the Reviewing Party that Indemnitee has
not met such standard of conduct or did not have such belief, prior to the
commencement of legal proceedings by Indemnitee to secure a judicial
determination that Indemnitee should be indemnified under applicable law, shall
be a defense to Indemnitee's claim or create a presumption that Indemnitee has
not met any particular standard of conduct or did not have any particular
belief. In connection with any determination by the Reviewing Party or
otherwise as to whether the Indemnitee is entitled to be indemnified hereunder,
the burden of proof shall be on the Company to establish that Indemnitee is not
so entitled.
(d) Notice to Insurers. If, at the time of the receipt
by the Company of a notice of a Claim pursuant to Section 2(b) hereof, the
Company has liability insurance in effect which may cover such Claim, the
Company shall give prompt notice of the commencement of such Claim to the
insurers in accordance with the procedures set forth in the respective
policies. The Company shall thereafter take all necessary or desirable action
to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable
as a result of such action, suit, proceeding, inquiry or investigation in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event that the Company
shall be obligated hereunder to pay the Expenses of any Claim, the Company, if
appropriate, shall be entitled to assume the defense of such Claim with counsel
approved by Indemnitee, upon the delivery to Indemnitee of written notice of
its election so to do. After delivery of such notice, approval of such counsel
by Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same Claim; provided
that, (i) Indemnitee shall have the right to employ Indemnitee's separate
counsel in any such Claim at Indemnitee's expense and (ii) if (A) the
employment of separate counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not continue to retain such separate
counsel to defend such Claim, then the fees and expenses of Indemnitee's
counsel shall be at the expense of the Company.
3. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification may not be specifically authorized by the other provisions of
this Agreement, the Company's Certificate of Incorporation, the Company's
Bylaws or by statute. In the event of any change after the date of this
Agreement in any applicable law, statute or rule which expands the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, it is the intent of the parties hereto
that Indemnitee shall enjoy by this Agreement the greater benefits afforded by
such change. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, employee, agent or fiduciary, such
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<PAGE> 5
change, to the extent not otherwise required by such law, statute or rule to be
applied to this Agreement, shall have no effect on this Agreement or the
parties' rights and obligations hereunder except as set forth in Section 8(a)
hereof.
(b) Nonexclusivity. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any
other agreement, any vote of stockholders or disinterested directors, the
General Corporation Law of the State of Delaware, or otherwise. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity even
though Indemnitee may have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable
under this Agreement to make any payment in connection with any Claim made
against Indemnitee to the extent that Indemnitee has otherwise actually
received payment (under any insurance policy, Certificate of Incorporation,
Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however,
for all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the Securities and Exchange Commission to
submit the question of indemnification to a court in certain circumstances for
a determination of the Company's right under public policy to indemnify
Indemnitee.
7. Liability Insurance. To the extent that the Company maintains
liability insurance applicable to directors, officers, employees, agents or
fiduciaries, Indemnitee shall be covered by such policies in such a manner as
to provide Indemnitee the same rights and benefits as are accorded to the most
favorably insured of the Company's directors, if Indemnitee is a director; or
of the Company's officers, if Indemnitee is not a director of the Company but
is an officer; or of the Company's key employees, agents or fiduciaries, if
Indemnitee is not an officer or director but is a key employee, agent or
fiduciary.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. To indemnify
Indemnitee for acts, omissions or transactions from which Indemnitee may not be
relieved of liability under applicable law.
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<PAGE> 6
(b) Claims Initiated by Indemnitee. To indemnify or
advance expenses to Indemnitee with respect to Claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except (i) with respect to
actions or proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other agreement or insurance policy
or under the Company's Certificate of Incorporation or Bylaws now or hereafter
in effect relating to Claims for Indemnifiable Events, (ii) in specific cases
if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to
be entitled to such indemnification, advance expense payment or insurance
recovery, as the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted
by Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee
for expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and
no cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a
legal action within such two-year period; provided, however, that if any
shorter period of limitations is otherwise applicable to any such cause of
action, such shorter period shall govern.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
employees, agents or fiduciaries, so that if Indemnitee is or was a director,
officer, employee, agent or fiduciary of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee, agent or fiduciary of another corporation, partnership,
joint venture, employee benefit plan, trust or other enterprise, Indemnitee
shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as Indemnitee would have with
respect to such constituent corporation if its separate existence had
continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company"
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<PAGE> 7
shall include any service as a director, officer, employee, agent or fiduciary
of the Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if Indemnitee acted in good faith
and in a manner which Indemnitee reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan, Indemnitee
shall be deemed to have acted in a manner "not opposed to the best interests of
the Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control"
shall be deemed to have occurred if (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company acting in such capacity, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than 33% of the
total voting power represented by the Company's then outstanding Voting
Securities, (ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation other than a merger or consolidation
which would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least 80% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the stockholders of the Company approve
a plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series of related
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal
Counsel" shall mean an attorney or firm of attorneys, selected in accordance
with the provisions of Section 1(c) hereof, who shall not have otherwise
performed services for the Company or Indemnitee within the last three years
(other than with respect to matters concerning the rights of Indemnitee under
this Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Potential Change
in Control" shall be deemed to have occurred if: (i) the Company enters into an
agreement, the consummation of which would result in the occurrence of a Change
in Control, (ii) any person (including the Company) publicly announces an
intention to take or to consider taking actions which, if consummated, would
constitute a Change in Control, or (iii) any person, other than a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company acting in such capacity or a corporation owned, directly or indirectly,
by the stockholders of the Company in substantially the same
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<PAGE> 8
proportions as their ownership of stock of the Company, who is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 9.5% or more of the combined voting power of the Company's then
outstanding Voting Securities, increases his beneficial ownership of such
securities by five percentage points (5%) or more over the percentage so owned
by such person; or (iv) the Board of Directors adopts a resolution to the
effect that, for purposes of this Agreement, a Potential Change in Control has
occurred.
(f) For purposes of this Agreement, a "Reviewing Party"
shall mean any appropriate person or body consisting of a member or members of
the Company's Board of Directors or any other person or body appointed by the
Board of Directors who is not a party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.
(g) For purposes of this Agreement, "Voting Securities"
shall mean any securities of the Company that vote generally in the election of
directors.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company, spouses, heirs, and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business or
assets of the Company, by written agreement in form and substance satisfactory
to Indemnitee, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to
perform if no such succession had taken place. This Agreement shall continue
in effect regardless of whether Indemnitee continues to serve as a director,
officer, employee, agent or fiduciary (as applicable) of the Company or of any
other enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted
by Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part of such action a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action were not made
in good faith or were frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee's counterclaims and cross-claims made in
such action), and shall be entitled to the advancement of Expenses with respect
to such action, unless as a part of such action a court
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<PAGE> 9
having jurisdiction over such action determines that each of Indemnitee's
material defenses to such action were made in bad faith or were frivolous.
14. Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed
duly given (i) if delivered by hand and signed for by the party addressed, on
the date of such delivery, or (ii) if mailed by domestic certified or
registered mail with postage prepaid, on the third business day after the date
postmarked. Addresses for notice to either party are as shown on the signature
page of this Agreement, or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be commenced, prosecuted and continued only in the
Court of Chancery of the State of Delaware in and for New Castle County, which
shall be the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) are held by a court
of competent jurisdiction to be invalid, void or otherwise unenforceable, and
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the provisions
of this Agreement (including, without limitations, each portion of this
Agreement containing any provision held to be invalid, void or otherwise
unenforceable, that is not itself invalid, void or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to be performed entirely within the State of Delaware, without regard to the
conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Company effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is
in writing signed by both the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
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<PAGE> 10
20. Integration and Entire Agreement. This Agreement sets forth
the entire understanding between the parties hereto and supersedes and merges
all previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in
this Agreement shall be construed as giving Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
FIRST VIRTUAL HOLDINGS INCORPORATED
By:
---------------------------
Title:
---------------------------
Address: 11975 El Camino Real,
Suite 300
San Diego, CA 92130
AGREED TO AND ACCEPTED
INDEMNITEE:
- ---------------------------------
- ---------------------------------
(signature)
- ---------------------------------
(address)
<PAGE> 1
EXHIBIT 10.2
FIRST VIRTUAL HOLDINGS, INCORPORATED
1994 Incentive and Non-statutory Stock Option Plan
SECTION 1. PURPOSE
This 1994 Incentive and Non-Statutory Stock Option Plan (the "Plan")
is intended as a performance Incentive for officers and employees of First
Virtual Holdings, Incorporated, a Wyoming corporation (the "Company"), or Its
Subsidiaries (as hereinafter defined) and for certain other Individuals
providing services to or acting as directors of the Company or its
Subsidiaries, to enable the persons to whom options are granted (an "Optionee"
or "Optionees") to acquire or increase a proprietary interest in the Company
and its success. The Company intends that this purpose will be effected by the
granting of incentive stock options ("Incentive Options") as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), and other
stock options ("Non-Statutory Options") under the Plan. The term
"Subsidiaries" means any corporations in which stock possessing 50% or more of
the total combined voting power of all classes of stock of such corporation or
corporations is owned directly or indirectly by the Company.
SECTION 2. OPTIONS TO BE GRANTED AND ADMINISTRATION
2.1 Options to be Granted. Options granted under the Plan may be
either Incentive Options or Non-Statutory Options.
2.2 Administration by the Board. This Plan shall be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
full and final authority to operate, manage and administer the Plan on behalf
of the Company. This authority includes, but is not limited to: (i) the power
to grant options conditionally or unconditionally; (ii) the power to prescribe
the form or forms of the instruments evidencing options granted under this
Plan; (iii) the power to interpret the Plan; (iv) the power to provide
regulations for the operation of the incentive features of the Plan, and
otherwise to prescribe regulations for interpretation, management and
administration of the Plan; (v) the power to delegate responsibility for Plan
operation, management and administration on such terms, consistent with the
Plan, as the Board may establish; (vi) the power to delegate to other persons
the responsibility for performing ministerial acts in furtherance of the Plan's
purpose; (vii) the power to make, in its sole discretion, changes to any
outstanding option granted under the Plan, including the power to reduce the
exercise price, to accelerate the vesting schedule, or to extend the expiration
date; and (viii) the power to engage the services of persons or organizations
in furtherance of the Plan's purpose, including but not limited to banks,
insurance companies, brokerage firms and consultants.
<PAGE> 2
In addition, as to each option, the Board shall have full and final
authority in its sole discretion: (i) to determine the number of shares subject
to each option; (ii) to determine the time or times at which options will be
granted; (iii) to determine the option price for the shares subject to each
option, which price shall be subject to the applicable requirements, if any, of
Section 5.1 (c) hereof; (iv) to determine the time or times when each option
shall become exercisable and the duration of the exercise period, which shall
not exceed the limitations specified in Section 5.1 (a).
2.3 Appointment and Proceedings of Committee. The Board may
appoint a Stock Option Committee (the "Committee") which shall consist of at
least two members of the Board. The Board may from time to time appoint
members of the Committee in substitution for or in addition to members
previously appointed, and may fill vacancies, however caused, in the Committee.
The Committee shall select one of its members as Its chairman and shall hold
its meetings at such times and places as it shall deem advisable. A majority
of its members shall constitute a quorum, and all actions of the Committee
shall require the affirmative vote of a majority of its members. Any action
may be taken by a written instrument signed by all of the members, and any
action so taken shall be as fully effective as if it had been taken by a vote
of a majority of the members at a meeting duly called and held.
2.4 Powers of Committee. Subject to the provisions of this Plan
and the approval of the Board, the Committee shall have the power to make
recommendations to the Board as to whom options should be granted, the number
of shares to be covered by each option, the time or times of option grants, and
the terms and conditions of each option. In addition, the Committee shall
have authority to interpret the Plan, to prescribe, amend and rescind rules
and regulations relating to the Plan, and to exercise the administrative and
ministerial powers of the Board with regard to aspects of the Plan other than
the granting of options. The interpretation and construction by the Committee
of any provisions of the Plan or of any option granted hereunder and the
exercise of any power delegated to it hereunder shall be final, unless
otherwise determined by the Board. No member of the Board or the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any option granted hereunder.
SECTION 3. STOCK
3.1 Shares Subject to Plan. The stock subject to the options
granted under the Plan shall be shares of the Company's authorized but unissued
common stock, no par value ("Common Stock"). The total number of shares that
may be issued pursuant to options granted under the Plan shall not exceed an
aggregate of 50,000 shares of Common Stock. Such number of shares shall be
subject to adjustment as provided in Section 7 hereof.
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<PAGE> 3
3.2 Lapsed or Unexercised Options. Whenever any outstanding
option under the Plan expires, is cancelled or is otherwise terminated (other
than by exercise), the shares of Common Stock allocable to the unexercised
portion of such option shall be restored to the Plan and shall again become
available for the grant of other options under the Plan.
SECTION 4. ELIGIBILITY
4.1 Eligible Optionees. Incentive Options may be granted only to
officers and other employees of the Company or its Subsidiaries, Including
members of the Board who are also employees of the Company of a Subsidiary.
Non-Statutory Options may be granted to officers or other employees of the
Company or its Subsidiaries, to members of the Board or the board of directors
of any Subsidiary whether or not employees of the Company or such Subsidiary,
and to certain other individuals providing services to the Company or its
Subsidiaries.
4.2 Limitations on 10% Stockholders. No Incentive Option shall
be granted to an individual who, at the time the Incentive Option is granted,
owns (including ownership attributed pursuant to Section 424(d) of the Code)
more than 10% of the total combined voting power of all classes of stock of the
Company or any parent or Subsidiary of the Company (a "greater-than-10%
stockholder"), unless such Incentive Option provides that (i) the purchase
price per share shall not be less than 110% of the fair market value of the
Common Stock at the time such Incentive Option is granted, and (ii) that such
Incentive Option shall not be exercisable to any extent after the expiration of
five years from the date on which it is granted.
4.3 Limitation on Exercisable Options. The aggregate fair market
value (determined at the time the Incentive Option is granted) of the Common
Stock with respect to which Incentive Options are exercisable for the first
time by any person during any calendar year under the Plan and under any other
option plan of the Company (or a parent or subsidiary as defined in Section 424
of the Code) shall not exceed $100,000. Any option granted in excess of the
foregoing limitation shall be specifically designated as being a Non-Statutory
Option.
SECTION 5. TERMS OF THE OPTION AGREEMENTS
5.1 Mandatory Terms. Each option agreement shall contain such
provisions as the Board or the Committee shall from time to time deem
appropriate. Option agreements need not be identical, but each option
agreement by appropriate language shall include the substance of all of the
following provisions:
(a) Expiration. Notwithstanding any other provision of the Plan
or of any option agreement, each option shall expire on the date specified in
the
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<PAGE> 4
option agreement, which date shall not be later than the tenth anniversary of
the date on which the option was granted (fifth anniversary in the case of an
Incentive Option granted to a greater-than-10% stockholder).
(b) Exercise. Each option shall be exercisable in full or in
installments (which need not be equal) and at such times as designated by the
Board or the Committee. To the extent not exercised, installments shall
accumulate and be exercisable, in whole or in part, at any time after becoming
exercisable, but not later than the date the option expires.
(c) Purchase Price. The purchase price per share of the Common
Stock under each Incentive Option shall be not less than the fair market value
of the Common Stock on the date the option is granted (110% of the fair market
value in the case of a greater-than-10% stockholder). For the purpose of the
Plan the fair market value of the Common Stock shall be determined by the Board
or the Committee. The price at which shares may be purchased pursuant to
Non-Statutory Options shall be specified by the Board or the Committee at the
time the option is granted, and may be less than, equal to or greater than the
fair market value of the shares of Common Stock on the date such Non-Statutory
Option is granted, but shall not be less than the par value of shares of Common
Stock.
(d) Transferability of Options. Options granted under the Plan
and the rights and privileges conferred thereby may not be transferred,
assigned, pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than by will or by applicable laws of descent and
distribution, and shall not be subject to execution, attachment or similar
process. Upon any attempt so to transfer, assign, pledge, hypothecate or
otherwise dispose of any option under the Plan or any right or privilege
conferred hereby, contrary to the provisions of the Plan, or upon the sale or
levy or any attachment or similar process upon the rights and privileges
conferred hereby, such option shall thereupon terminate and become null and
void.
(e) Termination of Employment or Death of Optionee. Except as may
be otherwise expressly provided in the terms and conditions of the option
granted to an Optionee, options granted hereunder shall terminate on the
earliest to occur of:
(i) the date of expiration thereof;
(ii) if the Optionee is employed by the Company and such employment
is terminated by the Optionee for any reason or is terminated by the Company
for cause as hereinafter defined, on the date of such termination; or
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<PAGE> 5
(iii) if the Optionee is employed by the Company and such
employment is terminated for any reason other than death or a reason set forth
in the foregoing clause (ii), on the earlier of the date of expiration thereof
or 30 days following the date of such termination. Until the date on which the
option so expires, the Optionee may exercise that portion of his option which
is exercisable at the time of termination of such relationship.
An employment relationship between the Company and the Optionee shall
be deemed to exist during any period during which the Optionee is employed by
the Company or by any Subsidiary. Whether authorized leave of absence or
absence on military government service shall constitute termination of the
employment relationship between the Company and the Optionee shall be
determined by the Board or the Committee at the time thereof. For purposes of
this Section 5.1 (e), the term "cause" shall mean (a) any material breach by
the Optionee of any agreement to which the Optionee and the Company are both
parties, (b) any act (other than retirement) or omission to act by the Optionee
which may have a material and adverse effect on the Company's business or on
the Optionee's ability to perform services for the Company, including, without
limitation, the commission of any crime (other than minor traffic violations),
or (c) any material misconduct or material neglect of duties by the Optionee in
connection with the business or affairs of the Company or any Subsidiary or
affiliate of the Company.
In the event of the death of an Optionee while in an employment or
other relationship with the Company and before the date of expiration of such
option, such option shall terminate on the earlier of such date of expiration
or 180 days following the date of such death. After the death of the Optionee,
his executor, administrator or any person or persons to whom his option may be
transferred by will or by laws of descent and distribution, shall have the
right, at any time prior to such termination, to exercise the option to the
extent the Optionee was entitled to exercise such option as of the date of his
death.
(f) Rights of Optionees. No Optionee shall be deemed for
any purpose to be the owner of any shares of Common Stock subject to any option
unless and until (i) the option shall have been exercised with respect to such
shares pursuant to the terms thereof, and (ii) the Company shall have issued
and delivered a certificate representing such shares. Thereupon, the Optionee
shall have full voting, dividend and other ownership rights with respect to
such shares of Common Stock.
5.2 Certain Optional-Terms. The Board or the Committee may in its
discretion provide, upon the grant of any option hereunder, that the Company
shall have an option to repurchase all or any number of shares purchased upon
exercise of such option. The repurchase price per share payable by the Company
shall be such amount or be determined by such formula as is fixed by the Board
or the
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<PAGE> 6
Committee at the time the option for the shares subject to repurchase was
granted. The Board or the Committee may also provide that the Company shall
have a right of first refusal with respect to the transfer or proposed transfer
of any shares purchased upon exercise of an option granted hereunder. In the
event the Board or the Committee shall grant options subject to the Company's
repurchase rights or rights of first refusal, the certificate or certificates
representing the shares purchased pursuant to the exercise of such option shall
carry a legend satisfactory to counsel for the Company referring to such
rights.
SECTION 6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
6.1 Notice of Exercise. Any option granted under the Plan may be
exercised by the Optionee by delivering to the Company on any business day a
written notice specifying the number of shares of Common Stock the Optionee
then desires to purchase and specifying the address to which the certificates
for such shares are to be mailed (the "Notice"), accompanied by payment for
such shares.
6.2 Means of Payment and Delivery. Payment for the shares of
Common Stock purchased pursuant to the exercise of an option shall be made
either (i) in cash equal to the option price for the number of shares specified
in the Notice (the "Total Option Price"), or (ii) if authorized by the
applicable option agreement, in shares of Common Stock of the Company having a
fair market value equal to or less than the Total Option Price, plus cash in an
amount equal to the excess, if any, of the Total Option Price over the fair
market value of such shares of Common Stock. For the purpose of the preceding
sentence, the fair market value of the shares of Common Stock so delivered to
the Company shall be determined in the manner specified in Section 5.1(c)
hereof. As promptly as practicable after receipt of such written notification
and payment, the Company shall deliver to the Optionee certificates for the
number of shares with respect to which such Option has been so exercised,
issued in the Optionee's name; provided, however, that such delivery shall be
deemed effected for all purposes when the Company or a stock transfer agent of
the Company shall have deposited such certificates in the United States mail,
addressed to the Optionee, at the address specified pursuant to Section 6.1.
SECTION 7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
7.1 No Effect of Options upon Certain Corporate Transactions.
The existence of outstanding options shall not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of Common Stock, or any issue of bonds, debentures,
preferred or prior preference
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<PAGE> 7
stock ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
7.2 Stock Dividends, Recapitalizations, Etc. If the Company shall
effect a subdivision or consolidation of shares or other capital readjustment,
the payment of a stock dividend, or other increase or reduction of the number
of shares of the Common Stock outstanding, without receiving compensation
therefor in money, services or property, then: (i) the number, class and per
share price of shares of stock subject to outstanding options hereunder shall
be appropriately adjusted in such a manner as to entitle an Optionee to receive
upon exercise of an option, for the same aggregate cash consideration, the same
total number and class of shares that the owner of an equal number of
outstanding shares of Common Stock would own as a result of the event requiring
the adjustment; and (ii) the number and class of shares with respect to which
options may be granted under the Plan shall be adjusted by substituting for the
total number of shares of Common Stock then reserved for issuance under the
Plan that number and class of shares of stock that the owner of an equal number
of outstanding shares of Common Stock would own as the result of the event
requiring the adjustment.
7.3 Determination of Adjustments. Adjustments under this Section
7 shall be determined by the Board or the Committee and such determinations
shall be conclusive. The Board or the Committee shall have the discretion and
power in any such event to determine and to make effective provision for
acceleration of the time or times at which any option or portion thereof shall
become exercisable. No fractional shares of Common Stock shall be issued under
the Plan on account of any adjustment specified above.
7.4 No Adjustment in Certain Cases. Except as hereinbefore
expressly provided, the issue by the Company of shares of stock of any class,
or securities convertible into shares of stock of any class, for cash or
property or for labor or services, either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, or upon conversion of shares or
obligations of the Company convertible into such shares or other securities,
shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock then subject to
outstanding options.
SECTION 8. EFFECT OF CERTAIN TRANSACTIONS
If the Company is a party to a reorganization or merger with one or
more other corporations, whether or not the Company is the surviving or
resulting corporation, or if the Company consolidates with or into one or more
other corporations, or if the Company is liquidated or sells or otherwise
disposes of substan-
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<PAGE> 8
tially all of its assets to another corporation (each hereinafter referred to
as a "Transaction"), in any such event while unexercised Options remain
outstanding under the Plan, then: (i) subject to the provisions of clause (iii)
below, after the effective date of such Transaction unexercised options shall
remain outstanding and shall be exercisable in shares of Common Stock, or, if
applicable, shares of such stock or other securities, cash or property as the
holders of shares of Common Stock received pursuant to the terms of such
Transaction; (ii) the Board may accelerate the time for exercise of all
unexercised and unexpired options to and after a date prior to the effective
date of such Transaction; or (iii) all outstanding options may be cancelled by
the Board as of the effective date of such Transaction, provided that (x)
notice of such cancellation shall be given to each holder of an option and (y)
each holder of an option shall have the right to exercise such option to the
extent that the same is then exercisable or, if the Board shall have
accelerated the time for exercise of all unexercised and unexpired options, in
full, during the 30-day period preceding the effective date of such
Transaction.
SECTION 9. AMENDMENT OF THE PLAN
The Board may terminate the Plan at any time, and may amend the Plan
at any time and from time to time, subject to the limitation that, except as
provided in Sections 7 and 8 hereof, no amendment shall be effective unless
approved by the stockholders of the Company in accordance with applicable law
and regulations, at an annual or special meeting held within twelve months
before or after the date of adoption of such amendment, in any instance in
which such amendment would: (i) increase the number of shares of Common Stock
as to which options may be granted under the Plan; or (ii) change in substance
the provisions of Section 4 hereof relating to eligibility to participate in
the Plan.
Except as provided in Sections 7 and 8 hereof, rights and obligations
under any option granted before termination or amendment of the Plan shall not
be altered or impaired by such termination or amendment except with the consent
of the Optionee.
SECTION 10. NON-EXCLUSIVITY OF THE PLAN; NON-UNIFORM DETERMINATIONS
Neither the adoption of the Plan by the Board nor the approval of the
Plan by the stockholders of the Company shall be construed as creating any
limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including without limitation the
granting of stock options otherwise than under the Plan, and such arrangements
may be either applicable generally or only in specific cases.
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<PAGE> 9
The Board's or Committee's determinations under the Plan need not be
uniform and may be made by it selectively among persons who receive or are
eligible to receive options under the Plan (whether or not such persons are
similarly situated). Without limiting the generality of the foregoing, the
Board or the Committee shall be entitled, among other things, to make
non-uniform and selective determinations, and to enter into non-uniform and
selective option agreements, as to (i) the persons to receive options under the
Plan, (ii) the terms and provisions of options, (iii) the exercise by the
Board or the Committee of its discretion in respect of the exercise of options
pursuant to the terms of the Plan, and (iv) the treatment of leaves of absence
pursuant to Section 5.1(e) hereof.
SECTION 11. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW;
WITHHOLDING TAXES
The obligation of the Company to sell and deliver shares of Common
Stock with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by government
agencies as may be deemed necessary or appropriate by the Board or the
Committee. All shares sold under the Plan shall bear appropriate legends. The
Company may, but shall in no event be obligated to, register or qualify any
shares covered by options under applicable federal and state securities laws;
and in the event that any shares are so registered or qualified the Company may
remove any legend on certificates representing such shares. The Company shall
not be obligated to take any other affirmative action in order to cause the
exercise of an option or the issuance of shares pursuant thereto to comply with
any law or regulation of any governmental authority. The Plan shall be
governed by and construed in accordance with the laws of Wyoming.
Whenever under the Plan shares are to be delivered upon exercise of an
option, the Company shall be entitled to require as a condition of delivery
that the Optionee remit an amount sufficient to satisfy all federal, state and
other governmental withholding tax requirements related thereto.
SECTION 12. EFFECTIVE DATE OF PLAN
The effective date of the Plan is March 30, 1994, the date on which it
was approved by the Board. No option may be granted under the Plan after the
tenth anniversary of such effective date.
* * *
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Exhibit 10.3
FIRST VIRTUAL HOLDINGS INCORPORATED
1995 STOCK PLAN
(AS ADOPTED SEPTEMBER 22, 1995)
1. Purposes of the Plan. The purposes of this Stock
Option Plan are to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to
Employees and Consultants of the Company and its Subsidiaries and to promote
the success of the Company's business. Options granted under the Plan may be
incentive stock options (as defined under Section 422 of the Code) or
nonstatutory stock options, as determined by the Administrator at the time of
grant of an option and subject to the applicable provisions of Section 422 of
the Code, as amended, and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its
Committees appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means a Committee appointed by the Board
of Directors in accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means First Virtual Holdings Incorporated,
a Wyoming corporation.
(g) "Consultant" means any person who is engaged by the
Company or any Parent or Subsidiary to render consulting or advisory services
and is compensated for such services. The term Consultant shall not include
directors who are not compensated for their services or are paid only a
director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant"
means that the employment or consulting relationship with the Company, any
Parent, or Subsidiary, is not interrupted or terminated. Continuous Status as
an Employee or Consultant shall not be considered interrupted in the case of
(i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any Subsidiary, or
any successor. A leave of absence approved by the Company shall include sick
leave, military leave, or any other personal leave approved by an authorized
representative of the Company. For purposes of Incentive Stock Options, no
such leave may exceed 90 days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract, including Company policies. If
reemployment upon expiration of a leave of
<PAGE> 2
absence approved by the Company is not so guaranteed, on the 91st day of such
leave any Incentive Stock Option held by the Optionee shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.
(i) "Employee" means any person, including Officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(k) "Fair Market Value" means, as of any date, the value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market of the Nasdaq Stock Market its Fair
Market Value shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange or system for the
last market trading day prior to the time of determination, as reported in The
Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for
the Common Stock on the last market trading day prior to the day of
determination, or;
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Administrator.
(l) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(m) "Nonstatutory Stock Option" means an Option not
intended to qualify as an Incentive Stock Option.
(n) "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "Option" means a stock option granted pursuant to the
Plan.
(p) "Optioned Stock" means the Common Stock subject to an
Option.
(q) "Optionee" means an Employee or Consultant who
receives an Option.
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(r) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this 1995 Stock Option Plan.
(t) "Share" means a share of the Common Stock, as
adjusted in accordance with Section 11 below.
(u) "Subsidiary" means a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 2,000,000 Shares. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having
been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued
under the Plan shall not be returned to the Plan and shall not become available
for future distribution under the Plan, except that if unvested Shares are
repurchased by the Company at their original purchase price, and the original
purchaser of such Shares did not receive any benefits of ownership of such
Shares, such Shares shall become available for future grant under the Plan.
For purposes of the preceding sentence, voting rights shall not be considered a
benefit of Share ownership.
4. Administration of the Plan.
(a) Plan Procedure.
(i) Administration with Respect to Directors and
Officers. With respect to grants of Options to Employees who are also Officers
or directors of the Company, the Plan shall be administered by (A) the Board if
the Board may administer the Plan in compliance with Rule 16b-3 promulgated
under the Exchange Act or any successor thereto ("Rule 16b-3") with respect to
a plan intended to qualify thereunder as a discretionary plan, or (B) a
Committee designated by the Board to administer the Plan, which Committee shall
be constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board
may increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder
as a discretionary plan.
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(ii) Multiple Administrative Bodies. If permitted
by Rule 16b-3, the Plan may be administered by different bodies with respect to
directors, non-director Officers and Employees who are neither directors nor
Officers.
(iii) Administration With Respect to Consultants
and Other Employees. With respect to grants of Options to Employees or
Consultants who are neither directors nor Officers of the Company, the Plan
shall be administered by (A) the Board or (B) a committee designated by the
Board, which committee shall be constituted in such a manner as to satisfy the
legal requirements relating to the administration of incentive stock option
plans, if any, of California corporate and securities laws, of the Code, and of
any applicable stock exchange (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of
the Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.
(b) Powers of the Administrator. Subject to the
provisions of the Plan and, in the case of a Committee, the specific duties
delegated by the Board to such Committee, and subject to the approval of any
relevant authorities, including the approval, if required, of any stock
exchange upon which the Common Stock or other securities of the Company are
listed, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the
Common Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to
whom Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent
Options are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under
the Plan;
(vi) to determine the terms and conditions of any
award granted hereunder;
(vii) to determine whether and under what
circumstances an Option may be settled in cash under subsection 9(f) instead of
Common Stock;
(viii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted; and
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<PAGE> 5
(ix) to construe and interpret the terms of the
Plan and awards granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option may, if
otherwise eligible, be granted additional Options.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value:
(i) of Shares subject to an Optionee's Incentive
Stock Options granted by the Company, any Parent or Subsidiary, which
(ii) become exercisable for the first time during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(c) The Plan shall not confer upon any Optionee any right
with respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship
at any time, with or without cause.
(d) Upon the Company or a successor corporation issuing
any class of common equity securities required to be registered under Section
12 of the Exchange Act or upon the Plan being assumed by a corporation having a
class of common equity securities required to be registered under Section 12 of
the Exchange Act, the following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal
year of the Company, Options to purchase more than 500,000 Shares.
(ii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization
as described in Section 11.
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<PAGE> 6
(iii) If an Option is canceled in the same fiscal
year of the Company in which it was granted (other than in connection with a
transaction described in Section 11), the cancelled Option will be counted
against the limit set forth in Section 5(d)(i). For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the
earlier to occur of its adoption by the Board of Directors or its approval by
the shareholders of the Company, as described in Section 17 of the Plan. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 13 of the Plan.
7. Term of Option. The term of each Option shall be the term
stated in the Option Agreement; provided, however, that the term shall be no
more than ten (10) years from the date of grant thereof. However, in the case
of an Incentive Stock Option granted to an Optionee who, at the time the Option
is granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be
issued pursuant to exercise of an Incentive Stock Option shall be such price as
is determined by the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
granted to an Employee who, at the time of the grant of such Incentive Stock
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of grant.
(ii) In the case of an Incentive Stock Option
granted to any Employee other than an Employee described in the preceding
paragraph, the per Share exercise price shall be no less than 100% of the Fair
Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment, shall be
determined by the Administrator (and, in the case of an Incentive Stock Option,
shall be determined at the time of grant) and may consist entirely of (1) cash,
(2) check, (3) if the exercise occurs on or after the date (the "Registration
Date") the Company first registers its common stock under Section 12(g) of the
Securities Exchange Act of 1934, as amended, surrender of other Shares which
(x) in the case of Shares acquired upon exercise of an Option have been owned
by the Optionee for more than six months on the date of surrender and (y) have
a Fair Market Value on the date of surrender equal to the aggregate exercise
price of the Shares as to which said Option shall be exercised, (4) if the
exercise occurs on or after the
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<PAGE> 7
Registration Date, delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price, or
(5) any combination of the foregoing methods of payment. In making its
determination as to the type of consideration to accept, the Board shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Board, including performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible under
the terms of the Plan, but in no case at a rate of less than 20% per year over
five (5) years from the date the Option is granted.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance
with the terms of the Option by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is exercised has
been received by the Company. Full payment may, as authorized by the Board,
consist of any consideration and method of payment allowable under Section 8(b)
of the Plan. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship.
In the event of termination of an Optionee's Continuous Status as an Employee
or Consultant with the Company (but not in the event of an Optionee's change of
status from Employee to Consultant (in which case an Employee's Incentive Stock
Option shall automatically convert to a Nonstatutory Stock Option on the
ninety-first (91st) day following such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination, or to such other extent as
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<PAGE> 8
may be determined by the Administrator. If the Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(c) Disability of Optionee. In the event of termination
of an Optionee's consulting relationship or Continuous Status as an Employee as
a result of his or her disability, Optionee may, but only within twelve (12)
months from the date of such termination (and in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination; provided, however, that if such disability is
not a "disability" as such term is defined in Section 22(e)(3) of the Code, in
the case of an Incentive Stock Option such Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the day three months
and one day following such termination. To the extent that Optionee is not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(d) Death of Optionee. In the event of the death of an
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of death. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall immediately revert to
the Plan. If, after death, the Optionee's estate or a person who acquired the
right to exercise the Option by bequest or inheritance does not exercise the
Option within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(e) Rule 16b-3. Options granted to persons subject to
Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain
such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
(f) Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares, an Option previously granted,
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. Non-Transferability of Options. Options may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the number of shares of Common Stock
covered by each outstanding Option, and the number of shares of Common Stock
which have been authorized for issuance under the Plan but
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<PAGE> 9
as to which no Options have yet been granted or which have been returned to the
Plan upon cancellation or expiration of an Option, as well as the price per
share of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an Option.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Board shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the
extent it has not been previously exercised, the Option will terminate
immediately prior to the consummation of such proposed action.
(c) Merger. In the event of a merger of the Company with
or into another corporation, the Option shall be assumed or an equivalent
option substituted by such successor corporation or a parent or subsidiary of
such successor corporation. For the purposes of this paragraph, the Option
shall be considered assumed if, following the merger, the option confers the
right to purchase, for each Share of Optioned Stock subject to the Option
immediately prior to the merger, the consideration (whether stock, cash, or
other securities or property) received in the merger by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger was not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent of
the successor corporation, provide for the consideration to be received upon
the exercise of the Option for each Share of Optioned Stock subject to the
Option to be solely common stock of the successor corporation or its Parent
equal in fair market value to the per share consideration received by holders
of Common Stock in the merger.
12. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date on which the Administrator makes the
determination granting such Option, or such other date as is determined by the
Board. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the
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<PAGE> 10
Exchange Act or with Section 422 of the Code (or any other applicable law or
regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such
amendment or termination of the Plan shall not affect Options already granted,
and such Options shall remain in full force and effect as if this Plan had not
been amended or terminated, unless mutually agreed otherwise between the
Optionee and the Board, which agreement must be in writing and signed by the
Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment
and without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have been obtained.
16. Agreements. Options shall be evidenced by written agreements
in such form as the Board shall approve from time to time.
17. Shareholder Approval. Continuance of the Plan shall be
subject to approval by the shareholders of the Company within twelve (12)
months before or after the date the Plan is adopted. Such shareholder approval
shall be obtained in the degree and manner required under applicable state and
federal law and the rules of any stock exchange upon which the Common Stock is
listed.
18. Information to Optionees and Purchasers. The Company shall
provide to each Optionee, not less frequently than annually, copies of annual
financial statements. The Company shall also provide such statements to each
individual who acquires Shares pursuant to the Plan
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<PAGE> 11
while such individual owns such Shares. The Company shall not be required to
provide such statements to key employees whose duties in connection with the
Company assure their access to equivalent information.
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<PAGE> 12
AMENDMENTS TO THE FIRST VIRTUAL HOLDINGS INCORPORATE
1995 STOCK PLAN
The 1995 Stock Plan is amended effective July 18, 1996, as follows:
FIRST: Section 2(g) is amended to read in its entirety as follows:
"(g) "Consultant" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services. The term also includes any non-Employee member
of the Board."
SECOND: Section 9(a) is amended to read in its entirety as follows:
"(b) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan."
THIRD: Sections 8(a)(iii) and 8(a)(iv) are added to read as follows:
"(iii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iv) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction."
FOURTH: Sections 11(b)and c) are amended to read in their entirety as follows:
<PAGE> 13
"(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee
to have the right to exercise his or her Option until ten (10) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option shall lapse as to all such
Shares, provided the proposed dissolution or liquidation takes place at the
time and in the manner contemplated. To the extent it has not been previously
exercised, an Option shall terminate immediately prior to the consummation of
such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the
assets of the Company, each outstanding Option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for an Option, the Optionee shall
fully vest in and have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which it would not otherwise be vested
or exercisable. If an Option becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option shall be fully vested and exercisable for a period of fifteen (15)
days from the date of such notice, and the Option shall terminate upon the
expiration of such period. For the purposes of this paragraph, an Option shall
be considered assumed if, following the merger or sale of assets, the option
confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received
in the merger or sale of assets by holders of Common Stock for each Share held
on the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares). If such consideration received in the merger or
sale of assets is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the
<PAGE> 14
exercise of the Option, for each Share of Optioned Stock subject to the Option,
to be solely common stock of the successor corporation or its Parent equal in
fair market value to the per Share consideration received by holders of Common
Stock in the merger or sale of assets."
FIFTH: Section 18 is deleted in its entirety.
SIXTH: In all other respects, the 1995 Stock Plan is hereby ratified and
confirmed.
/s/ LEE H. STEIN
- ------------------------------------
Lee H. Stein
Chairman and CEO
<PAGE> 1
EXHIBIT 10.4
FIRST VIRTUAL HOLDINGS INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of First Virtual Holdings Incorporated by providing eligible
employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll-deduction based employee stock
purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret
and construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares
of authorized but unissued or reacquired Common Stock, including shares of
Common Stock purchased on the open market. The maximum number of shares of
Common Stock which may be issued over the term of the Plan shall not exceed One
Hundred Thousand (100,000) shares.
B. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number and class of
securities issuable under the Plan, (ii) the maximum number and class of
securities purchasable per Participant on any one Purchase Date and (iii) the
number and class of securities and the price per share in effect under each
outstanding purchase right in order to prevent the dilution or enlargement of
benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase
under the Plan through a series of successive offering periods until such time
as (i) the maximum number of
<PAGE> 2
shares of Common Stock available for issuance under the Plan shall have been
purchased or (ii) the Plan shall have been sooner terminated.
B. The initial offering period shall commence at the
Effective Time and terminate on the last business day in December 1997. All
subsequent offering periods shall coincide with each calendar year.
C. Each offering period shall be comprised of a series
of successive semiannual Purchase Intervals. Purchase Intervals shall begin on
the first business day in January and July each year and terminate on the last
business day in the following June and December, respectively. However, the
first Purchase Interval under the initial offering period shall commence at the
Effective Time and terminate on the last business day in December, 1996.
V. ELIGIBILITY
A. Each Eligible Employee shall be eligible to enter an
offering period under the Plan on the start date of any Purchase Interval
within that offering period, provided he or she remains an Eligible Employee on
that date. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
B. To participate in the Plan for a particular offering
period, the Eligible Employee must complete the enrollment forms prescribed by
the Plan Administrator (including a stock purchase agreement and a payroll
deduction authorization form) and file such forms with the Plan Administrator
(or its designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant
for purposes of acquiring shares of Common Stock during any offering period may
be any multiple of one percent (1%) of the Base Salary paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
twenty percent (20%). The deduction rate so authorized shall continue in
effect throughout the offering period, except to the extent such rate is
changed in accordance with the following guidelines:
(i) The Participant may, at any time during the
offering period, reduce his or her rate of payroll deduction
to become effective as soon as possible after filing the
appropriate form with the Plan Administrator. The Participant
may not, however, effect more than one (1) such reduction per
Purchase Interval.
(ii) The Participant may, prior to the
commencement of any new Purchase Interval within the offering
period, increase the rate of his or her payroll deduction by
filing the appropriate form with the Plan Administrator.
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<PAGE> 3
The new rate shall become effective as of the start date of
the first Purchase Interval following the filing of such form.
B. Payroll deductions shall begin with the first pay day
following the Participant's Entry Date into the offering period and shall
(unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of that offering period,
provided that the Plan Administrator may delay the first payroll deduction with
respect to the initial offering period. The amounts so collected shall be
credited to the Participant's book account under the Plan, but no interest
shall be paid on the balance from time to time outstanding in such account.
The amounts collected from the Participant shall not be held in any segregated
account or trust fund and may be commingled with the general assets of the
Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under
the Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
VII. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be
granted a separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
conditions (not inconsistent with the Plan) as the Plan Administrator may deem
advisable.
Under no circumstances shall purchase rights be
granted under the Plan to any Eligible Employee if such individual would,
immediately after the grant, own (within the meaning of Code Section 424(d)) or
hold outstanding options or other rights to purchase, stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Corporation or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right
shall be automatically exercised in installments on each successive Purchase
Date within the offering period, and shares of Common Stock shall accordingly
be purchased on behalf of each Participant (other than any Participant whose
payroll deductions have previously been refunded in accordance with the
Termination of Purchase Right provisions below) on each such Purchase Date.
The purchase shall be effected by applying the Participant's payroll deductions
for the Purchase Interval ending on such Purchase Date to the purchase of
shares of Common Stock (subject to the limitation on the maximum number of
shares purchasable per Participant on any one Purchase Date) at the purchase
price in effect for the Participant for that Purchase Date.
-3-
<PAGE> 4
C. Purchase Price. The purchase price per share at
which Common Stock will be purchased on the Participant's behalf on each
Purchase Date within the offering period shall be equal to eighty-five percent
(85%) of the lower of (i) the Fair Market Value per share of Common Stock on
the Participant's Entry Date into that offering period or (ii) the Fair Market
Value per share of Common Stock on that Purchase Date. However, for each
Participant whose Entry Date is other than the start date of the offering
period, the clause (i) amount shall in no event be less than the Fair Market
Value per share of Common Stock on the start date of that offering period.
D. Excess Payroll Deductions. Any payroll deductions
not applied to the purchase of Common Stock by reason of the limitation on the
maximum number of shares purchasable by the Participant on the Purchase Date
shall be immediately refunded.
E. Termination of Purchase Right. The following
provisions shall govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the
next Purchase Date in the offering period, terminate his or her
outstanding purchase right by filing the appropriate form with the
Plan Administrator (or its designate), and no further payroll
deductions shall be collected from the Participant with respect to the
terminated purchase right. Any payroll deductions collected during
the Purchase Interval in which such termination occurs shall, at the
Participant's election, be immediately refunded or held for the
purchase of shares on the next Purchase Date. If no such election is
made at the time such purchase right is terminated, then the payroll
deductions collected with respect to the terminated right shall be
refunded as soon as possible.
(ii) The termination of such purchase right shall
be irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted.
In order to resume participation in any subsequent offering period,
such individual must re-enroll in the Plan (by making a timely filing
of the prescribed enrollment forms) on or before his or her scheduled
Entry Date into that offering period.
(iii) Should the Participant cease to remain an
Eligible Employee for any reason (including death, disability or
change in status) while his or her purchase right remains outstanding,
then that purchase right shall immediately terminate, and all of the
Participant's payroll deductions for the Purchase Interval in which
the purchase right so terminates shall be immediately refunded.
However, should the Participant cease to remain in active service by
reason of an approved unpaid leave of absence, then the Participant
shall have the right, exercisable up until the last business day of
the Purchase Interval in which such leave commences, to (a) withdraw
all the payroll deductions collected during such Purchase Interval or
(b) have such funds held for the purchase of shares on the next
scheduled Purchase Date. In no event, however, shall any further
payroll deductions be collected from the Participant during such
leave. Upon the
-4-
<PAGE> 5
Participant's return to active service, his or her payroll deductions
under the Plan shall automatically resume at the rate in effect at the
time the leave began.
F. Corporate Transaction. Each outstanding purchase
right shall automatically be exercised, immediately prior to the effective date
of any Corporate Transaction, by applying the payroll deductions of each
Participant for the Purchase Interval in which such Corporate Transaction
occurs to the purchase of shares of Common Stock at a purchase price per share
equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value
per share of Common Stock on the Participant's Entry Date into the offering
period in which such Corporate Transaction occurs or (ii) the Fair Market Value
per share of Common Stock immediately prior to the effective date of such
Corporate Transaction. However, the applicable limitation on the number of
shares of Common Stock purchasable per Participant on any one Purchase Date
shall continue to apply to any such purchase, and the clause (i) amount above
shall not, for any Participant whose Entry Date for the offering period is
other than the start date of that offering period, be less than the Fair Market
Value per share of Common Stock on such start date.
The Corporation shall use its best efforts to provide at least
ten (10)-days prior written notice of the occurrence of any Corporate
Transaction, and Participants shall, following the receipt of such notice, have
the right to terminate their outstanding purchase rights prior to the effective
date of the Corporate Transaction.
G. Proration of Purchase Rights. Should the total
number of shares of Common Stock which are to be purchased pursuant to
outstanding purchase rights on any particular date exceed the number of shares
then available for issuance under the Plan, the Plan Administrator shall make a
pro-rata allocation of the available shares on a uniform and nondiscriminatory
basis, and the payroll deductions of each Participant, to the extent in excess
of the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded.
H. Assignability. The purchase right shall be
exercisable only by the Participant and shall not be assignable or transferable
by the Participant.
I. Stockholder Rights. A Participant shall have no
stockholder rights with respect to the shares subject to his or her outstanding
purchase right until the shares are purchased on the Participant's behalf in
accordance with the provisions of the Plan and the Participant has become a
holder of record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (within
the meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000)
-5-
<PAGE> 6
worth of stock of the Corporation or any Corporate Affiliate (determined on the
basis of the Fair Market Value of such stock on the date or dates such rights
are granted) for each calendar year such rights are at any time outstanding.
B. For purposes of applying such accrual limitations,
the following provisions shall be in effect:
(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue in a series of installments on
each successive Purchase Date during the offering period for which
such right is granted.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one (1) or more other purchase rights at a rate
equal to Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the
date or dates of grant) for each calendar year such rights were at any
time outstanding.
C. If by reason of such accrual limitations, any
purchase right of a Participant does not accrue for a particular Purchase
Interval, then the payroll deductions which the Participant made during that
Purchase Interval with respect to such purchase right shall be promptly
refunded.
D. In the event there is any conflict between the
provisions of this Article and one or more provisions of the Plan or any
instrument issued thereunder, the provisions of this Article shall be
controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on July _, 1996 and
shall become effective at the Effective Time, provided no purchase rights
granted under the Plan shall be exercised, and no shares of Common Stock shall
be issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall have complied
with all applicable requirements of the 1933 Act (including the registration of
the shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation. In the event such
stockholder approval is not obtained, or such compliance is not effected,
within twelve (12) months after the date on which the Plan is adopted by the
Board, the Plan shall terminate and have no further force or effect and all
sums collected from Participants during the initial offering period hereunder
shall be refunded.
-6-
<PAGE> 7
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) ten years from the date on which the plan
was adopted, (ii) the date on which all shares available for issuance under the
Plan shall have been sold pursuant to purchase rights exercised under the Plan
or (iii) the date on which all purchase rights are exercised in connection with
a Corporate Transaction. No further purchase rights shall be granted or
exercised, and no further payroll deductions shall be collected, under the Plan
following such termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at
any time to become effective immediately following the close of any Purchase
Interval, provided that the Board may condition the effectiveness of any such
amendment on the Corporation having obtained the prior approval of the
Corporation's stockholders.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration
of the Plan shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant
any right to continue in the employ of the Corporation or any Corporate
Affiliate for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Corporate Affiliate
employing such person) or of the Participant, which rights are hereby expressly
reserved by each, to terminate such person's employment at any time for any
reason, with or without cause.
C. The provisions of the Plan shall be governed by the
laws of the State of California without resort to that State's conflict-of-laws
rules.
-7-
<PAGE> 8
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
First Virtual Holdings Incorporated
<PAGE> 9
APPENDIX
The following definitions shall be in effect under the Plan:
A. BASE SALARY shall mean the regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in the Plan, plus any pre-tax contributions made by the
Participant to any Code Section 401(k) salary deferral plan or any Code Section
125 cafeteria benefit program now or hereafter established by the Corporation
or any Corporate Affiliate. The following items of compensation shall not be
included in Base Salary: (i) all overtime payments, bonuses, commissions (other
than those functioning as base salary equivalents), profit-sharing
distributions and other incentive-type payments and (ii) any and all
contributions (other than Code Section 401(k) or Code Section 125
contributions) made on the Participant's behalf by the Corporation or any
Corporate Affiliate under any employee benefit or welfare plan now or hereafter
established.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation.
G. CORPORATION shall mean First Virtual Holdings Incorporated, a
Delaware corporation, and any corporate successor to all or substantially all
of the assets or voting stock of First Virtual Holdings Incorporated which
shall by appropriate action adopt the Plan.
H. EFFECTIVE TIME shall mean the time at which the Underwriting
Agreement is executed and finally priced. Any Corporate Affiliate which
becomes a Participating Corporation
A-1.
<PAGE> 10
after such Effective Time shall designate a subsequent Effective Time with
respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly
expected to render more than twenty (20) hours of service per week for more
than five (5) months per calendar year for earnings considered wages under Code
Section 3401(a).
J. ENTRY DATE shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(iii) For purposes of the initial offering period which
begins at the Effective Time, the Fair Market Value shall be deemed to
be equal to the price per share at which the Common Stock is sold in
the initial public offering pursuant to the Underwriting Agreement.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
M. PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.
N. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
A-2.
<PAGE> 11
O. PLAN shall mean the Corporation's Employee Stock Purchase
Plan, as set forth in this document.
P. PLAN ADMINISTRATOR shall mean the Board of Directors of the
Corporation or any committee of two (2) or more Board members appointed by the
Board to administer the Plan.
Q. PURCHASE DATE shall mean the last business day of each
Purchase Interval. The initial Purchase Date shall be the last business day in
December, 1996.
R. PURCHASE INTERVAL shall mean each successive period within the
offering period at the end of which there shall be purchased shares of Common
Stock on behalf of each Participant.
S. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
T. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3.
<PAGE> 1
EXHIBIT 10.6
[FIRST VIRTUAL LOGO]
August 8, 1996
Dr. Nathaniel S. Borenstein
1724 Shadford St.
Ann Arbor, MI 48104
Dear Nathaniel:
First Virtual Holdings, Incorporated, a Wyoming corporation, (the
Company) is pleased to offer you employment with the Company as Chief
Scientist. This letter will confirm the agreement between us for your
employment on the following terms and conditions.
1. Term of Employment.
The term of this agreement shall commence on the date hereof and continue for a
period of two (2) years ("initial term"), and, thereafter, at the sole option of
the Company, may be renewed for up to an additional one (1) year period of time
("first renewal term"), unless terminated earlier as herein provided. If the
Company elects to renew this agreement beyond the initial two year term, it
shall notify you in writing no later than sixty (60) days prior to the end of
the initial term.
2. Exclusive Employment; Location.
A. The Company hereby employs you, and you accept such employment, to
provide services to the Company, as directed by the Company. You shall perform
your services at the Company's offices in Ann Arbor, MI or as directed by the
CEO and Chairman of the Board. You agree to work full time for the Company.
You agree that during the term of this agreement you will not render
engineering or consulting services to anyone other than the Company without the
prior written consent of the Company, and that you will devote your full
business time, attention, and best efforts to the Company.
B. Notwithstanding anything contained herein to the contrary, you shall
be permitted to continue to work on your existing electronic publishing
projects ("Electric Eclectic" magazine and related matters) and make use of the
Company's hardware and software for this purpose; provided, however, that such
project does not increase in size or scope beyond what you have disclosed to
the Company so as to interfere with your obligations as stated in paragraph 2.A
above. The Company agrees that it shall have no ownership interest in such
projects.
Further, you agree that you will not execute any non disclosure agreements on
any project associated with paragraph 2.B or with any other company or
individual without first getting the written consent of the Company to said non
disclosure.
<PAGE> 2
Dr. Nathaniel S. Borenstein
August 8, 1996
Page 2
3. Termination for Cause
A. Notwithstanding the provisions of section I above, the Company shall
have the right at any time to terminate your employment, for Cause, upon
written notice to you. For purposes of this agreement, "Cause shall be defined
as: (i) your material breach of this agreement, provided that such breach has
not been cured within thirty (30) days after your receipt of written notice
from the Company describing in reasonable detail the circumstances of such
material breach; (ii) your dishonesty in performing your duties hereunder;
(iii) your use of drugs or alcohol to an extent which interferes with the
performance of your duties hereunder which occurs more than once in any six
month period; (iv) your repeated failure to devote proper time and attention to
the business of the Company; (v) your material or repeated failure to carry out
the directions, instructions, policies, rules, regulations or decisions of the
Board of Directors or Officers of the Company; (vi) your conviction for a
felony or other crime involving moral turpitude or pursuant to which you are
imprisoned, or (vii) your voluntary resignation from the Company prior to the
end of the initial term or renewal term, as applicable. For purposes of this
agreement, the words "repeated failure" shall mean two or more such failures
having occurred in any six month period, provided that the second failure has
occurred more than two (2) days after the Company has delivered to you written
notice of the first, describing it in reasonable detail.
B. Notwithstanding any provision herein to the contrary, in the event of a
termination of your employment for any reason, you shall be entitled to all
salary earned as of the date of termination, but the Company shall not be
liable to you for any compensation or severance pay for any period commencing
after the date of termination.
C. Notwithstanding any other term or provision of this agreement, your
employment shall automatically terminate in the event of your death or
disability. As used herein "disability" shall be understood as the term is
used in any Company provided group disability insurance or your inability to
perform the services required by this Agreement as determined by a physician
reasonably acceptable to the Company, which inability continues for more than
sixty (60) consecutive days, or for more than ninety (90) days in any twelve
month period. If there is a conflict between these two interpretations, the
one most favoring your continued employment will be used.
4. COMPENSATION.
A. Salary. In consideration thereof, the Company agrees to pay you a
salary at the rate of Two Hundred Thousand Dollars ($200,000) per annum payable
two times each month, with an effective date for such salary of July 1, 1996.
B. Renewal and Review of Salary. In the event this Agreement is renewed,
the Company will, yearly hereafter, review your performance and may, in its
sole discretion, elect to increase your salary at such times.
C. Stock Options. The Company granted you on April 11, 1996 options to
purchase one hundred thousand (100,000) shares of Common Stock in the Company
at $6.30 per share of Common Stock. The options shall vest on June 30, 1998
provided you are still an employee of the Company on that date. The parties
agree that as of the date of this Agreement you own no
<PAGE> 3
Dr. Nathaniel S. Borenstein
August 8, 1996
Page 3
shares of Common Stock of the Company, have been granted 353,425 options to
purchase Common Stock (which includes the grant included in this section), of
which 246,477 have vested as of April 30, 1996.
D. Insurance. You shall be eligible to participate in group life, health
or accident insurance plans that the Company may, or may not, adopt, in its
sole discretion, which covers any other employee of the Company.
E. Expense Reimbursement. The Company shall, subject to receipt of
appropriate documentation and further subject to any policies adopted by the
Company regarding such expenses, reimburse you for those ordinary and necessary
business expenses incurred in connection with the performance of your duties
hereunder, provided that you have obtained the Company's prior approval before
incurring business expenses for which you will desire reimbursement in excess
of $ 1,000 in any thirty (30) day period.
F. Vacation. You shall be eligible for four (4) weeks of paid vacation
per annum, provided no more than two (2) weeks are taken consecutively. Vacation
days not used during any year shall accrue and carry over to the following year,
but such accrued vacation shall not carry over again to the subsequent year if
not used in said year. The scheduling of your vacations shall be determined by
our mutual agreement so as not to materially interfere with the performance of
your responsibilities to the Company. You shall not be entitled to any payment
with respect to accrued vacation days not used, except upon termination of your
employment for any reason other than "Cause" (as defined below), in which event
you shall be paid for up to two (2) weeks of accrued vacation time not used.
5. OBLIGATIONS UPON TERMINATION.
A. After termination of your employment with the Company for any reason
or no reason, you agree that for a period of one (1) year after your
termination, you shall be available to the Company for up to fifteen (15)
hours per week, to perform consulting services for the Company upon its
request. You shall be paid monthly at the rate of $300 per hour for any such
consulting services performed by you. In the event you breach your obligations
hereunder the Company shall be entitled to offset against any amounts owed to
you by the Company the cost of a replacement consultant, provided, however,
that the amount offset shall be not greater than what you would have received
pursuant to this subparagraph 3.A.
B. You hereby acknowledge and agree that the Company shall in all events
be considered to be the owner of all Information relating to the business and
operations of the Company, irrespective of your having produced any such
Information. Upon a termination of your employment for any reason, you or your
estate, as the case may be, shall, at the request of the Company deliver
forthwith to the Company all Information. For purposes of this Agreement,
Information shall be defined to mean the following, which is not intended to
limit the foregoing: memoranda, notes, design notes, schematics, records,
reports, materials and other documents (including all copies thereof), as well
as computer data, disks and files, relating to (i) any and all matters on which
you worked while employed by the Company, or (ii) the business or accounts of
the Company and any other Company property, which are then in the possession or
control of you or your estate. Notwithstanding the foregoing, upon a
termination of your employment you
<PAGE> 4
Dr. Nathaniel S. Borenstein
August 8, 1996
Page 4
shall be entitled to take with you any printed materials that are in the public
domain, provided that the Company shall have the right to inspect and/or
duplicate all such materials prior to their leaving the Company's premises.
6. ASSIGNMENT OF INVENTIONS AND AGREEMENT TO COMPANY POLICIES
You agree to execute a customary form of Confidential Information and
Invention Assignment Agreement which obligates you to protect the Company's
proprietary and confidential information against disclosure, assign to the
Company, subject to applicable limitation of State law any inventions created
by you in the course of your employment in the form attached as Appendix "A",
and accept the Company's Voice-mail Policy and E-mail Policy attached as
Appendix "B". You shall be eligible to participate in the existing plans for
group life, health and accident insurance plans, and as the Company may adopt
in the future.
7. NON-COMPETITION
A. You agree that during the term of this agreement and for a period of
two (2) years after the termination of your employment for any reason
whatsoever or for no reason, you shall not:
1. directly or indirectly engage, participate or invest in or assist, as
owner, part owner, stockholder, partner, director, officer, trustee, employee,
agent or consultant, or in any other capacity, any business other than the
Company that provides or enables (i) systems for the authorization and
implementation of payments through Internet in connection with transactions
between buyers and sellers of goods, services or information (hereinafter the
"Virtual PIN"), or (ii) a link between Internet E-mail addresses to telephone
numbers using TPC.INT or similar techniques connecting the Virtual PIN with the
telephone (either of the foregoing, a "Competing Business"); provided however
that the prohibition in Section 7.A. 1 (ii) shall only apply for a period of
three (3) months after the termination of your employment for any reason or for
no reason whatsoever; nor,
2. directly or indirectly contact or solicit any current or former
employee of the Company or any person or entity with whom the Company has had a
business relationship for purposes of entering into a Competing Business or
activity contrary to the best interest of the Company.
3. The restrictions contained in this paragraph shall apply worldwide,
but shall not prohibit you from purchasing or holding passive investments in
limited partnerships or no more than five percent (5%) of the stock or other
securities of any corporation (regardless of its business) which has securities
listed upon any recognized securities exchange or traded on a recognized market
in the United States.
B. You expressly agree and acknowledge that the restrictions in this
paragraph shall be deemed and construed as a series of separate covenants, one
for each state in the United States and each province in Canada, and one for
each country in the world outside the United States and Canada. In the event
that any court of competent jurisdiction shall determine that any one or more
of such covenants are invalid, unenforceable or unreasonable, such
determination shall not affect the validity, enforceability or reasonableness
of any other such covenant, and the remaining covenants shall continue in full
force and effect.
<PAGE> 5
Dr. Nathaniel S. Borenstein
August 8. 1996
Page 5
C. You agree that the Paragraph 9, Arbitration and Equitable Relief as
found in Appendix A will apply to any dispute arising from or related to this
Agreement.
8. REGISTRATION RIGHTS.
A. The Company agrees that, in the event of a public offering of its
common stock after its Initial Public Offering and subject to any Registration
Rights Agreement then in effect, you may include in the registration statement
pro rata any stock of the Company owned by you, subject to such conditions and
restrictions as the underwriter of any such offering may reasonably impose on
you and other individuals wishing to sell shares in such offering.
B. All costs incurred in connection with such registration shall be borne
by the Company, other than (i) costs of separate counsel, if any, retained by
you in connection with such registration, and (ii) commissions, selling
expenses or other similar charges applicable to the stock sold by you pursuant
to such registration. You further agree to execute and deliver any
indemnification, holdback or other agreements required by such underwriter.
9. PRIOR AGREEMENTS: SATISFACTION.
You represent and warrant that no prior contract or agreement to which
you are a party or any prior performance of any such agreement will interfere
in any manner, or conflicts with, the terms of and complete performance of
this agreement. Further, the parties agree that each has performed all its
obligations as found in any prior agreements between the parties and this
Agreement is the sole understanding between them.
10. MISCELLANEOUS.
A. This agreement contains the entire agreement between us and supersedes
all prior oral and written understandings between us with respect to the
subject matter hereof. This agreement cannot be modified except by a written
agreement signed by both the Company and you.
B. No waiver by either party hereto of any breach by the other party of
any term of this agreement shall be effective unless in writing nor shall any
such waiver be construed as a waiver of any other breach (whether prior or
subsequent) of the same or any other term of this agreement.
This agreement and your rights hereunder are personal to you, and neither this
agreement nor any right or interest herein or arising hereunder shall be
subject to voluntary or involuntary assignment or transfer by you; provided,
however, that this agreement shall inure to the benefit of you and your heirs,
legatees, estate or legal representatives. All rights and obligations of the
Company under this agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the Company.
D. You agree that the Company may purchase life insurance on your life
with the Company as the sole beneficiary and you agree to cooperate in the
Company's effort to secure said life insurance. At the Company's sole option,
upon your termination of employment for any reason
<PAGE> 6
Dr. Nathaniel S. Borenstein
August 8, 1996
Page 6
or no reason, you may be given the opportunity to purchase said life insurance
from the Company at a price to be determined by the Company.
If the foregoing is acceptable to you, please sign on the line provided below
and return one copy to me at your earliest convenience. When so countersigned,
this letter shall serve as a binding agreement between us and shall be
construed in accordance with the laws of the State of California to agreements
made and performed therein.
Sincerely,
First Virtual Heading Incorporated:
/s/ Lee H. Stein
By:______________________________
Lee H. Stein
Chairman and CEO
Accpted:
Date:8/8/96
/s/ Nathaniel S. Borenstein
_________________________________
Nathaniel S. Borenstein
<PAGE> 1
EXHIBIT 10.7
July 15, 1996
Dr. Marshall T. Rose
Dear Marshall:
First Virtual Holdings Incorporated, a Delaware corporation, (the
Company) is pleased to offer you employment with the Company as Technical
Advisor, Office of the Chairman. This letter will confirm the agreement
between us for your employment on the following terms and conditions.
1. TERM OF EMPLOYMENT.
The term of this agreement shall commence on the date hereof and continue for a
period of two(2) years ("initial term"), and, thereafter, at the sole option of
the Company, may be renewed for up to an additional one (1) year period of time
("first renewal term"), unless terminated earlier as herein provided. If the
Company elects to renew this agreement beyond the initial two year term, it
shall notify you in writing no later than sixty (60) days prior to the end of
the initial term.
2. EXCLUSIVE EMPLOYMENT; LOCATION.
A. The Company hereby employs you, and you accept such employment, to
provide services to the Company, as directed by the CEO and Chairman. You
shall perform your services at the Company's offices in San Diego, CA or as
directed by the Company. You agree to work full time for the Company. You
agree that during the term of this agreement you will not render engineering or
consulting services to anyone other than the Company without the prior written
consent of the Company, and that you will devote your full business time,
attention, and best efforts to the Company.
B. Notwithstanding anything contained herein to the contrary and in
reliance upon your continuing disclosure of any such activity, a first
disclosure of which is found in Exhibit D, you shall be permitted to continue
to work on existing consulting arrangements through your solely owned
consulting company, Dover Beach Consulting and make use of the Company's
hardware and software for this purpose; provided, however, that such consulting
does not increase in size or scope beyond what you have disclosed to the
Company in Exhibit D so as to interfere with your obligations as stated in
paragraph 2.A above. The Company agrees that it shall have no ownership
interest in such projects.
C. Further, you agree that neither Dover Beach Consulting on your behalf
nor you personally will execute any non disclosure agreements associated with
the projects mentioned in section 2.B nor with any other company or individual
without first getting the written consent of the Company to said non
disclosure.
<PAGE> 2
Dr. Marshall T. Rose
July 19, 1996
Page 2
3. TERMINATION FOR CAUSE
A. Notwithstanding the provisions of paragraph 2A above, the Company
shall have the right at any time to terminate your employment, for Cause, upon
written notice to you. For purposes of this agreement, "Cause" shall be
defined as: (i) your material breach of this agreement, provided that such
breach has not been cured within thirty (30) days after your receipt of written
notice from the Company describing in reasonable detail the circumstances of
such material breach; (ii) your dishonesty in performing your duties hereunder;
(iii) your use of drugs or alcohol to an extent which interferes with the
performance of your duties hereunder which occurs more than once in any six
month period; (iv) your repeated failure to devote proper time and attention to
the business of the Company; (v) your material or repeated failure to carry out
the directions, instructions, policies, rules, regulations or decisions of the
Board of Directors or Officers of the Company; (vi) your conviction for a
felony or other crime involving moral turpitude or pursuant to which you are
imprisoned, or (vii) your voluntary resignation from the Company prior to the
end of the initial term or renewal term, as applicable. For purposes of this
agreement, the words "repeated failure" shall mean two or more such failures
having occurred in any six month period, provided that the second failure has
occurred more than two (2) days after the Company has delivered to you written
notice of the first, describing it in reasonable detail.
B. Notwithstanding any provision herein to the contrary, in the event of
a termination of your employment for any reason, you shall be entitled to all
salary earned as of the date of termination, but the Company shall not be
liable to you for any compensation or severance pay for any period commencing
after the date of termination.
C. Notwithstanding any other term or provision of this agreement, your
employment shall automatically terminate in the event of your death or
disability. As used herein "disability" shall be understood as the term as used
in any Company provided group disability insurance or your inability to perform
the services required by this Agreement as determined by a physician reasonably
acceptable to the Company, which inability continues for more than sixty (60)
consecutive days, or for more than ninety (90) days in any twelve month period.
If there is a conflict between these two interpretations, the one most favoring
your continued employment will be used.
4. COMPENSATION.
A. Salary. In consideration thereof, the Company agrees to pay you a
salary at the rate of Two Hundred Thousand Dollars ($200,000) per annum
payable two times each month, with an effective date for such salary of
July 1, 1996.
B. Renewal and Review of Salary. In the event this Agreement is renewed,
the Company will, yearly hereafter, review your performance and may, in its
sole discretion, elect to increase your salary at such times.
-2-
<PAGE> 3
Dr. Marshall T. Rose
July 19, 1996
Page 3
C. Stock Options. The Company granted you on April 11, 1996
Non-Qualified Options to purchase one hundred thousand (100,000) shares of
Common Stock in the Company at $6.30 per share of Common Stock. The options
shall vest on June 30, 1998 provided you are still an employee of the Company
on that date. The parties agree that as of the date of this Agreement you own
248,875 shares of Common Stock of the Company, and have been granted a total of
104,550 Non-Qualified options to purchase Common Stock (which includes the
100,000 grant previously mentioned in this section), of which 2,275 have
vested as of June 30, 1996.
D. Insurance. You shall be eligible to participate in group life, health
or accident insurance plans that the Company may, or may not, adopt, in its
sole discretion, which covers any other employee of the Company.
E. Expense Reimbursement. The Company shall, subject to receipt of
appropriate documentation and further subject to any policies adopted by the
Company regarding such expenses, reimburse you for those ordinary and necessary
business expenses incurred in connection with the performance of your duties
hereunder, provided that you have obtained the Company's prior approval before
incurring business expenses for which you will desire reimbursement in excess
of $3,000 in any thirty (30) day period.
F. Vacation. You shall be eligible for four (4) weeks of paid vacation
per annum, with no more than two (2) weeks taken consecutively. Vacation days
not used during any year shall accrue and carry over to the following year, but
such accrued vacation shall not carry over again to the subsequent year if not
used in said year. The scheduling of your vacations shall be determined by our
mutual agreement so as not to materially interfere with the performance of your
responsibilities to the Company. You shall not be entitled to any payment with
respect to accrued vacation days not used, except upon termination of your
employment for any reason other than "Cause" (as defined above), in which event
you shall be paid for up to two (2) weeks of accrued vacation time not used.
5. OBLIGATIONS UPON TERMINATION.
A. After termination of your employment with the Company for any reason
or no reason, you agree that for a period of one (1) year after your
termination, you shall be available to the Company for up to fifteen (15) hours
per week, to perform consulting services for the Company upon its request. You
shall be paid monthly at the rate of $1500 per hour for any such consulting
services performed by you. In the event you breach your obligations hereunder
the Company shall be entitled to offset against any amounts owed to you by the
Company the cost of a replacement consultant, provided, however, that the
amount offset shall be not greater than what you would have received pursuant
to this subparagraph 5.A.
B. You hereby acknowledge and agree that the Company shall in all events
be considered to be the owner of all Information relating to the business and
operations of the Company, irrespective of your having produced any such
Information. Upon a termination of your employment for any reason, you or your
estate, as the case may be, shall, at the request of the Company deliver
forthwith to the Company all Information. For purposes of this Agreement,
"Information" shall be defined to mean the following, which is not intended to
limit the foregoing: memoranda, notes, design notes, schematics, records,
reports, materials and other documents (including all copies thereof), as well
as computer data, disks and files, relating to (i) any and all matters on which
you worked while employed by the Company, or
-3-
<PAGE> 4
Dr. Marshall T. Rose
July 19, 1996
Page 4
(ii) the business or accounts of the Company and any other Company
property, which are then in the possession or control of you or your estate.
Notwithstanding the foregoing, upon a termination of your employment you shall
be entitled to take with you any printed materials that are in the public
domain, provided that the Company shall have the right to inspect and/or
duplicate all such materials prior to their leaving the Company's premises.
6. ASSIGNMENT OF INVENTIONS AND AGREEMENT TO COMPANY POLICIES
You agree to execute a Confidential Information and Invention
Assignment Agreement, which obligates you to protect the Company's proprietary
and confidential information against disclosure, assign to the Company, subject
to applicable limitation of State law any inventions created by you in the
course of your employment in the form attached as Appendix "A", and accept the
Company's Voice-mail Policy and E-mail Policy attached as Appendix "B".
7. NON-COMPETITION
A. You agree that during the term of this agreement and for a period of
two (2) years after the termination of your employment for any reason
whatsoever or for no reason, you shall not:
1 . directly or indirectly engage, participate or invest in or
assist, as owner, part owner, stockholder, partner, director, officer,
trustee, employee, agent or consultant, or in any other capacity, any
business other than the Company that provides or enables (i) systems
for the authorization and implementation of payments through Internet
in connection with transactions between buyers and sellers of goods,
services or information (hereinafter the "Virtual PIN"), or (ii) a
link between Internet E-mail addresses to telephone numbers using
TPC.INT or similar techniques connecting the Virtual PIN with the
telephone (either of the foregoing, a "Competing Business"); provided
however that the prohibition in Section 7.A. I (ii) shall only apply
for a period of three (3) months after the termination of your
employment for any reason or for no reason whatsoever; nor,
2. directly or indirectly contact or solicit any current or
former employee of the Company or any person or entity with whom the
Company has had a business relationship for purposes of entering into
a Competing Business or any activity directly and materially contrary
to the best interests of the Company; provided however, that the
Company shall provide written notice of a violation of this section
and allow you a reasonable opportunity to cure such default by way of
explanation or cessation of such activity prior to undertaking any
action.
3. The restrictions contained in this paragraph shall apply
worldwide, but shall not prohibit you from purchasing or holding
passive investments in limited partnerships or no more than five
percent (5%) of the stock or other securities of any corporation
(regardless of its business) which has securities listed upon any
recognized securities exchange or traded on a recognized market in the
United States.
-4-
<PAGE> 5
Dr. Marshall T. Rose
July 19, 1996
Page 5
B. You expressly agree and acknowledge that the restrictions in this
paragraph shall be deemed and construed as a series of separate covenants, one
for each state in the United States and each province in Canada, and one for
each country in the world outside the United States and Canada. In the event
that any court of competent jurisdiction shall determine that any one or more
of such covenants are invalid, unenforceable or unreasonable, such
determination shall not affect the validity, enforceability or reasonableness
of any other such covenant, and the remaining covenants shall continue in full
force and effect.
C. You agree that the Paragraph 9. "Arbitration and Equitable Relief" as
found in Appendix A will apply to any dispute arising from or related to this
Agreement.
8. REGISTRATION RIGHTS.
A. The Company agrees that, in the event of a public offering of its
common stock after its Initial Public Offering and subject to any Registration
Rights Agreement then in effect, you may include in the registration statement
pro rata any stock of the Company owned by you, subject to such conditions and
restrictions as the underwriter of any such offering may reasonably impose on
you and other individuals wishing to sell shares in such offering.
B. All costs incurred in connection with such registration shall be borne
by the Company, other than (i) costs of separate counsel, if any, retained by
you in connection with such registration, and (ii) commissions, selling
expenses or other similar charges applicable to the stock sold by you pursuant
to such registration. You further agree to execute and deliver any
indemnification, holdback or other agreements required by such underwriter.
9. Prior Agreements: Satisfaction.
You represent and warrant that no prior contract or agreement to which
you are a party or any prior performance of any such agreement will interfere
in any manner, or conflicts with, with the terms of and complete performance of
this agreement. Further the parties agree that each has performed all its
obligations as found in any prior agreements between the parties and this
Agreement is the sole understanding between them.
10. MISCELLANEOUS.
A. This agreement contains the entire agreement between us and supersedes
all prior oral and written understandings between us with respect to the
subject matter hereof. This agreement cannot be modified except by a written
agreement signed by both the Company and you.
B. No waiver by either party hereto of any breach by the other party
of any term of this agreement shall be effective unless in writing nor shall
any such waiver be construed as a waiver of any other breach (whether prior
or subsequent) of the same or any other term of this agreement.
-5-
<PAGE> 6
Dr. Marshall T. Rose
July 19, 1996
Page 6
C. This agreement and your rights hereunder are personal to you, and
neither this agreement nor any right or interest herein or arising hereunder
shall be subject to voluntary or involuntary assignment or transfer by you;
provided, however, that this agreement shall inure to the benefit of you and
your heirs, legatees, estate or legal representatives. All rights and
obligations of the Company under this agreement shall be binding upon and shall
inure to the benefit of the successors and assigns of the Company.
D. You agree that the Company may purchase insurance on your life with
the Company as the sole beneficiary and you agree to cooperate in the Company's
effort to secure said life insurance. At the Company's sole option, upon your
termination of employment for any reason or no reason, you may be given the
opportunity to purchase said life insurance from the Company at a price to be
determined by the Company.
11. If the foregoing is acceptable to you, please sign on the line
provided below and return one copy to me at your earliest convenience. When so
countersigned, this letter shall serve as a binding agreement between us
and shall be construed in accordance with the laws of the State of California
applicable to agreements made and performed therein.
Sincerely,
First Virtual Holdings Incorporated:
By: /s/ LEE H. STEIN
------------------------------
Lee H. Stein
Chairman and CEO
Accepted:
/s/ MARSHALL T. ROSE
- ------------------------------
Marshall T. Rose
-6-
<PAGE> 7
Dr. Marshall T. Rose
July 19, 1996
Page 7
EXHIBIT D TO EMPLOYMENT AGREEMENT
FOR MARSHALL T. ROSE WITH
FIRST VIRTUAL HOLDINGS INCORPORATED
1. Consulting with Fax Box Corporation.
2. Internet related consulting w/AT&T, two days each month.
/s/ LEE H. STEIN /s/ MARSHALL T. ROSE
- ------------------------- -------------------------
Lee H. Stein Marshall T. Rose
-7-
<PAGE> 1
EXHIBIT 10.8
[FIRST VIRTUAL HOLDINGS INCORPORATED LETTERHEAD]
October 14, 1996
John Stachowiak
16836 South East 58th St.
Bellevue, WA 98006
Dear John:
This letter is to formalize our offer to you for employment with First Virtual
Holdings Incorporated as Vice President, Finance & Administration and Chief
Financial Officer reporting directly to the Chairman and CEO, or such other
Officer as the Board of Directors may designate.
Salary and Bonus.
The initial annual salary shall be $200,000 payable two times each month, and
we will give you a periodic review of performance and wages on not less than an
annual basis.
Option Grant.
We will also grant you Incentive Stock Options ("Options") to purchase 100,000
shares of Common stock at an exercise price of $11 per share. These Options
shall vest in accordance with the 1995 Stock Option Plan, which provides that
25% of the shares subject to the option shall vest and become exercisable on
the first anniversary of the vesting commencement date, and an additional
1/48th of the shares subject to the option shall vest at the end of each
one-month period thereafter and become exercisable provided in each case that
the optionee remains an employee and/or consultant of the Corporation.
In consideration of your execution of this Agreement, we will also grant you an
Incentive Stock Option to purchase 25,000 shares of Common stock at an exercise
price of $11.00 per share. This Incentive Stock Option shall vest 180 days
after the Company's Initial Public Offering ("IPO") provided that you agree
that said Incentive Stock Option is subject to any lock up agreement required
by the Company's underwriters ("Signing Option"). In the event the Company does
not complete an IPO within twelve months of the date of this letter, the
Signing Options shall vest along with all other Options in
<PAGE> 2
Mr. John Stachowiak
October 14, 1996
Page 2
accordance with the 1995 Stock Option Plan with the inception date the same as
those of the Options.
Relocation and Travel Expenses.
We understand that your family will remain in Seattle for a period while your
children complete high school. Therefore during your first two years of
employment, the Company would further agree to pay all your Relocation and
Travel Expenses up to $50,000 per year. This right to reimbursement will
terminate at the earlier of two years from the date of your execution of this
Agreement or the date your family moves to San Diego permanently. Relocation
and Travel Expenses shall include all necessary and reasonable expenses and
costs associated with the relocation of you and your family, household goods
and vehicles to San Diego and all expenses related to your travel between
Seattle and San Diego. Relocation and Travel Expenses shall include by way of
explanation and not limitation, the following:
(i) trips to the San Diego area for you and your family to locate a suitable
residence; and,
(ii) commissions, fees, escrow fees, loan origination or assumption fees, and
all other closing costs associated with the sale of your residence in Bellevue
and purchase of a residence in the San Diego area; and,
(iii) moving expenses for all household goods; and,
(iv) travel and temporary living expenses (rent, food, telephone) in the San
Diego area for the initial two years; provided however, that all such expenses
must be supported by receipts and must be reasonable in light of the
reimbursement sought.
Other Benefits.
You will be entitled to three weeks paid vacation during each year of
employment. You shall be eligible to participate in the existing plans for
group life, health and accident insurance plans, and as the Company may adopt
in the future.
Representations and Warranties.
You represent and warrant that no prior contract or agreement to which you are
a party or any prior performance of any such agreement will interfere in any
manner, or conflicts with, the terms of and complete performance of this
agreement.
This offer is subject to your agreement to the terms and conditions found in
Appendices A and B. Appendix A includes basic contractual terms and a customary
form of
<PAGE> 3
Mr. John Stachowiak
October 14, 1996
Page 3
employee Proprietary Information and Confidentiality Agreement. Appendix B
includes the Company's Voice-mail Policy and E-mail Policy. This letter along
with Appendix A and B form your employment agreement with the Company.
Your execution of this letter will create a binding agreement between you and
the Company. We are excited to have you with us and look forward to working
together to ensure the continued success of First Virtual.
Sincerely,
First Virtual Holdings Incorporated
/s/ Lee Stein
Lee Stein
Chairman and Chief Executive Officer
Accepted: /s/ John Stachowiak
-------------------
John Stachowiak
Date: 10/14/96
_________
<PAGE> 1
EXHIBIT 10.9
[FIRST VIRTUAL LETTERHEAD]
August 27, 1996
Mr. Michael D. Schauer
7281 Country Club Lane
West Chester, Ohio 45069
Dear Michael:
This letter is to formalize our offer to you for employment with First Virtual
Holdings Incorporated as President of Financial Services reporting directly to
the Chairman and CEO, or such other Officer as the Board of Directors may
designate.
SALARY AND BONUS.
The initial annual salary shall be $275,000 payable two times each month, and
we will give you a periodic review of performance and wages on not less than an
annual basis. We have also agreed that you will be eligible for a bonus, equal
to one hundred percent (100%) of your annual salary, after each full year of
employment. Any bonus will be at the sole discretion of the Company's Board of
Directors; provided however, that for the first year of your employment, the
Company shall guaranty fifty percent (50%) of your annual bonus, payable in a
lump sum payment of $137,500 on February 1, 1997. Thus after your first year
of employment, the Board of Directors of the Company shall decide whether you
are entitled to the remaining fifty percent (50%) of your annual bonus.
BUY-OUT OF FORMER EMPLOYER'S BONUS.
As an inducement for you to sign this Agreement, the Company agrees to pay you,
in addition to your salary, $22,917.00 per month for the first six (6) months
of your employment with the Company. This amount is intended to compensate you
for the amount you would have been paid by your former employer as an annual
bonus during this period.
OPTION GRANT.
We will also grant you an option to purchase 225,000 shares of the Company's
Common Stock, with a price per share of Common Stock at $11 per share
("Options"). 25,000 of the Options shall vest on September 1, 1997. In the
event the Company undertakes an Initial Public Offering ("IPO") and the
Company's stock is listed on NASDAQ the Company agrees to amend your option
agreement so that 50,000 of the Options shall vest upon the IPO provided that
you agree that all options are subject to any lock up agreement required by the
Company's underwriters ("Signing Options"). Subject to the terms of your
Severance Package, for any Options to vest, you must be an employee of the
Company on the applicable dates.
<PAGE> 2
Mr. Michael D. Schauer
August 26, 1996
Page 2
All remaining Options (150,000) shall vest in accordance with the 1995 Stock
Option Plan, which provides that 25% of the shares subject to the option shall
vest and become exercisable on the first anniversary of the vesting commencement
date, and an additional 1/48th of the shares subject to the option at the end of
each one-month period thereafter shall vest and become exercisable provided in
each case that the optionee remains an employee and/or consultant of the
Corporation. In the event the company does not complete an IPO within twelve
months of the date of this letter, the Signing Options shall vest along with all
other Options in accordance with the 1995 Stock Option Plan with the vesting
inception date the same as those of the Options.
RELOCATION EXPENSES.
The Company would further agree to pay all your Relocation Expenses incurred
during your first year of employment up to $100,000. Relocation Expenses shall
include all necessary and reasonable expenses and costs associated with the
relocation of you and your family, household goods and vehicles to San Diego and
shall include by way of explanation and not limitation, the following:
(1) trips to the San Diego area for you and your family to locate a suitable
residence; and,
(ii) commissions, fees, escrow fees, loan origination or assumption fees, and
all other closing costs associated with the sale of your residence in West
Chester, Ohio and purchase of a residence in the San Diego area; and,
(iii) moving expenses for all household goods; and,
(iv) temporary living expenses (rent, food, telephone) in the San Diego area
provided however, that all such expenses must be supported by receipts and must
be reasonable in light of the reimbursement sought; and,
(v) also included as a Relocation Cost shall be the amount paid by the Company
to assist you in selling your home located in West Chester, Ohio ("Home") or
the Equity in your Home.
In the event your Home remains unsold after listing your Home for sale with a
real estate broker for at least ninety (90) days ("List Period") the Company
shall purchase your Home for the Fair Market Value of your Home. The Company
shall have the right to assign this obligation to purchase your Home. The
Company's obligation is to pay you or have a third party pay you the Equity in
your Home in cash or cash equivalents within sixty (60) days of the ending of
the List Period. You shall cooperate with the Company in preparing and
executing any documents if the Company is required to pay you the Equity. You
understand that should the Company sell your Home to a third party and receive a
profit over what was paid you, the Company will be solely entitled to the
profit. For purposes of this paragraph, "Equity" shall be defined as the
monetary difference between all mortgages and other liens on the property and
the Fair Market Value. We shall define "Fair Market Value" as the average of
values determined by two independent appraisers working separately provided that
each value is within five percent of the other using the higher value as the
base to determine the percentage. In the event the appraiser's value is not
<PAGE> 3
Mr. Michael D. Schauer
August 26, 1996
Page 3
within five percent of each other as determined in the preceding sentence, we
shall retain a third appraiser and use that appraiser's valuation provided that
the value is between the values determined by the first two appraisers. If the
third appraiser's value is not between the first two appraiser's value we shall
average all three and use that as the Fair Market Value.
In the event your Relocation Expenses exceed $100,000.00 and the excess is
caused by the Company's payments to assist you in selling your Home or the
Equity, the Company will review in good faith this limitation of the Relocation
Expense and at the sole discretion of the Board of Directors increase the
limitation on the Relocation Expense.
The Company agrees to pay all federal and state income taxes due on said
reimbursement, to the extent that any reimbursement is not deductible against
your federal or state income taxes. This amount will be a separate payment
from the Relocation Expense payment.
OTHER BENEFITS.
You will be entitled to four weeks paid vacation during each year of
employment, provided that no more than one week is taken at a time without the
permission of the Company. You shall be eligible to participate in the
existing plans for group life, health and accident insurance plans, and as the
Company may adopt in the future. The Company agrees to maintain your health
insurance by paying your health insurance premiums for your health insurance
from your former employer during the period in which you are not eligible for
health insurance through the Company's insurance policies.
SEVERANCE PACKAGE.
You understand that the Company agrees that in the event the Company terminates
your employment for any reason other than Cause, the Company would continue
paying you your current monthly salary for twelve (12) months and would also
pay an amount equal to the prior year's bonus, paid pro rata over the
succeeding twelve months after your termination for any reason other than
Cause, provided however, that the bonus payment would be the greater of
$275,000 or your prior year's bonus. Further, if terminated for any reason
other than Cause during the first twelve months of employment, all Signing
Options granted in this Agreement shall vest and become exercisable on the
later of the date of termination or the underwriter's lock up period.
Thereafter, if terminated for any reason other than Cause, shares subject to
vesting within six months of your date of termination shall vest and become
exercisable on the date of termination. You understand that any accelerated
options may not qualify for Incentive Stock Option treatment. The payment of
salary and acceleration of options as provided herein in the event of your
termination for a reason other than Cause shall be your sole and exclusive
remedy in the event of your termination for a reason other than Cause
("Severance Package").
The Company further agrees that you have the right to terminate your employment
with the Company and will be entitled to the Severance Package if (x) fifty one
percent (51%) or more, of the outstanding shares of stock of the Company are
sold in any single transaction ("Change of Control"); and, (y) there is any
material adverse effect on your employment. Adverse effect may include change
of job location, reduced responsibilities, change in reporting relationships,
or any other impact that you in your sole discretion deem adverse, provided
however, that you must
<PAGE> 4
Mr. Michael D. Schauer
August 26, 1996
Page 4
notify the Company in writing within ninety (90) days of the Change in Control
of your election to terminate your employment and receive the Severance Package.
Upon the Company receiving said notification, it shall have fifteen (15) days
within which it may attempt to cure the adverse effect. Both parties shall act
in good faith and make reasonable efforts to resolve any disputes in this
regard. If, acting in good faith, you don't believe that the Company's efforts
at curing the adverse effect are reasonable, you shall have the right to elect
to receive the Severance Package, provided further that you in good faith assist
in a management transition plan for a mutually agreeable period, not to exceed
six (6) months from the Change in Control.
REPRESENTATIONS AND WARRANTIES.
You represent and warrant that no prior contract or agreement to which you are a
party or any prior performance of any such agreement will interfere in any
manner, or conflicts with, the terms of and complete performance of this
agreement.
This offer is subject to your agreement to the terms and conditions found in
Appendices A and B. Appendix A includes basic contractual terms and a
customary form of employee Proprietary Information and Confidentiality
Agreement. Appendix B includes the Company's Voice-mail Policy and E-mail
Policy. This letter along with Appendix A and B form your employment agreement
with the Company.
Your execution of this letter will create a binding agreement between you and
the Company. We would want you to provide your present employer with notice of
termination of employment with a copy to us. We would want you to begin work as
soon as possible. We should agree to a date as soon as we know the requirements
of GECC in finding a replacement, and balance that information in light of any
demands of the companies underwriters. Our goal is to cause GECC to be
satisfied with the professional manner in which you and in which First Virtual
handle the transition. We are excited to have you with us and look forward to
working together to ensure the continued success of First Virtual.
Sincerely,
First Virtual Holdings Incorporated
/s/ LEE STEIN
- ----------------------------------------
Lee Stein
Chairman and Chief Executive Officer
Accepted: /s/ MICHAEL D. SCHAUER
-----------------------------
Michael D. Schauer
Date: 8/28/96
<PAGE> 1
EXHIBIT 10.10
SERIES A PREFERRED STOCK
PURCHASE AGREEMENT
This SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement"),
dated as of May 22, 1995, is by and between FIRST VIRTUAL HOLDINGS
INCORPORATED, a Wyoming corporation (the "Company"), and the purchasers listed
on the Schedule of Purchasers attached hereto as Exhibit A (the "Schedule of
Purchasers"). The persons, or entities listed thereon are hereinafter referred
to collectively as the "Purchasers" and individually as a "Purchaser."
RECITAL
A. The Company desires to issue and sell and the Purchasers
desire to purchase from the Company shares of the Company's Series A Preferred
Stock (the "Series A Preferred") upon the terms and conditions set forth
herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
and conditions herein contained, the parties hereto agree as follows:
SECTION 1
Authorization and Sale of the Securities
1.1 Authorization. The Company has, or before the Closing (as
hereinafter defined) will have, authorized the issuance and sale of 22,060
shares of its Series A Preferred Stock (the "Shares") , having the rights,
preferences and privileges as set forth in the Company's Restated Articles of
Incorporation (the "Restated Articles") in the form attached hereto as Exhibit
B.
1.2 Sale and Issuance. Subject to the terms and conditions hereof
and in reliance upon the representations, warranties and agreements contained
herein, the Company will issue and sell to each Purchaser, severally and not
jointly, and each Purchaser will purchase from the Company, severally and not
jointly, at the Closing, the number of Shares set forth opposite the
Purchaser's name on the Schedule of Purchasers, at a purchase price of $44.00
per Share. The Company's agreement with each Purchaser is a separate
agreement, and the sale of the Shares to each Purchaser is a separate sale.
<PAGE> 2
SECTION 2
Closing Date; Delivery
2.1 Closing Date. The closing of the purchase and sale of the
Shares hereunder (the "Closing") shall be held at 3:00 p.m. on May 22, 1995
(the "Closing Date") at the offices of Wilson, Sonsini, Goodrich & Rosati, 650
Page Mill Road, Palo Alto, California 90401, or at such other time and place as
shall be mutually agreed upon by the Company and the Purchaser.
2.2 Delivery. At the Closing, the Company shall deliver to each
Purchaser a certificate, in such denomination and registered in Purchaser's
name as set forth on the Schedule of Purchasers, representing the number of
Shares which Purchaser is purchasing from the Company against delivery to the
Company of a bank or cashier's check or wire transfer payable to the order of
the Company in the amount of the purchase price of the Shares to be purchased
by such Purchaser.
SECTION 3
Representations and Warranties of the Company
The term "to the knowledge of the Company" shall mean with respect to
any statement herein, to the actual knowledge, information and belief of the
Company after reasonable inquiries by senior management of the Company of the
officers and professional advisors of the Company. The Company hereby
represents and warrants to each Purchaser as follows, except as set forth on
Exhibit C attached hereto:
3.1 Organization and Standing: Articles and Bylaws. The Company
is a corporation duly organized and validly existing under the laws of the
state of Wyoming and is in good standing under such laws. The Company has the
requisite corporate power to own the properties owned by it and to conduct
business as now being conducted by it and as presently contemplated to be
conducted by it. The Company is duly licensed or qualified to do business as
a foreign corporation, and is in good standing, in each state wherein the
properties owned or leased or the business transacted by the Company makes such
qualification to do business as a foreign corporation necessary and where the
failure to qualify would have a material and adverse effect on the condition of
the Company, financial or otherwise, and no other jurisdiction has demanded,
requested or otherwise indicated that (or inquired whether) the Company is
required to so qualify.
3.2 Corporate Power. The Company has all requisite corporate
power to enter into this Agreement and will have at the Closing Date all
requisite corporate power to sell and issue the Shares and
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to carry out and perform its obligations under the terms of this Agreement.
3.3 Subsidiaries. The Company has no subsidiaries and does not
own of record or beneficially any capital stock or equity interest or
investment in any corporation, association or business entity.
3.4 Capitalization. Immediately prior to the Closing, the
Company's authorized capital stock will consist of an unlimited number of
shares of Common Stock of which 168,750 shares will be issued and outstanding
and 22,060 shares of Preferred Stock (the "Preferred Stock"), all of which have
been designated Series A Preferred Stock, none of which are outstanding. The
Series A Preferred Stock will have the rights, preferences, and privileges set
forth in the Restated Articles. No other series of Preferred Stock has been
designated. The Company has reserved 22,060 shares of Series A Preferred Stock
for issuance hereunder and 22,060 shares of Common Stock for issuance upon
conversion of the Series A Preferred Stock. In addition, immediately prior to
the Closing, the Company will have reserved 18,750 shares of Common Stock for
issuance pursuant to the Company's 1994 Incentive and Non-Statutory Stock
Option Plan, of which options to purchase 18,750 shares are outstanding and of
which 31,250 shares remain available for issuance. The number of shares of
Common Stock reserved for issuance upon conversion of Series A Preferred Stock
shall be adjusted from time to time to prevent dilution to the holders of the
Series A Preferred Stock as provided in the Restated Articles. All the
aforesaid issued and outstanding shares have been duly authorized and validly
issued, are fully paid and nonassessable and have been offered, issued, sold
and delivered by the Company in compliance with applicable Federal and state
securities laws. Except as set forth above or in Exhibit C, at the time of the
Closing there will be no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon the
Company for the purchase or acquisition of any shares of its capital stock.
The Company holds no shares of its capital stock in its treasury.
3.5 Authorization. All corporate action on the part of the
Company necessary for the authorization, execution, delivery and performance by
the Company of this Agreement and the consummation of the transactions
contemplated herein and for the authorization, issuance and delivery of the
Shares (and the Common Stock issuable upon conversion of the Shares) has been
taken or will be taken prior to the Closing. This Agreement constitutes a
legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization
and moratorium laws and other laws of general application affecting enforcement
of creditors' rights generally and to general equitable principles. The
execution, delivery and performance by the Company of this Agreement and
compliance
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therewith and the issuance and sale of the Shares will not result in any
violation of and will not conflict with, or result in a breach of any of the
terms of, or constitute a default under, the Company's Articles of
Incorporation or Bylaws or any mortgage, indenture, agreement, instrument,
judgment, decree, order, rule or regulation or other restriction to which the
Company is a party or by which it is bound or any provision of state or Federal
law to which the Company is subject, or result in the creation of any mortgage,
pledge, lien, encumbrance or charge upon any of the properties or assets of the
Company pursuant to any such term or result in the suspension, revocation,
impairment, forfeiture or non-renewal of any permit, license, authorization or
approval applicable to the company's operations or any of its assets or
properties. The Shares, when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid and nonassessable, and will be
free of any liens or encumbrances.
3.6 Outstanding Debt. Except as set forth on Exhibit C or in the
Financial Statements (as defined in Section 3.19), the Company has no
outstanding indebtedness for borrowed money and is not a guarantor or otherwise
contingently liable for any indebtedness for borrowed money (including, without
limitation, liability by way of agreement, contingent or otherwise, to
purchase, provide funds for payment, supply funds or otherwise invest in any
debtor or otherwise to insure any creditor against loss). There exists no
default under the provisions of any instrument evidencing any such indebtedness
or otherwise or of any agreement relating thereto.
3.7 Insurance. A correct and complete schedule of the policies of
insurance maintained by the Company is set forth in Exhibit C.
3.8 Shareholders, Directors and Officers; Indebtedness. Except as
set forth on Exhibit C, the Company is not indebted, directly or indirectly, to
any of its officers, directors or shareholders or any of their respective
relatives or affiliates. Except as set forth in Exhibit C, no officer,
director or shareholder of the Company, or any of their relatives or
affiliates, is indebted to the Company. To the knowledge of the Company's,
except as set forth on Exhibit C, none of the officers or directors or
significant employees or advisors of the Company, or their respective spouses,
or relatives, owns directly or indirectly, individually or collectively, a
material interest in any entity which is a competitor, customer or supplier of
(or has any existing contractual relationship with) the Company.
3.9 Litigation and Bankruptcy Proceedings.
(a) Except as set forth on Exhibit C, there is neither
pending nor, to the knowledge of the Company, threatened any action, suit,
proceeding or claim, or any basis therefor, whether or not purportedly on
behalf of the Company, to which the Company
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is or may be named as a party or its property is or may be subject, or to the
knowledge of the Company, to which any officer, key employee or principal
shareholder of the Company is subject and in which an unfavorable outcome,
ruling or finding in any such matter or for all such matters taken as a whole
might have a material adverse effect on the condition, financial or otherwise,
or operations of the Company; and the Company has no knowledge of any
unasserted claim, the assertion of which is likely and which, if asserted, will
seek damages, an injunction or other legal, equitable, monetary or nonmonetary
relief, which claim individually or collectively with other such unasserted
claims if granted would have a material adverse effect on the condition,
financial or otherwise, prospects or operations of the Company.
(b) The Company has not admitted in writing its inability
to pay its debts generally as they become due, filed or consented to the filing
against it of a petition in bankruptcy or a petition to take advantage of any
insolvency act, made an assignment for the benefit of creditors, consented to
the appointment of a receiver for itself or for the whole or any substantial
part of its property, or had a petition in bankruptcy filed against it, been
adjudicated a bankrupt or filed a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other similar law or
statute of the United States of America or any other jurisdiction.
3.10 Consents. No consent, approval, qualification, order or
authorization of, or filing with, any governmental authority, is required in
connection with the Company's valid execution, delivery or performance of this
Agreement or the offer, sale or issuance of the Shares by the Company, or the
consummation of any other transaction contemplated on the part of the Company
hereby except for the filing of the Restated Articles with the Wyoming
Secretary of State which filing will be completed prior to the Closing and
filing of notices required by applicable Federal and state securities laws.
3.11 Leases. Set forth on Exhibit C is a correct and complete list
(including the amount of rents called for and a description of the leased
property) of all material leases (involving more than $5,000 either
individually or in the aggregate if such leases are of a similar nature or with
the same lessor) under which the company is a lessee. The Company enjoys
peaceful and undisturbed possession under all such leases, all of such leases
are valid and subsisting and the Company has not received any notice of default
thereunder in any material respect.
3.12 Permits, Franchises, Licenses, Trademarks, Patents, and Other
Rights. To the knowledge of the Company, the Company has all governmental and
other permits, licenses and other similar authority necessary for the conduct
of its business as now being conducted by it, the lack of which could
materially and adversely
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affect the operations or condition, financial or otherwise, of the Company, and
it is not in default in any material respect under any of such permits,
licenses or other similar authority.
3.13 Issuance Taxes. All taxes, if any, imposed by law in
connection with the issuance, sale and delivery of the Shares shall have been
paid, and all laws imposing such taxes shall have been fully complied with,
prior to the Closing Date.
3.14 Offering. Subject in part to the truth and accuracy of the
Purchaser's representations set forth in Section 4 hereof, the offer, sale and
issuance of the Shares as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and from the registration or qualification requirements of
the laws of any applicable state or other jurisdiction, and neither the Company
nor anyone acting on its behalf will take any action hereafter that would cause
the loss of such exemption.
3.15 Employees. To the knowledge of the Company, no employee or
advisor of the company, is, or is now expected to be, in violation of any term
of any employment contract, patent disclosure agreement, proprietary
information and inventions agreement or any other contract or agreement or any
restrictive covenant or any other common law obligation to a former employer
relating to the right of any such employee to be employed by the Company
because of the nature of the business conducted or to be conducted by the
Company or to the use of trade secrets or proprietary information of others.
3.16 Employee Benefit Plan Obligations. The Company does not
maintain or have any obligations with respect to any employee benefit plan
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974 ("ERISA")). The Company is not, nor was it at any time, obligated
to contribute to any employee pension benefit plan which is or was a
multi-employer plan within the meaning of Section 3(37) of ERISA.
3.17 Registration Rights. Except as described in Exhibit C and as
provided for in this Agreement, the Company is not under any obligation to
register under the Securities Act any of its currently outstanding securities
or any of its securities which may hereafter be issued.
3.18 Disclosure. This Agreement and the Exhibits hereto as well as
any other document, certificate, schedule, financial, business or other written
statement described in Exhibit C or Exhibit D, do not contain any untrue
statement of a material fact and do not omit to state a material fact necessary
in order to make the statements contained herein or therein not misleading. To
the knowledge of the Company, there is no fact or circumstance which
materially, adversely affects the condition, financial or
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otherwise, assets, business or operations of the company which has not been
disclosed in writing to the Purchaser.
3.19 Financial Statements. The Company has delivered to the
Purchasers its audited financial statements as of December 31, 1994 and its
unaudited financial statements as at and for the periods ended January 31,
February 28 and March 31, 1995 (the "Financial Statements"). The Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated,
except that unaudited Financial Statements may not contain all footnotes
required by generally accepted accounting principles. The Financial Statements
fairly present the financial condition and operating results of the Company as
of the dates, and for the periods, indicated therein, subject in the case of
unaudited Financial Statements to normal year-end adjustments.
3.20 Material Agreements. Except as set forth on Exhibit C or in
the Financial Statements, the Company has no known liabilities or obligations,
contingent or otherwise, in excess of $5,000 individually or $10,000 in the
aggregate (other than liabilities or obligations incurred in the ordinary
course of business).
3.21 Intellectual Property. To the knowledge of the Company, the
Company has all franchises, permits, licenses, patents, patent rights,
trademarks, trademark rights, copyrights, trade secrets and other similar
authority necessary for the conduct of its business as now being conducted
(collectively, the "Claimed Rights"). The purchase and sale of Shares
contemplated by this Agreement will not cause a material violation, of the
terms or provisions of any of such Claimed Rights. Except as disclosed on
Exhibit C, there is neither pending, nor, to the Company's knowledge,
threatened, any claim or litigation against the Company contesting the validity
or right to use any of the Claimed Rights. Except as disclosed on Exhibit C,
to the knowledge of the Company, no person, corporation or other entity is
infringing the Claimed Rights. To the knowledge of the Company, the Company is
not currently using the confidential information or trade secrets of any person
without the consent of, or a grant of a license or other right to use such
information or trade secrets, from such other person or entity. Except as
disclosed on Exhibit C, there are no outstanding licenses or agreements of any
kind relating to the Claimed Rights, nor is the Company bound by or a party to
any licenses or agreements of any kind with respect to the Claimed Rights. The
Company has not received any written communications alleging that the Company
has violated or, by conducting its business as proposed, would violate any of
the Claimed Rights. To the knowledge of the Company, none of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that
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would conflict with the Company's business as proposed to be conducted.
Neither the execution and delivery of this Agreement, nor the conduct of the
Company's business by the employees of the Company, nor the conduct of the
Company's business as currently being conducted, will, to the knowledge of the
Company, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. Except as
disclosed on Exhibit C, the Company does not believe it is or will be necessary
to utilize any inventions of any of its employees made prior to their
employment by the Company which are known not to be in the public domain.
3.22 Nondisclosure and Assignment Agreements. Except as disclosed
in Exhibit C, each employee, officer and consultant of the Company has executed
Nondisclosure and Assignment Agreement as provided to special counsel to the
Purchasers. Unless the board of directors determines otherwise, the Company
will ensure that each future employee, officer and consultant of the Company
signs such an agreement or a substantially similar agreement. To the knowledge
of the Company none of its employees, officers or consultants is in violation
of any such agreement, and the Company will use reasonable efforts to prevent
such violation.
SECTION 4
Representations and Warranties of the Purchasers
Each Purchaser, severally but not jointly, represents and warrants to
the Company as follows:
4.1 Organization and Standing. Unterberg Harris Interactive
Media, L.P. is a limited partnership duly organized and validly existing under
the laws of the state of and is in good standing under such laws. Sybase,
Inc., is a corporation duly organized and validly existing under the laws of
the state of and is in good standing under such laws.
4.2 Corporate Power. It has all requisite corporate power to
enter into this Agreement and will have at the Closing Date all requisite
corporate power to purchase the Shares and to carry out and perform its
obligations under the terms of this Agreement.
4.3 Authorization. All corporate action on its part necessary for
the authorization, execution, delivery and its performance of this Agreement
and the consummation of the transactions contemplated herein and for the
purchase of the Shares has been taken or will be taken prior to the Closing.
This agreement constitutes a legal, valid and binding obligation of each
Purchaser enforceable in accordance with its term, subject to applicable
bankruptcy, insolvency, reorganization and moratorium
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laws and other laws of general application affecting enforcement of creditors'
rights generally and to general equitable principles.
4.4 Experience; Awareness of Risk. It has such knowledge and
experience in financing and business matters that it is capable of evaluating
the merits and risks of this investment and of making an informed decision with
respect to the purchase of the Shares. It is aware that the Company's business
is in an industry and marketplace that is subject to rapid changes in its
technologies and structure which could adversely affect the Company's business
operations and understands that its investment in the Shares is subject to
substantial risks related to such conditions.
4.5 Investment. It is acquiring the Shares for investment for its
own account and not with the view to, or for resale in connection with, any
distribution thereof. It understands that at the time of the offer and sale
thereof to it the Shares have not been registered under the Securities Act by
reason of a specified exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
its investment intent as expressed herein.
4.6 Rule 144. It acknowledges that the Shares must be held
indefinitely unless they are subsequently registered under the Securities Act
or an exemption from such registration is available. It has been advised or is
aware of the provisions of Rule 144 promulgated under the Securities Act, which
permit limited resale of securities purchased in a private placement subject to
the satisfaction of certain conditions, and understands that such Rule may not
become available for resale of the Shares. It consents to affixing on
certificates representing the Shares the legend set forth in Section 8.3
hereof.
4.7 Access to Data; Reliance on Disclosure. It has had an
opportunity to discuss the Company's business, management and financial affairs
with its management and has had the opportunity to review the Company's books,
records and facilities. Except for the express representations and warranties
by the Company contained in this Agreement and its Exhibits, including the
items set forth in Exhibit D, it has not relied on any other representations or
statements by the Company or any representatives of the Company in entering
into the transactions contemplated by this Agreement.
4.8 Financial Condition. Its financial condition is such that it
is able to bear the economic risks of investment in the Shares including risk
of loss of its entire investment in the Shares should they become worthless,
taking into consideration the limitations on resale of the Shares noted above.
All information which it has provided to the Company concerning its financial
condition and knowledge of financial and business matters is correct and
complete.
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4.9 Agreement to Short Fiscal Year. It acknowledges that the
Company has been an S corporation, having made an election pursuant to Section
1362(a) of the Internal Revenue Code of 1986, as amended. As a result of the
authorization and issuance of the Shares, the S corporation status will
terminate. In order to obtain the benefit of any losses accruing prior to the
Closing Date, it hereby agrees to the election by the Company of a new fiscal
year, with the current fiscal year of the Company terminating on the date of
the Closing, or immediately prior thereto. It agrees that it shall execute and
deliver any documents or instruments reasonably necessary to make such
election, and that it shall not oppose or contest such election.
SECTION 5
Conditions to Closing of the Purchasers
The obligation of the Purchasers to purchase the Shares to be
purchased at the Closing is subject to the fulfillment to such Purchasers'
satisfaction on or prior to the Closing Date of each of the following
conditions:
5.1 Representations and Warranties Correct. The representations
and warranties made by the Company in Section 3 hereof shall be true and
correct in all material respects when made, and shall be true and correct in
all material respects on the Closing Date with the same force and effect as if
they had been made on and as of the Closing Date.
5.2 Performance. All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the Company on
or prior to the Closing Date shall have been performed or complied with in all
material respects.
5.3 Compliance Certificate. The Company shall have delivered to
the Purchasers a certificate of the President and Secretary of the Company,
dated the Closing Date, certifying to the fulfillment of the conditions
specified in Sections 5.1 and 5.2 of this Agreement.
5.4 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be satisfactory
in substance and form to the Purchasers and their counsel.
5.5 Securities Law Compliance. All such actions and steps
necessary to assure compliance with applicable Federal and state securities
laws, including all authorizations, approvals or permits, if any, of any
governmental authority or regulatory body in any states where the Shares are
being sold that are required in
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connection with the lawful issuance and sale of the Shares pursuant to this
Agreement, shall have been duly obtained and shall be effective on and as of
the Closing.
5.6 Board of Directors. All corporate proceedings shall have been
taken in form and substance satisfactory to Purchasers and their counsel such
that, on the Closing Date, the Company's Board of Directors shall consist of
Lee Stein, Tawfiq Khoury, Jon Rubin and either Russ Warner or Bob Epstein.
SECTION 6
Conditions to Closing of the Company
The Company's obligation to sell the Shares to be purchased at the
Closing is subject to the fulfillment to its satisfaction on or prior to the
Closing Date of each of the following conditions:
6.1 Representations and Warranties Correct. The representations
and warranties made by all Purchasers in Section 4 hereof shall be true and
correct in all material respects when made, and shall be true and correct in
all material respects on the Closing Date with the same force and effect as if
they had been made on and as of the Closing Date.
6.2 Performance. All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by all the
Purchasers on or prior to the Closing Date shall have been performed or complied
with in all material respects.
6.3 Restated Articles. The Restated Articles shall have been
filed with the Wyoming Secretary of State.
SECTION 7
Covenants of the Company
The Company hereby covenants and agrees as follows:
7.1 Basic Financial Information. The Company will furnish the
following reports to each Purchaser (or its representative) so long as such
Purchaser owns at least 11,030 shares (as adjusted for stock splits and like
events) of Series A Preferred Stock (or of the Common Stock issued upon
conversion of such Series A Preferred Stock) and to Jon Rubin ("Rubin") so long
as Rubin owns 50,000 shares (as adjusted for stock splits and like events) of
Common Stock, Tawfiq N. Khoury ("Khoury") so long as Tawfiq N. Khoury and
Richel G. Khoury, trustees of the TNKRGK Family T/D 12/23/76, Jason B. Khoury,
trustee of the Jason B. Khoury T/D 1/27/87, Brian N.
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Khoury, trustee of the Brian N. Khoury T/D 1/27/87, Noelle F. Khoury, trustee
of the Noelle F. Khoury T/D 1/27/89 own collectively 50,000 shares (as adjusted
for stock splits and like events) of Common Stock, and Lee H. Stein ("Stein")
so long as Stein and June L. Stein own collectively 50,000 shares (as adjusted
for stock splits and like events) of Common Stock:
(a) As soon as practicable after the end of each fiscal year of
the Company, and in any event within 120 days thereafter, the consolidated
balance sheet of the Company and its subsidiaries, if any, as at the end of
such fiscal year, and consolidated statements of income and cash flow of the
Company and its subsidiaries, if any, for such year, prepared in accordance
with generally accepted accounting principles consistently applied and setting
forth in each case in comparative form the figures for the previous fiscal
year, all in reasonable detail and certified by independent public accountants
of recognized national standing who are among the six largest accounting firms
in the United States selected by the Company and approved by its Board of
Directors.
(b) As soon as practicable after the end each month in each fiscal
year of the Company, and in any event within 45 days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of
each such month, and consolidated statements of income and sources and
applications of funds of the Company and its subsidiaries for such period and
for the current fiscal year to date, prepared in accordance with generally
accepted accounting principles consistently applied, subject to changes
resulting from year-end audit adjustments, all in reasonable detail and
certified by the principal financial or accounting officer of the Company.
(c) Annually (but in any event at least 30 days prior to the
commencement of each fiscal year of the Company) the yearly budget and
operating plan of the Company, in such manner and form as approved by the Board
of Directors of the Company, which plan shall include projected statements of
income and cash flow for such fiscal year and a projected balance sheet as of
the end of such fiscal year. Any material changes in such plan shall be
delivered to the Purchaser as promptly as practicable after such changes have
been approved by the Board of Directors of the Company.
The provisions of this Section 7.1 shall not be in limitation of any
rights which the Purchaser or holder of Common Stock may have with respect to
the books and records of the Company and its subsidiaries, or to inspect their
properties or discuss their affairs, finances and accounts; and, in the event
that the Company is unable to comply with the provisions of Section 7.1, the
Board of Directors of the Company shall, by resolution duly adopted, authorize
and cause a firm of independent public accountants of nationally recognized
standing which is among the six largest accounting firms in the United States
to prepare promptly and
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furnish such information to the Purchaser, Rubin, Stein and Khoury at the
Company's expense.
From the date the Company becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in lieu of the information required pursuant to this Section 7.1,
Company may furnish to Purchasers, Rubin, Stein and Khoury copies of its annual
reports on Form 10-K, its quarterly reports on Form 10-Q, any current reports
on Form 8-K or such other information or interim reports as it provides to all
shareholders.
7.2 Visitation. The Company will permit Unterberg Harris
Interactive Media, L.P. (or a representative of Unterberg Harris Interactive
Media, L.P.), so long as such Purchaser owns at least 11,030 shares (as
adjusted for stock splits and like events) of Series A Preferred Stock
(including shares of Common Stock issued upon conversion of such Series A
Preferred Stock), to attend all meetings of the Company's Board of Directors
and provide copies of written materials provided to all members of the Board of
Directors, provided, however, that the Board of Directors shall have the right
to keep confidential from the Purchaser for such period of the time as the
Board of Directors deems reasonable any information and copies of written
materials the Board of Directors in good faith considers to be trade secrets or
to contain confidential or classified information or which the Company is
required by law or agreement with a third party to keep confidential.
7.3 Transfers of Rights. The rights granted to the Purchasers,
Rubin, Stein and Khoury under Section 7.1 hereof may be transferred or
assigned by a Purchaser to any transferee or assignee of any Shares, by Rubin
to any transferee of Rubin Securities (as defined in Section 8.2) or by Stein
or Khoury to any transferee of Founder Securities (as defined in Section 8.2)
provided that the Company is given written notice at the time of or within a
reasonable time after said transfer or assignment, stating the name and address
of said transferee or assignee and identifying the securities with respect to
which such rights are being transferred or assigned, and provided further that
the transferee or assignee holds following the transfer at least 11,030 shares
(as adjusted for stock splits and like events) of Series A Preferred Stock
(including shares of Common Stock issuable upon conversion thereof), 25,000
shares (as adjusted for stock splits and like events) of Rubin Securities or
25,000 shares (as adjusted for stock splits and like events) of Founder
Securities.
7.4 Right of First Refusal.
(a) New Issuances. The Company hereby grants to the Purchasers,
Rubin and the holders of Founder Securities a right of first refusal (the
"Right of First Refusal") to purchase a pro rata
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share of all (or any part) of New Securities (as defined in this Section 7.4)
that the Company may from time to time propose to sell and issue. Such pro
rata share, for purposes of this Right of First Refusal, is the ratio of (X)
the sum of the number of shares of Common Stock then owned by the Purchaser and
the number of shares of Common Stock issuable upon the conversion of the Shares
then owned by the Purchaser, or the number of shares of Rubin Securities then
owned by Rubin, or the number of shares of Founder Securities then owned by the
holder of Founder Securities, as the case may be, to (Y) the sum of the total
number of shares of Common Stock then outstanding, the total number of shares
of Common Stock issuable upon the conversion of the total number of Shares then
outstanding and the total number of shares of Common Stock issuable upon the
conversion of any other class or series of securities having a right of first
refusal substantially similar to the Right of First Refusal contained in this
Section 7.4. This Right of First Refusal shall be subject to the following
provisions:
(b) "New Securities" shall mean any Common Stock and
preferred stock of the Company whether or not authorized on the date hereof,
and rights, options, or warrants to purchase Common Stock or preferred stock
and securities of any type whatsoever that are, or may become, convertible into
Common Stock or preferred stock; provided, however, that "New Securities" does
not include the following:
(i) shares of Common Stock issuable upon conversion
of the Shares;
(ii) shares offered to the public pursuant to the IPO
(as defined in Section 8.2 hereof);
(iii) shares of Common Stock, or options to
purchase shares of Common Stock, issued or granted to officers, directors,
employees and consultants of the Company pursuant to stock plans and option
plans or other arrangements approved by the Board of Directors;
(iv) shares of Common stock or preferred stock
issued in connection with any stock split, stock dividend, or recapitalization
by the Company; or
(v) securities issuable or deliverable in
connection with an acquisition by the Company of another corporation or a
merger or consolidation of the Company into or with another corporation.
(c) In the event that the Company proposes to undertake
an issuance of New Securities, it shall give each Purchaser, Rubin and each
holder of Founder Securities written notice of its intention, describing the
type of New Securities, the price, and the general terms upon which the Company
proposes to issue the
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same. Each Purchaser, Rubin and each holder of Founder Securities shall have
20 business days after receipt of such notice to agree to purchase its pro rata
share of such New Securities at the price and upon the terms specified in the
notice by giving written notice to the Company and stating therein the quantity
of New Securities to be purchased. If any Purchaser, Rubin or holder of
Founder Securities fails to agree to purchase its full pro rata share within
such 20 business day period, the Company will give any Purchaser, Rubin or
holder of Founder Securities who did so agree (the "Electing Purchasers")
notice of the number of shares which were not subscribed for. Such notice may
be by telephone if followed by written confirmation within two days. The
Electing Purchasers shall have ten business days from the date of such notice
to agree to purchase pro rata all of the New Securities not purchased by such
non-purchasing Purchasers, Rubin or holders of Founder Securities, as the case
may be.
(d) In the event that the Purchasers, Rubin and holders of Founder
Securities fail to exercise in full the right of first refusal within the 20
business plus ten business day period specified above, the Company shall have
120 days thereafter to sell (or enter into an agreement pursuant to which the
sale of New Securities covered thereby shall be closed, if at all, within 60
days from the date of said agreement) the New Securities respecting which the
rights of the Purchaser, Rubin and holders of Founder Securities were not
exercised at a price and upon terms no more favorable to the purchasers thereof
than specified in the Company's notice. In the event the Company has not sold
the New Securities within such 120 day period (or sold and issued New
Securities in accordance with the foregoing within 60 days from the date of
such agreement) the Company shall not thereafter issue or sell any New
Securities, without first offering such New Securities to the Purchaser, Rubin
and holders of Founder Securities in the manner provided above.
(e) The Right of First Refusal granted under this Section 7.4
shall expire immediately prior to the IPO.
(f) This Right of First Refusal is nonassignable except to any
transferee to whom registration rights may be transferred pursuant to 8.14 of
this Agreement.
(g) This Right of First Refusal shall terminate as to any
Purchaser (or any transferee or assignee of such Purchaser) at such time as
such Purchaser ceases to own at least 5,515 (as adjusted for stock splits and
like events) Shares or a number of shares of Common Stock issued upon
conversion of at least 5,515 (as adjusted for stock splits and like events)
Shares or any combination thereof equivalent to at least 5,515 (as adjusted for
stock splits and like events) Shares. This Right of First Refusal shall
terminate as to Rubin (or any transferee or assignee of Rubin) at such time as
Rubin ceases to own at least 25,000 shares
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(as adjusted for stock splits and like events) of Rubin Securities. This Right
of First Refusal shall terminate as to a holder of Founder Securities (or any
transferee or assignee of such holder of Founder Securities) at such time as
such holder of Founder Securities ceases to own at least 50% of the number of
shares (as adjusted for stock splits and like events) of Founder Securities
acquired on March 11, 1994.
7.5 Stock and Option Issuances. So long as the holders of Series
A Preferred are entitled to elect a member of the Company's Board of Directors
in accordance with the Restated Articles (the "Preferred Director"), the
Company will not, without the approval of the Preferred Director, grant options
or warrants to purchase capital stock of the Company and/or sell shares of the
Company's Common Stock to any person who is, on the Closing Date, an officer or
director of the Company or to any entity in which any such person director owns
10% or more of the voting securities of such entity. Purchasers agree to elect
either Russ Warner or Bob Epstein will as the Preferred Director.
7.6 Sybase, Inc.'s Investment.
(a) Subject to the obligations of the Company set forth
in the Restated Articles, without the prior written consent of Sybase, Inc.
("Sybase") the Company will not redeem, repurchase, reacquire or otherwise take
any action which would result in Sybase holding at any time an amount of the
Company's capital stock equal to or in excess of 20% of the total number of
shares of the Company's capital stock then outstanding.
(b) Sybase and the Company acknowledge the Company's
intention to utilize the Sybase platform in connection with the business of the
Company. In the event that the Company elects, in its sole discretion, not to
utilize the Sybase platform in connection with the business of the Company,
Sybase shall have the right to require the Company, to the extent the Shares
have not theretofore been converted into shares of Common Stock, to redeem all
of Sybase's Shares at a price equal to $44.00 per share plus all declared but
unpaid dividends. Sybase shall exercise the foregoing right by written notice
to the Company within 60 days following delivery of written notice to Sybase of
the decision of the Board of Directors of the Company not to utilize the Sybase
platform in connection with the business of the Company. In the event
insufficient funds are legally available to redeem all Shares electing to be
redeemed pursuant to this Section 7.6(b), the Company may (i) delegate its duty
to purchase Shares pursuant to this Section 7.6(b) or (ii) redeem as many of
the Shares as it has funds legally available and the Company's obligation to
redeem Shares shall be carried over and Shares shall continue to be purchased
as and when funds become legally available until all Shares entitled to be
redeemed pursuant to this Section 7.6(b) have been redeemed.
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SECTION 8
Restrictions on Transferability
of Securities; Compliance with Securities Act
8.1 Restrictions on Transferability. The Shares and the Common
Stock issuable upon conversion of the Shares (collectively, the "Securities")
shall not be transferable, except upon the conditions specified in this Section
8, which conditions are intended to insure compliance with the provisions of
the Securities Act. The Purchaser will cause any proposed transferee of
Restricted Securities (as hereinafter defined) held by the Purchaser to agree
to take and hold those securities subject to the provisions and upon the
conditions specified in this Section 8.
8.2 Certain Definitions. As used in this Section 8, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other Federal agency at the time administering the Securities Act.
"Holder" shall mean any holder of Registrable Securities or
Rubin Securities.
"Founders" shall mean Tawfiq N. Khoury and Lee H. Stein.
"Founder Securities" shall mean the shares of Common Stock
acquired by Lee H. Stein, June L. Stein, Tawfiq N. Khoury and Richel G. Khoury,
trustees of the TNKRGK Family T/D 12/23/76, Jason B. Khoury, trustee of the
Jason B. Khoury T/D 1/27/87, Brian N. Khoury, trustee of the Brian N. Khoury
T/D 1/27/87, Noelle F. Khoury, trustee of the Noelle F. Khoury T/D 1/27/89 on
March 11, 1994, and any additional shares of Common Stock issued with respect
to such shares upon any stock split, stock dividend, recapitalization or
similar event, provided that the Founder Securities shall cease to be Founder
Securities if (i) such securities are sold in the public market pursuant to the
Company's IPO or otherwise or (ii) as to any such securities at such time as
the holder thereof may sell all such securities in a three month period
pursuant to Rule 144 or Rule 144(k) of the Securities Act.
"Initiating Holders" shall mean Holders of fifty percent (50%)
or more of the then outstanding Registrable Securities.
"IPO" shall mean an underwritten public offering pursuant to
an effective registration statement under the Securities Act, covering the
initial offer and sale of Common Stock for the account of the Company to the
public at an aggregate offering price to the public of not less than
$10,000,000 and a per share price to the public of at least $88.00 per share,
if the effective date of the registration statement is not later than May 31,
1996, and
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thereafter, $132.00 per share (as adjusted for stock splits and like events
after the Closing Date).
"Restricted Securities" shall mean the securities of the
Company required to bear or bearing the legend set forth in Section 8.3 hereof.
"Registrable Securities" shall mean (i) shares of Common Stock
issued or issuable upon conversion of the Shares, and (ii) any Common Stock
issued in respect of securities issued pursuant to the conversion of the Shares
or upon any stock split, stock dividend, recapitalization or similar event,
provided that, Registrable Securities shall cease to be Registrable securities
if (x) such securities are sold in the public market pursuant to the Company's
IPO or otherwise or (y) as to any such securities held by a Holder, at such
time as such Holder may sell all such securities in a three month period
pursuant to Rule 144 or Rule 144(k) of the Securities Act.
The terms "register", "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
"Registration Expenses" shall mean all expenses incurred by
the Company in compliance with Sections 8.5, 8.6 and 8.8 hereof, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company which shall include any fees and
disbursements for legal services provided by counsel for the Company on behalf
of the Holders, blue sky fees and expenses for qualification or registration in
not more than five states, and the expense of any audit of the Company's fiscal
year-end financial statements incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which
shall be paid in any event by the Company).
"Rubin Securities" shall mean the shares of Common Stock
acquired by Rubin pursuant to that certain subscription Agreement dated
September 16, 1994, between the Company and Rubin and any additional shares of
Common Stock issued with respect to such shares upon any stock split, stock
dividend, recapitalization or similar event, provided that Rubin Securities
shall cease to be Rubin Securities if (i) such securities are sold in the
public market pursuant to the Company's IPO or otherwise or (ii) as to any such
securities at such time as the holder thereof may sell all such securities in a
three month period pursuant to Rule 144 or Rule 144(k) of the Securities Act.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and expense allowances applicable to the sale
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of Registrable Securities and all fees and disbursements of counsel for any
Holder (other than the fees and disbursements of the Company's counsel included
in Registration Expenses) and the expenses and costs referenced in the proviso
to the definition of Registration Expenses above.
8.3 Restrictive Legend. Each certificate representing the Shares
or any other securities issued in respect thereof upon any conversion thereof
or any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless permitted by this Section 8.3 or unless the
securities evidenced by such certificate shall have been sold pursuant to a
registration under the Securities Act) be stamped or otherwise imprinted with a
legend in substantially the following form (in addition to any legend required
under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
OR UNDER THE CALIFORNIA CORPORATE SECURITIES LAW OF 1968 (THE
"CALIFORNIA ACT") AND ARE RESTRICTED SECURITIES. THE RESTRICTED
SECURITIES HAVE BEEN ACQUIRED FOR HOLDER'S OWN ACCOUNT AND NOT WITH A
VIEW TO DISTRIBUTE THEM TO THE PUBLIC. RESTRICTED SECURITIES MUST BE
HELD INDEFINITELY UNLESS THEY ARE SUBSEQUENTLY REGISTERED UNDER THE
ACT AND THE CALIFORNIA ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
Upon request of a holder of such a certificate, the Company
shall remove the foregoing legend from the certificate or issue to such holder
a new certificate therefor free of any transfer legend, if, with such request,
the Company shall have received either (x) the opinion referred to in Section
8.4 to the effect that any transfer by such holder of the securities evidenced
by such certificate will not violate the Securities Act and applicable state
securities laws or (y) a written representation from such holder in accordance
with paragraph (k) of Rule 144, that such holder is not and has not during the
last three months been an affiliate of the Company and that at least three
years has elapsed since the later of the date the securities were acquired from
the issuer or from an affiliate of the issuer. The Company will use its best
efforts to assist any Holder in complying with the provisions of this Section
8.3 for removal of the legend set forth above.
8.4 Notice of Proposed Transfer. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in
all respects with the provisions of this Article 8. Prior to any proposed
transfer of any Restricted Securities (other than under circumstances described
in Sections 8.5, 8.6 and 8.8 hereof), the holder thereof shall give written
notice to the Company of such holder's intention to effect
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<PAGE> 20
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall be accompanied (except in
transactions in compliance with Rule 144) by a written opinion of legal counsel
who shall be reasonably satisfactory to the Company, addressed to the Company
and reasonably satisfactory in form and substance to the Company's counsel, to
the effect that the proposed transfer of the Restricted Securities may be
effected without registration under the Securities Act and applicable state
securities laws whereupon the holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by the holder to the Company. Each certificate evidencing
the Restricted Securities transferred as above provided shall bear the
appropriate restrictive legend set forth in Section 8.3 above, except that such
certificate shall not bear such restrictive legend if the opinion of counsel
referred to above is to the further effect that such legend is not required in
order to establish compliance with any provisions of the Securities Act or
applicable state securities laws.
8.5 Requested Registration.
(a) Request for Registration. If at any time during the period
beginning six months after the closing of the Company's IPO and ending on the
fourth anniversary of the closing of the Company's IPO, the Company shall
receive from Initiating Holders a written request that the Company effect a
registration with respect to all of the Registrable Securities held by such
Initiating Holders the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its diligent best efforts
to effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of all of
such Registrable Securities, together with all of the Registrable Securities or
Rubin Securities of any Holder or Holders joining in such request as are
specified in a written request given within 30 days after receipt of such
written notice from the Company.
The Company shall file a registration statement covering the
Registrable Securities and Rubin securities, if any, so requested to be
registered as soon as practicable after receipt of the request of the
Initiating Holders; provided, however, that if the Company shall furnish to
such Initiating Holders a certificate signed by the President of the Company
stating that in the good
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faith judgment of the Board of Directors of the Company the filing of such
registration statement would be seriously detrimental to the company and its
shareholders, the Company shall have the right to defer such filing for a
period of not more than 120 days after receipt of the request of the Initiating
Holders; and provided further than the Company shall have no obligation to
effect such registration if the Company would be required to conduct an audit
of an interim financial period.
The Company shall not be obligated to effect, or to take any action to
effect, any registration pursuant to this Section 8.5 after the Company has
effected two such registrations pursuant to this Section 8.5(a) and such
registrations have been declared or ordered effective by the Commission.
Any registration statement filed pursuant to this Section 8.5 may,
subject to the provisions of Section 8.5(b) below, include securities of the
Company being sold for the account of the Company.
(b) Underwriting. If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to Section 8.5(a) and the Company shall include such information in
the written notice referred to in Section 8.5 (a) (i) above. The right of any
Holder to registration pursuant to Section 8.5(a) shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder with
respect to such participation and inclusion) to the extent provided herein. A
Holder may elect to include in such underwriting all or a part of the
Registrable Securities and/or Rubin Securities then held.
If the Company shall request inclusion in any registration pursuant to
Section 8.5 of securities being sold for its own account, the Initiating
Holders shall, on behalf of all Holders, offer to include the securities of the
Company in the underwriting and may condition such offer on the Company's
acceptance of the further applicable provisions of this paragraph. The Company
shall (together with all Holders proposing to distribute their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or representative of the underwriters selected for
such underwriting by a majority in interest of the Initiating Holders.
Notwithstanding any other provision of this Section 8.5, if the representative
of the underwriters advises the Initiating Holders in writing that marketing
factors require a limitation (the "Underwriter's Limitation") on the number of
shares to be underwritten, the Initiating Holders shall so advise the Company
and all Holders of Registrable Securities and Rubin Securities
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<PAGE> 22
whose securities would otherwise be underwritten pursuant hereto, and the
number of shares of Registrable securities, Rubin Securities and other
securities that may be included in the registration and underwriting shall be
allocated in the following manner: First, the securities of the Company shall
be excluded from such registration and underwriting to the extent required by
such Underwriter's Limitation. If, after fully excluding the securities of the
Company from such underwriting and registration, a further reduction in the
number of shares to be included in such underwriting and registration is
required, the number of Rubin Securities to be included in such underwriting
and registration shall be reduced to the extent required by the Underwriter's
Limitation; provided, however, that the number of Rubin Securities to be
included in such registration and underwriting shall not be reduced to less
than 25% of the total number of securities included in such registration or
underwriting. If, after fully excluding the securities of the Company from
such underwriting and registration, and reducing the number of Rubin Securities
from such underwriting and registration to the full extent permitted by the
preceding sentence, a further reduction in the number of shares to be included
in such underwriting and registration is required, the number of shares that
may be included in the registration and underwriting shall be allocated among
all Holders of Registrable Securities in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities held by such Holder at the
time of the filing of the registration statement. No Registrable Securities,
Rubin Securities or any other securities excluded from the underwriting by
reason of the Underwriter's Limitation shall be included in such registration.
If the Company in its sole discretion disapproves of the terms of the
underwriting, it may elect to withdraw therefrom by written notice to the
underwriter and the Initiating Holders. The securities so withdrawn shall also
be withdrawn from registration.
8.6 Company Registration.
(a) Holders' Rights. If, at any time, the Company shall
determine to register any of its securities either for its own account or the
account of a security holder or holders (other than Holders of Registrable
securities or Rubin securities) exercising their respective demand registration
rights, other than a registration relating solely to employee benefit plans, or
a registration relating solely to a Commission Rule 145 transaction, or a
registration on any registration form which does not permit secondary sales,
the Company will:
(i) promptly give to each Holder and each Founder written
notice thereof (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable blue
sky or other state securities laws); and
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(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities, Rubin Securities and Founder
Securities specified in a written request or requests made by any Holder or
Founder within 30 days after receipt of the written notice from the Company
described in clause (i) above, except as set forth in Section 8.6(b) below.
Such written request may specify all or a part of a Holder's Registrable
Securities or Rubin Securities or of Founder securities.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders and Founders as a part of
the written notice given pursuant to Section 8.6(a)(i). In such event the right
of any Holder or holder of Founder Securities to registration pursuant to
Section 8.6 shall be conditioned upon such Holder's or holders' of Founder
Securities participation in such underwriting and the inclusion of such
Holder's Registrable Securities or Rubin Securities or such Founder Securities,
as the case may be, in the underwriting to the extent provided herein. All
Holders and holders of Founder Securities proposing to distribute their
securities through such underwriting shall (together with the Company) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
this Section 8.6, if the underwriter advises the Company in writing that
marketing factors require an Underwriter's Limitation on the number of shares
to be underwritten, the underwriter may (subject to the allocation priority set
forth below) limit the number of Registrable Securities, Rubin Securities and
Founder Securities to be included in the registration and underwriting, or in
the case of the Company's IPO, the underwriters may exclude all of the
Registrable Securities, Rubin Securities and Founder Securities from the
registration and underwriting. In such event, the Company shall so advise all
holders of securities requesting registration and, if applicable, the number of
shares or securities that are entitled to be included in the registration and
underwriting shall be allocated in the following manner: First, the number of
Founder Securities that shall be included in such registration and underwriting
shall be reduced to the extent required by the Underwriter's Limitation;
provided, however, that the number of Founder Securities to be included in such
registration and underwriting which is not for the Company's IPO shall not be
reduced to less than 10% of the total number of securities included in such
registration or underwriting. The number of shares of Founder Securities that
may be included in the registration and underwriting shall be allocated among
all holders of Founder Securities in proportion, as nearly as practicable, to
the respective amounts of securities which each such holder had originally
requested be included in such registration and underwriting. If, after fully
reducing the number of Founder
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Securities from such underwriting and registration to the full extent permitted
by the preceding sentence, a further reduction in the number of shares to be
included in such underwriting and registration is required, the number of
Registrable Securities and Rubin Securities that shall be included in the
registration and underwriting shall be reduced to the extent required by the
Underwriter Limitation, in proportion, as nearly as practicable, to the
respective amount of securities which such holder had originally requested be
included in such registration and underwriting; provided, however, that the
number of Registrable Securities to be included in such registration and
underwriting which is not for the Company's IPO shall not be reduced to less
than 20% of the total number of securities included in such registration or
underwriting; and provided further, that the number of Rubin Securities to be
included in such registration and underwriting which is not for the Company's
IPO shall not be reduced to less than 20% of the total number of securities
included in such registration or underwriting. The number of shares of
Registrable Securities and Rubin Securities that may be included in the
registration and underwriting shall be allocated among all Holders in
proportion, as nearly as practicable, to the respective amounts of securities
which each such Holder had originally requested be included in such
registration and underwriting. If, after reducing the number of Founder
Securities, Registrable Securities and Rubin Securities to be included in such
registration or underwriting to the full extent permitted in this section, a
further reduction in the number of shares to be included in such underwriting
and registration is required, then the number of securities of the Company that
shall be included in such registration and underwriting shall be reduced to the
extent required by the Underwriter's Limitation. If any Holder or holder of
Founder Securities disapproves of the terms of any such underwriting, such
Holder or holder of Founder Securities may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any Registrable
Securities, Rubin Securities, Founder Securities or other securities excluded
or withdrawn from such underwriting shall be withdrawn from such registration.
8.7 Expenses of Registration. The Company shall bear all
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to this Section 8 and all underwriting
discounts, selling commissions and expense allowances applicable to the sale of
any securities by the Company for its own account in any registration. All
Selling Expenses shall be borne by the Holders and holder of Founder
Securities, if any, whose securities are included in such registration pro rata
on the basis of the number of their Registrable Securities, Rubin Securities or
Founder Securities so registered, provided, however, that if in such
registration, the Company pays any expenses included in the defined term
"Selling Expenses" for other security holders, the Company will pay such
expenses for the Holders.
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8.8 Registration on Form S-3. The Company shall use its best
efforts to qualify for registration on Form S-3 or any comparable or successor
form or forms; and to that end the Company shall register (whether or not
required by law to do so) the Common Stock under the Exchange Act in accordance
with the provisions of the Exchange Act following the closing of the first
registration of any securities of the Company on Form SB-2, S-1 or any
comparable or successor form. After the Company has qualified for the use of
Form S-3, in addition to the rights contained in the foregoing provisions of
this Section 8, the Holders of Registrable Securities shall have unlimited
rights to request from time to time registrations on Form S-3 (such requests
shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended methods of disposition of such
shares by such Holder or Holders) provided that in each case the aggregate
proceeds of such registration are expected to exceed $500,000.
8.9 Registration Procedures. In the case of each registration
effected by the Company pursuant to Section 8, the Company will keep each
Holder and holder of Founder Securities who is entitled to registration rights
hereunder advised in writing as to the initiation of each registration and as
to the completion thereof. At its expense, the Company will:
(a) Keep such registration effective for a period of six
months or until such Holders or holder of Founder Securities, if any, have
completed the distribution described in the registration statement relating
thereto; whichever first occurs; provided, however, that in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such six month period shall be
extended, if necessary, to keep the registration statement effective until all
such Registrable securities are sold;
(b) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other
documents incident thereto, including any amendment of or supplement to the
prospectus, as a Holder or holder of Founder Securities from time to time may
reasonably request;
(d) Notify each seller of Registrable Securities, Rubin
securities or Founder Securities covered by such registration statement at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue
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<PAGE> 26
statement of a material fact or omits to state a fact required to be stated
therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing, and at the request
of any such seller, prepare and furnish to such seller a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchaser of such shares,
such prospectus shall not include 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 or incomplete in the light of the
circumstances then existing;
(e) Cause all such Registrable Securities, Rubin
Securities or Founder Securities to be listed on each securities exchange on
which the same securities issued by the Company are then listed;
(f) Provide a transfer agent and registrar for all such
Registrable Securities, Rubin Securities or Founder Securities and a CUSIP
number for all such Registrable Securities, Rubin Securities or Founder
Securities, in each case not later than the effective date of such
registration;
(g) Make available for inspection by any seller of
Registrable Securities, Rubin Securities or Founder Securities, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney or accountant retained by any such seller or underwriter, all
financial and other records, pertinent corporate documents and properties of
the Company, and cause the Company's officers and directors to supply all
information reasonably requested by any such seller, underwriter, attorney or
accountant in connection with such registration statement; provided, however,
that such seller, underwriter, attorney or accountant shall agree to hold in
confidence and trust all information so provided;
(h) Furnish to each selling Holder and holder of Founder
Securities a signed counterpart, addressed to the selling Holder or holder of
Founder Securities, of
(i) an opinion of counsel for the Company, dated the
effective date of the registration statement, and
(ii) "comfort" letters signed by the Company's independent
public accountants who have examined and reported on the Company's
financial statements included in the registration statement, to the
extent permitted by the standards of the AICPA or other relevant
authorities,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and
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<PAGE> 27
(in the case of the accountants' "comfort" letters, with respect to events
subsequent to the date of the financial statements) as are customarily covered
in opinions of issuer's counsel and in accountants' "comfort" letters delivered
to the underwriters in underwritten public offerings of securities;
(i) Furnish to each selling Holder and holder of Founder
Securities a copy of all documents filed with and all correspondence from or to
the Commission in connection with any such offering other than nonsubstantive
cover letters and the like;
(j) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than eighteen months, beginning
with the first month after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act; and
(k) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 8.5 hereof, the Company will
enter into any underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions.
8.10 Indemnification.
(a) The Company will indemnify each Holder and holder of
Founder Securities, each of its officers, directors and partners, and each
person controlling such Holder and holder of Founder Securities, with respect
to each registration, qualification or compliance effected pursuant to this
Section 8, and each underwriter, if any, and each person who controls any
underwriter, and their respective counsel against all claims, losses, damages
and liabilities (or actions, proceedings or settlements in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in any prospectus, offering circular or other
document prepared by the Company (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act
or any rule or regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder
and holder of Founder Securities, each of its officers,
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<PAGE> 28
directors and partners, and each person controlling such Holder and holder of
Founder Securities, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses as they are reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement (or alleged untrue
statement) or omission (or alleged omissions) based upon written information
furnished to the Company by such Holder, holder of Founder Securities or
underwriter and stated to be specifically for use therein.
(b) Each Holder whose Registrable Securities or Rubin Securities
and each holder of Founder Securities whose Founder Securities are included in
any registration, qualification or compliance effected pursuant to this Section
8 will indemnify the Company, each of its directors and officers and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of the Securities Act and the rules and regulations thereunder, each
other such Holder and holder of Founder Securities and each of their officers,
directors and partners, and each person controlling such Holder and holder of
Founder Securities, and their respective counsel against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and such Holders and
holders of Founder Securities, directors, officers, partners, persons,
underwriters or control persons for any legal or any other expenses as they are
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder or
holders of Founder Securities and stated to be specifically for use therein;
provided, however, that the obligations of such Holders and holders of Founder
Securities hereunder shall be limited to an amount equal to the proceeds to
each such Holder and holder of Founder Securities of securities sold under such
registration statement, prospectus, offering circular or other document as
contemplated herein.
(c) Each party entitled to indemnification under this Section 8.10
(the "Indemnified Party") shall give notice to the
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<PAGE> 29
party required to provide indemnification (the "Indemnifying Party") promptly
after such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such party's expense, and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 8 unless and only to the extent that such failure to give notice
results in material prejudice to the Indemnifying Party. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
8.11 Information by Holder. Each Holder of Registrable Securities
and/or Rubin Securities and each holder of Founder Securities to be included in
a registration referred to in this Section 8 shall furnish to the Company such
information regarding such Holder and such holder of Founder Securities and the
distribution proposed by such Holder and such holder of Founder Securities as
the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 8 and shall promptly advise the Company in writing
of any material changes to such information while the registration is in
effect. Each Holder and holder of Founder Securities agrees that upon notice
from the Company that a registration statement, prospectus, offering circular
or other document is required to be revised, amended, supplemented or replaced,
such Holder and holder of Founder Securities shall use its reasonable efforts
to cause all copies thereof to be promptly returned to the Company (including
copies thereof which are in the possession of any broker or other person acting
on behalf of the Holder or holder of Founder Securities), and the Holder and
holder of Founder Securities shall cease to make any public offer or sale of
the registered securities until the Company shall have revised, amended,
supplemented or replaced such registration statement, prospectus, offering
circular or other document.
29
<PAGE> 30
8.12 Limitations on Registration of Issues of Securities. From and
after the date of this Agreement, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the
company giving such holder or prospective holder a right to require the Company
to initiate any registration of any securities of the Company or to require the
Company, upon any registration of any of its securities, to include, among the
securities which the Company is then registering, securities owned by such
holder which are superior to the rights given to the Purchaser hereunder.
8.13 Rule 144. With a view to making available the benefits of
certain rules and regulations of the commission which may permit the sale of
the Restricted Securities to the public without registration, the Company
agrees to:
(a) Use its best efforts to make and keep public
information available (as those terms are understood and defined in Rule 144
under the Securities Act) at all times from and after, 90 days following the
effective date of the first registration under the Securities Act filed by the
Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements;
(c) So long as a Purchaser owns any Restricted
Securities, furnish to the Purchaser forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of Rule 144
(at any time from and after 90 days following the effective date of the first
registration statement filed by the Company for an offering of its securities
to the general public) , and of the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents so filed as the Purchaser may reasonably request in
availing itself of any rule or regulation of the Commission allowing the
Purchaser to sell any such securities without registration.
8.14 Transfer or Assignment of Registration Rights. The rights to
cause the Company to register securities granted to the Purchaser under
Sections 8.5, 8.6 and 8.8 may be transferred or assigned by a Purchaser to any
transferee or assignee of any Restricted Securities provided that (i) the
Company is given written notice at the time of or within a reasonable time
after said transfer or assignment, stating the name and address of said
transferee or assignee and identifying the securities with respect to which
such registration rights are being transferred or assigned, (ii) the transferee
or assignee of such rights assumes
30
<PAGE> 31
the obligations of such Purchaser under this Section 8, (iii) such transfer or
assignment does not delay the time when the Restricted Securities would have
been eligible to be sold pursuant to Rule 144 or Rule 144(k) of the Securities
Act had they not been so transferred or assigned, and (iv) the number of
transferees or assignees who hold less than 1% of the Company's outstanding
capital stock (assuming conversion of the Shares into Common Stock) shall not
exceed 20.
8.15 Lock-up Restrictions. Prior to the closing date of the IPO,
Purchaser shall agree that it will not, for a period of up to 180 days after
the effective date of the Company's registration statement relating to the IPO,
offer to sell, contract to sell or otherwise dispose of any shares of Common
Stock, or options or warrants to purchase any shares of Common Stock, owned
directly by such person or entity or with respect to which such person or
entity has the power of disposition other than (i) as a gift or (ii) with the
prior written consent of the Company, provided that all officers, directors and
holders of 5% of more of the Company's then outstanding capital stock also
agree to the same restrictions.
SECTION 9
Miscellaneous
9.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California.
9.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive (i) any investigation made by the
Purchasers and (ii) the Closing.
9.3 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto; provided, however, except as otherwise set forth in Section
7.6(b) or this Section 9.3, the Company may not assign its rights or
obligations hereunder. Except as otherwise set forth in Section 8.14 hereof or
in this Section 9.3, nothing contained herein shall limit the Purchasers'
right, subject to applicable securities laws, to sell, transfer or otherwise
assign to whomever it elects, the Shares or the Common Stock issuable upon
conversion of the Shares and its rights under this Agreement, and upon such
sale, transfer or assignment, such transferee shall have all the rights of the
Purchasers as if such transferee were a party to this Agreement; provided
further, however, the Purchasers may not assign any rights or obligations set
forth in Section 7.2 hereof. Sybase hereby grants to the Company, or its
assignees, a right of first refusal to purchase all (or any part) of the Shares
or the Common Stock issuable upon conversion of the Shares and its rights under
this Agreement (the
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<PAGE> 32
"Offered Shares") that Sybase may from time to time propose to sell, transfer
or otherwise assign. In the event that Sybase proposes to sell, transfer or
otherwise assign any Offered Shares, it shall give the Company written notice
of its intention, describing the proposed assignee, the price and the terms and
conditions upon which Sybase proposes to sell, transfer or otherwise assign
such Offered Shares. The Company (or its assignees) shall have 20 business
days after receipt of such notice to agree to purchase all (or any part) of
such Offered Shares at the price and upon the terms and conditions specified in
the notice by giving written notice to Sybase and stating therein the number of
Offered Shares to be purchased. If the Company (or its assignees) fails to
exercise the right of first refusal within the 20 business day period specified
above, Sybase shall have 120 days thereafter to sell, transfer or otherwise
assign the Offered Shares respecting which the rights of the Company (or its
assignee) were not exercised to the assignee identified in Sybase's notices at
a price and upon terms no more favorable to the proposed assignee than
specified in Sybase's notice.
9.4 Entire Agreement; Amendment. This Agreement (including the
Exhibits hereto) and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof. Neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated, except by a written
instrument signed by the Company and the holder or holders of at least 50% of
the then outstanding Shares (including Common Stock issuable upon conversion
thereof) except that Section 8 hereof may be amended, waived, discharged or
terminated, by a written instrument signed by the Company and the holder or
holders of at least 50% of the then outstanding Registrable Securities. Except
as provided above, each holder of any of the Shares at the time or thereafter
outstanding shall be bound by any amendment or waiver given pursuant to this
Section 9.4 whether or not the certificate representing such Shares shall have
been marked to indicate such amendment or waiver.
9.5 Notices, etc. All notices and other communications required
or permitted hereunder shall be in writing and shall be sent by next day
courier, postage prepaid, or delivered either by hand or by messenger,
addressed (a) if to a Purchaser, addressed to such Purchaser at its address set
forth at the end of this Agreement, or at such other address as the Purchaser
shall have furnished to the Company in writing, or (b) if to any other holder
of the Shares at such address as such holder shall have furnished the Company
in writing, or, until any such holder so furnishes an address to the Company,
then to and at the address of the last holder thereof who has so furnished an
address to the Company, or (c) if to the Company, at its address set forth at
the end of this Agreement, or at such other address as the Company shall have
furnished to each holder in writing. All notices to the Purchaser
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<PAGE> 33
shall also be sent by facsimile on the day that notice is sent by courier.
9.6 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Shares or Common Stock
acquired upon conversion of the Shares upon any breach or default of the
Company under this Agreement, shall impair any such right, power or remedy of
such holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any holder of any breach or default under this Agreement, or any
waiver on the part of any holder of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative
and not alternative, provided, however, that Purchasers acknowledge and agree
that their sole and exclusive remedy for a breach by Company of its
representations and warranties contained in Section 3.21 shall be rescission of
this Agreement.
9.7 Separability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
9.8 Agent's Fees.
(a) The Company (i) represents and warrants that it has
not retained a finder or broker in connection with the transactions
contemplated by this Agreement and (ii) hereby agrees to indemnify and to hold
the Purchasers harmless of and from any liability for commission or
compensation in the nature of an agent's fee to any broker or other person or
firm incurred in connection with the transactions contemplated hereby (and the
costs and expenses of depending against such liability or asserted liability)
arising from any act by the Company or any of its employees or representatives.
(b) Each Purchaser (i) represents and warrants that it
has retained no finder or broker in connection with the transactions
contemplated by this Agreement and (ii) hereby agrees to indemnify and to hold
the Company harmless from any liability for any commission or compensation in
the nature of an agent's fee to any broker or other person or firm incurred in
connection with the transactions contemplated hereby (and the costs and
expenses of defending against such liability or asserted liability) for which
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<PAGE> 34
such Purchaser, or any of the Purchaser's employees or representatives, is
responsible.
9.9 Information Confidential. Each Purchaser acknowledges that
the terms and provisions of this Agreement and information received by it
pursuant hereto may be confidential and for its use only, and it will not use
such confidential information or reproduce, disclose or disseminate the terms
and provisions of this Agreement or such information to any other person (other
than its employees or agents having a need to know the contents of such
information, and its attorneys), except in connection with the exercise of
rights under this Agreement, unless the Company has made such information
available to the public generally or such Purchaser is required to disclose
such information by a governmental body or under federal securities laws.
9.10 Expenses. The Company and the Purchasers each shall bear its
own expenses and legal fees incurred on their behalf with respect to this
Agreement and the transactions contemplated hereby, except that the Company
shall pay the reasonable legal fees and out of pocket costs and expenses of
counsel for the Purchasers in an amount not to exceed $15,000.
9.11 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
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<PAGE> 35
9.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date above written.
COMPANY PURCHASERS
FIRST VIRTUAL HOLDINGS UNTERBERG HARRIS INTERACTIVE
INCORPORATED, A WYOMING MEDIA, L.P.
CORPORATION
By: By:
------------------------- -----------------------
Title:President Title:
---------------------- --------------------
Address: SYBASE, INC.
--------------------
--------------------
--------------------
By:
-----------------------
Title:
--------------------
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<PAGE> 36
EXHIBIT A
Schedule of Purchasers
EXHIBIT B
Amended and Restated Articles of Incorporation
<PAGE> 1
Exhibit 10.11
FIRST VIRTUAL HOLDINGS INCORPORATED
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Agreement is made as of December 22, 1995, among First Virtual Holdings
Incorporated, a Wyoming corporation (the "Company"), with its principal office
at 11975 El Camino Real, Suite 300, San Diego, CA 92130-2543, and First USA
Merchant Services, Inc., a Nevada corporation (the "Purchaser") with its
principal place of business at 1601 Elm Street, 47th Floor, Dallas, Texas 75201.
SECTION 1
Authorization and Sale of Preferred Stock
1.1 Authorization. The Company has authorized or will have
authorized as of the Closing Date (as defined below) the sale and issuance of
up to 1,725,890 shares of its Series B Preferred Stock ("Series B Preferred"),
having the rights, restrictions, privileges and preferences as set forth in the
Company's Amended and Restated Articles of Incorporation in the form attached
to this Agreement as Exhibit A (the "Restated Articles").
1.2 Sale of Series B Preferred. Subject to the terms and
conditions hereof, the Company will issue and sell to the Purchaser, and the
Purchaser will buy from the Company, 783,945 shares (the "Shares") of Series B
Preferred, at a cash purchase price of $3.189 per share.
1.3 Warrants. At the Closing (as hereinafter defined) the Company
shall issue to the Purchaser a warrant to purchase up to 852,272 shares of
Series A Preferred Stock of the Company in substantially the form attached as
Exhibit F hereto (the "Series A Warrant"), a warrant to purchase up to 940,734
shares of Series B Preferred in substantially the form attached as Exhibit G
hereto (the "Series B Warrant") and a warrant to purchase shares of the
Company's Common Stock in substantially the form as attached as Exhibit H
hereto (the "Incentive Warrant" and, together with the Series A Warrant and the
Series B Warrant, the "Warrants"). Any shares sold upon exercise of the
Warrants shall be considered "Shares" for purposes of this Agreement.
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<PAGE> 2
SECTION 2
Closing Date; Delivery
2.1 Closing Date. The closing of the purchase and sale of the
Shares hereunder (the "Closing") shall be held at 3:00 p.m. on December 22,
1995 or on such later date as the Company and the Purchaser may agree to in
writing (the date of such Closing being referred to as the "Closing Date").
The place of the Closing (including the place of delivery to the Purchaser by
the Company of the certificate evidencing the shares of Series B Preferred
being purchased and the place of payment to the Company by the Purchaser of the
purchase price therefor) shall be at the offices of Hughes & Luce, L.L.P., 1717
Main Street, Suite 2800, Dallas, Texas 75201, or such other place as the
Purchaser and the Company may mutually agree.
2.2 Delivery. At the Closing, the Company will deliver to the
Purchaser a certificate representing the shares of Series B Preferred being
purchased against payment of the purchase price therefor, by check or wire
transfer payable to the Company, or by a combination thereof. The Company
shall also deliver the Warrants at the Closing against payment of the purchase
price therefor, by company check, in the amount of $100 per Warrant.
SECTION 3
Representations and Warranties of the Company
Except as set forth on Exhibit B attached hereto, the Company hereby
represents and warrants to the Purchaser as follows:
3.1 Organization and Standing. The Company is a corporation duly
organized and existing under, and by virtue of, the laws of the State of
Wyoming and is in good standing under such laws. The Company has requisite
corporate power to own and operate its properties and assets, and to carry on
its business as presently conducted and as proposed to be conducted. The
Company is duly licensed or qualified to do business as a foreign corporation,
and is in good standing, in each state wherein the properties owned or leased
or the business transacted by the Company makes such qualification to do
business as a foreign corporation necessary and where the failure to qualify
would have a material and adverse effect on the condition of the Company,
financial or otherwise, and no other jurisdiction has demanded, requested or
otherwise indicated that (or inquired whether) the Company is required to so
qualify.
3.2 Corporate Power. The Company has all requisite legal and
corporate power to execute and deliver this Agreement, the Warrants, the
Shareholder Rights Agreement attached hereto as Exhibit C (the "SHAREHOLDER
RIGHTS AGREEMENT") and each other agreement to be executed and delivered by the
-2-
<PAGE> 3
Company in connection with this Agreement (the "TRANSACTION DOCUMENTS"), to sell
and issue the Shares hereunder and under the Warrants, to issue the Common
Stock issuable upon conversion of the Shares and to carry out and perform its
obligations under the terms of the Transaction Documents.
3.3 Subsidiaries. The Company has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
voting security or other equity interest in any other corporation, association
or business entity.
3.4 Capitalization. The authorized capital stock of the Company
consists solely of an unlimited number of shares of Common Stock, of which
4,273,250 shares are issued and outstanding, 1,545,816 shares of Series A
Preferred Stock, of which 693,544 are issued and outstanding, and 1,725,890
shares of Series B Preferred, none of which has been or will be issued or
outstanding prior to the Closing. All such issued and outstanding shares have
been duly authorized and validly issued, and are fully paid and nonassessable.
All outstanding shares of capital stock of the Company have been issued free of
preemptive or similar rights. The Company has, and will at all relevant times
have, reserved 783,945 shares of Series B Preferred for issuance hereunder,
940,734 share of Series B Preferred for issuance on exercise of the Series B
Warrant; 852,272 shares of Series A Preferred Stock for issuance on exercise of
the Series A Warrant; a sufficient number of shares of Common Stock for
issuance upon conversion of the Shares. The Company has reserved 2,000,000
shares of Common Stock for issuance pursuant to its 1995 Stock Option Plan,
none of which have been issued, and 468,750 shares of Common Stock for issuance
pursuant to its 1994 Stock Option Plan, of which options to purchase 468,750
shares are outstanding. All outstanding Common Stock was issued in compliance
with all federal and state securities laws. Assuming the accuracy of each
Purchaser's representations in Section 4 below, upon issuance the Shares will
have been issued in compliance with all federal and state securities laws.
3.5 Authorization; Conflicts. All corporate action on the part of
the Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance of the Transaction Documents, the
authorization, sale, issuance and delivery of the Shares (and the Common Stock
issuable upon conversion of the Shares) and the performance of the Company's
obligations under each of the Transaction Documents has been taken or will be
taken prior to the Closing. The Agreement and the other Transaction Documents,
when executed and delivered by the Company, shall constitute valid and binding
obligations of the Company enforceable in accordance with their respective
terms. The Shares, when issued in compliance with the provisions of this
Agreement and the other applicable Transaction Documents, will be validly
issued, fully paid and nonassessable. The Shares issuable upon exercise of the
Warrants, and the Common Stock issuable upon conversion of the Shares, have been
duly and validly reserved and, when issued in compliance with the provisions of
this Agreement and the other applicable Transaction Documents, will be validly
issued, fully paid and nonassessable, and free of any preemptive or similar
rights and liens, encumbrances or other adverse claims (other than such
preemptive rights, liens, encumbrances or other rights as shall have been waived
on or prior to the Closing Date). The Series A Preferred Stock and the Series B
Preferred Stock will have the rights, preferences and privileges set forth
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in the Restated Articles. Except as set forth above, there are no outstanding
options, warrants or other rights to purchase or subscribe for any security of
the Company or any subsidiary of the Company. The Company holds no stock in
treasury. The execution, delivery and performance by the Company of the
Transaction Documents and compliance therewith and the issuance and sale of the
Warrants and the Shares pursuant thereto will not result in any violation of and
will not conflict with, or result in a breach of any of the terms of, or
constitute a default under, the Company's Articles of Incorporation or Bylaws or
any mortgage, indenture, agreement, instrument, judgment, decree, order, rule or
regulation or other restriction to which the Company is a party or by which it
is bound or any provision of state or Federal law to which the Company is
subject, or result in the creation of any mortgage, pledge, lien, encumbrance or
charge upon any of the properties or assets of the Company pursuant to any such
term or result in the suspension, revocation, impairment, forfeiture or
non-renewal of any permit, license, authorization or approval applicable to the
Company's operations or any of its assets or properties.
3.6 Title to Properties and Assets, Liens, etc. The Company has
good and marketable title to its properties and assets, and has good title to
all its leasehold interests, in each case subject to no mortgage, pledge, lien,
lease, encumbrance or charge, other than (i) the lien of current taxes not yet
due and payable, and (ii) possible minor liens and encumbrances which do not in
any case materially detract from the value of the property subject thereto or
materially impair the operations of the Company, and which have not arisen
otherwise than in the ordinary course of business.
3.7 Financial Statements; Liabilities. The Company has delivered to
the Purchaser its audited balance sheet and statement of operations as of and
for fiscal year ended December 31, 1994, its reviewed balance sheet and
statement of operations as of and for the six months ended June 30, 1995 and its
internally prepared, unaudited balance sheet and statement of operations for the
eleven months ended November 30, 1995 (the "FINANCIAL STATEMENTS"). The
Financial Statements are complete and correct in all material respects and have
been prepared in accordance with generally accepted accounting principles,
except that the unaudited Financial Statements do not contain footnotes and are
subject to year-end adjustments. The Financial Statements accurately set out
and describe the financial condition and operating results of the Company as of
the dates, and during the periods, indicated therein. Since November 30, 1995,
there has not been any change in the assets, liabilities, financial condition or
operations of the Company from that reflected in the Financial Statements,
except changes in the ordinary course of business which have not been, in the
aggregate, materially adverse. The Company does not have any liabilities of any
sort with a value in excess of $200,000 in the aggregate that are not disclosed
in the Financial Statements.
3.8 Outstanding Debt. Except as set forth in the Financial
Statements the Company has no outstanding indebtedness for borrowed money and is
not a guarantor or otherwise contingently liable for any indebtedness for
borrowed money (including, without limitation, liability by way of agreement,
contingent or otherwise, to purchase, provide funds for payment, supply funds or
otherwise invest in any debtor or otherwise to insure any creditor against
loss). There exists no default under the provisions of any instrument
evidencing any such indebtedness or otherwise or of any agreement relating
thereto.
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3.9 Shareholders, Directors and Officers; Indebtedness. The
Company is not indebted, directly or indirectly, to any of its officers,
directors or shareholders or any of their respective relatives or affiliates.
No officer, director or shareholder of the Company, or any of their relatives
or affiliates is indebted to the Company. To the knowledge of the Company,
none of the officers or directors or significant employees or advisors of the
Company, or their respective spouses, or relatives, owns directly or
indirectly, a material interest in any entity that is a competitor, customer or
supplier of (or has any existing contractual relationship with) the Company.
3.10 Litigation and Bankruptcy Proceedings.
(a) There is neither pending nor, to the knowledge of the Company,
threatened any action, suit, proceeding or claim, whether or not purportedly on
behalf of the Company, to which the Company is or may be named as a party or
its property is or may be subject, or to the knowledge of the Company, to which
any officer, key employee or principal shareholder of the Company is subject
and in which an unfavorable outcome, ruling or finding in any such matter or
for all such matters taken as a whole might have a material adverse effect on
the condition, financial or otherwise, prospects, or operations of the
Company. The Company is not aware of any specific valid basis for any claim of
the type described in the preceding sentence, and the Company has no knowledge
of any unasserted claim, the assertion of which is likely, and which, if
asserted, will seek damages, an injunction or other legal, equitable, monetary
or nonmonetary relief, which claim individually or collectively with other such
unasserted claims if granted would have a material adverse effect on the
condition, financial or otherwise, prospects or operations of the Company.
(b) The Company has not admitted in writing its inability to pay
its debts generally as they become due, filed or consented to the filing against
it of a petition in bankruptcy or a petition to take advantage of any
insolvency act, made an assignment for the benefit of creditors, consented to
the appointment of a receiver for itself of for the whole or any substantial
part of its property, or had a petition in bankruptcy filed against it, been
adjudicated a bankrupt or filed a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other similar law or
statute.
3.11 Consents. No consent, approval, qualification, order or
authorization of, or filing with any governmental authority, is required in
connection with the Company's valid execution, delivery or performance of the
Transaction Documents or the offer, sale or issuance of the Shares or the
Warrants or the consummation of any other transaction contemplated on the part
of the Company except for the filing of the Restated Articles with the Wyoming
Secretary of State, which filing will be completed prior to the Closing and
filing of notices required by applicable Federal and state securities laws.
3.12 Permits, Franchises, Licenses, Trademarks, Patents, and Other
Rights. To the knowledge of the Company, the Company has all governmental and
other permits, licenses and other similar authority necessary for the conduct
of its business as now being conducted by it, the lack of which could
materially and adversely affect the operations or condition, financial or
otherwise, or prospects of the Company,
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and it is not in default in any material respect under any of such permits,
licenses or other similar authority.
3.13 Patents, Trademarks, etc. The Company owns or has the right,
or prior to the Closing will own or have the right, to use, free and clear of
all liens, charges, claims and restrictions, all patents, trademarks, service
marks, trade names, copyrights, licenses and rights necessary to its business
as now conducted or proposed to be conducted (the "Intellectual Property"), and
is not infringing upon or otherwise acting adversely to the right or claimed
right of, to the best of its knowledge, any person or entity under or with
respect to any of the Intellectual Property. The execution and delivery by the
Company of the Transaction Documents and its performance of its obligations
under the Transaction Documents will not violate the terms of any of the
Company's rights in the Intellectual Property. There are no outstanding
options, licenses, or agreements of any kind relating to the Intellectual
Property, nor is the Company bound by or a party to any options, licenses or
agreements or any kind with respect to the patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company
has not received any communications alleging that the Company has violated or,
by conducting its business as proposed, would violate any patent, trademark,
service mark, trade name, copyright or trade secret or other proprietary right
of any other person or entity. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments or any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere
with the use of such employee's best efforts to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted.
3.14 Material Contracts and Commitments. Neither the company, nor, to
the best knowledge of the Company, any third party is in default under (a) any
material contract, agreement or instrument to which the Company is a party or
by which it is bound or (b) any agreement with respect to indebtedness for
borrowed money.
3.15. Compliance with Other Instruments, None Burdensome, etc. The
Company is not in violation of any term of the Restated Articles or the By-Laws,
or in any material respect of any term or provision of any mortgage, indenture,
contract, agreement, instrument, judgment or decree, and to the best of its
knowledge, is not in violation of any order, statute, rule or regulation
applicable to the Company, which violation reasonably would be expected to have
a material adverse effect on the Company's business, condition (financial or
otherwise), prospects or operations. The execution, delivery and performance of
and compliance with the Transaction Documents and the issuance of the Shares,
the Warrants and the Common Stock issuable upon conversion of the Shares and
the exercise of the Warrants, as the case may be, have not resulted and will not
result in any violation of, or conflict with, or constitute a default under, or
result in the creation of, any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company, and there is no such
violation or default or event that, with the passage of time or giving of notice
or both, would constitute a violation or default which materially and adversely
affects the Company's business, condition (financial or otherwise), prospects or
operations.
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3.16 Employees. To the best of the Company's knowledge, no employee
of the Company is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
relationship of any such employee with the Company or any other person or entity
because of the nature of the business conducted or to be conducted by the
Company. The Company does not have and has never had any collective bargaining
agreements covering any of its employees.
3.17 Employee Agreements. Each person presently employed by the
Company has executed (or will execute by the Closing Date) a Proprietary
Information Agreement in substantially the form of Exhibit D attached hereto.
3.18 Employee Benefit Plan Obligations. The Company does not
maintain or have any obligations with respect to any employee benefit plan
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974 ("ERISA")). The Company is not, nor was it at any time, obligated
to contribute to any employee pension benefit plan which is or was a
multi-employer plan within the meaning of Section 3(37) of ERISA.
3.19 Disclosure. The Agreement and the exhibits hereto as well as
any other document, certificate, schedule, financial, business or other written
statement described in Exhibit B do not contain any untrue statement of a
material fact and do not omit to state a material fact necessary in order to
make the statements contained herein or therein not misleading. To the
knowledge of the Company, there is no fact or circumstance that materially and
adversely affects the condition, financial or otherwise, assets, business,
prospects or operations of the Company that has not been disclosed to the
Purchaser.
3.20 Registration Rights. Except as set forth in the Shareholder
Rights Agreement, the Company is not currently under any obligation to register
under the Securities Act of 1933, as amended (the "Securities Act"), any of its
presently outstanding securities or any of its securities that may hereafter be
issued.
3.20 Governmental Consent, etc. No consent, approval or
authorization of, or designation, declaration or filing with, any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement and the other Transaction Documents, or
the offer, sale or issuance of the Shares or the Warrants (or the Common Stock
issuable upon conversion of the Shares), or the consummation of any other
transaction contemplated thereby, except (a) filing of the Restated Articles in
the office of the Secretary of State of the State of Wyoming, and (b)
qualification (or taking such action as may be necessary to secure an exemption
from qualification, if available) of the offer and sale of the Shares and the
Warrants (and the Common Stock issuable upon conversion of the Shares) under
applicable Blue Sky laws, which filing and qualification, if required, will be
accomplished in a timely manner prior to or promptly upon completion of the
Closing.
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<PAGE> 8
3.21 Brokers or Finders. The Company has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company with
respect to its purchase of the Shares and the Warrants as follows:
4.1 Investment Representations and Covenants of the Purchaser.
(a) This Agreement is made by the Company in reliance upon
the Purchaser's representations and covenants made in this Section 4. The
Purchaser represents that the Shares to be received will be acquired for
investment for its own account, not as a nominee or agent, and not with a view
to the sale or "distribution" of any part thereof within the meaning of the
Securities Act.
(b) The Purchaser understands and acknowledges that the
offering of the Shares and the Warrants pursuant to this Agreement will not,
and any issuance of Common Stock on conversion or exercise thereof may not, be
registered under the Securities Act on the ground that the sale provided for in
this Agreement and the issuance of securities hereunder is exempt pursuant to
section 4(2) of the Securities Act, and that the Company's reliance on such
exemption is predicated on the Purchaser's representations set forth herein.
(c) The Purchaser is an "accredited investor" within the
meaning of Regulation D under the Securities Act.
(d) Without limiting the effect of any representation or
warranty made by the Company, the Purchaser represents that it is able to fend
for itself in transactions such as the one contemplated by this Agreement, has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of its prospective investment in the
Company, and has the ability to bear the economic risks of the investment.
(e) Without limiting the effect of any representation or
warranty made by the Company, the Purchaser acknowledges that it has been
informed of, and has considered in evaluating its investment in the Shares, the
following factors (without limitation): (i) The Company's business and
prospects are highly dependent on the acceptance of the Company's Internet
Payment System and other Internet-related products and services, and on
widespread adoption of the Internet as a medium for commercial transactions;
(ii) The market for Internet-based transaction payment systems has only
recently begun to
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<PAGE> 9
develop, is rapidly evolving and is characterized by an increasing number of
entrants and rapid technological change; (iii) The future viability of the
Internet as a medium for commercial transactions is highly speculative; the
Internet may not prove to be a viable commercial marketplace because of
inadequate development of the necessary infrastructure, such as a reliable
network backbone or timely development of complimentary products, such as high
speed modems; (iv) If the necessary infrastructure or complementary products are
not developed, if the Internet does not become a viable commercial marketplace,
or if the Company's internet payment system is not widely adopted by merchants
and consumers, the Company's business, operating results and financial
conditions will be materially adversely affected;
(f) The Purchaser acknowledges and understands that the
Shares, and any Common Stock acquired upon the conversion thereof, must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available, and that, except as
otherwise provided in the Shareholder Rights Agreement, the Company is under no
obligation to register either the Shares or such Common Stock.
(g) The Purchaser acknowledges that it is familiar with
Rule 144 promulgated under the Securities Act.
(h) The Purchaser acknowledges that in the event the
applicable requirements of Rule 144 are not met, registration under the
Securities Act or compliance with another exemption from registration will be
required for any disposition of its stock.
(i) The Purchaser covenants that, in the absence of an
effective registration statement covering the stock in question, it will not
sell, transfer or otherwise dispose of the Shares, the Warrants or any Preferred
Stock or Common Stock issued on conversion or exercise thereof other than in a
transaction registered under the Securities Act or exempt from the registration
provisions thereof. In connection therewith the Purchaser acknowledges that the
Company shall make a notation on its stock books regarding the restrictions on
transfer set forth in this Section 4 and shall transfer shares and warrants on
the books of the company only to the extent not inconsistent therewith.
4.2 Receipt of Information. Without limiting the effect of any
representation or warranty made by the Company, the Purchaser represents that it
has received and reviewed this Agreement and all Exhibits hereto, and the draft
of Company's Business Plan and all Exhibits thereto; that, to its knowledge
without special inquiry of any sort, it, its attorneys and its accountants have
had access to, and an opportunity to review all documents and other materials
requested of the Company; it and they have been given an opportunity to ask
any and all questions of; and receive answers from, the Company concerning the
terms and conditions of the offering and to obtain all information it or they
believe necessary or appropriate to verify the accuracy of the Business Plan
and to evaluate the suitability of an investment in the Series B Preferred.
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<PAGE> 10
4.3 Authorization. This Agreement when executed and delivered by
the Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
4.4 Brokers or Finders. The Company has not, and will not, incur,
directly or indirectly, as a result of any action taken by the Purchaser, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement.
SECTION 5
Conditions to Closing of Purchaser
The Purchaser's obligation to purchase the Shares and the Warrants at
the Closing is, at the option of the Purchaser, subject to the fulfillment on
or prior to the Closing Date of the following conditions:
5.1 Representations and Warranties Correct. The representations
and warranties made by the Company in Section 3 hereof shall be true and
correct in all material respects when made, and shall be true and correct in
all material respects on the Closing Date with the same force and effect as if
they had been made on and as of the Closing Date.
5.2 Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company on or prior to the Closing
Date shall have been performed or complied with in all material respects.
5.3 Opinion of Company's Counsel. The Purchaser shall have
received from Wilson, Sonsini, Goodrich & Rosati, counsel to the Company, an
opinion addressed to it, dated the Closing Date, in substantially the form of
Exhibit E.
5.4 Compliance Certificate. The Company shall have delivered to the
Purchaser a certificate executed by the President of the Company, dated the
Closing Date, and certifying to the fulfillment of the conditions specified in
Sections 5.1 and 5.2 of this Agreement, and that he has made, or caused to be
made, such investigations as he deemed necessary in order to permit him to
verify the accuracy of the information set forth in such certificate.
5.5 Blue Sky. The Company shall have obtained all necessary Blue
Sky law permits and qualifications, or secured an exemption therefrom, required
by any state for the offer and sale of the Shares and the Warrants, the
issuance of additional Shares upon exercise of the Warrants, and the issuance
of Common Stock upon conversion of the Shares.
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<PAGE> 11
5.6 Restated Articles. The Restated Articles shall have been filed
with the Secretary of State of the State of Wyoming.
5.7 Shareholder Rights Agreement. The Shareholder Rights Agreement
shall have been executed as set forth in Exhibit C hereto and shall be in full
force and effect as of the Closing Date.
5.8 Control Option Agreement. A Control Option Agreement in
substantially the form attached hereto as Exhibit I shall have been executed
and delivered by the Company and each shareholder of the Company and shall be
in full fierce and effect as of the Closing Date.
5.9 Proprietary Information Agreements. Each person presently
employed by the Company shall have executed a Proprietary Information Agreement
in substantially the form of Exhibit D hereto.
5.10 Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance
and form to the Purchaser and its counsel.
5.11 No Material Adverse Change. There shall have been no material
adverse change in the Company's business or financial condition or prospects,
except for continuing losses from operations consistent with past losses.
SECTION 6
Conditions to Closing of Company
--------------------------------
The Company's obligation to sell and issue the Shares and the Warrants
at the Closing is, at the option of the Company, subject to the fulfillment of
the following conditions:
6.1 Representations. The representations made by the Purchaser in
Section 4 hereof shall be true and correct in all material respects when made,
and shall be true and correct in all material respects on the Closing Date.
6.2 Blue Sky. the Company shall have obtained all necessary Blue
Sky Law permits and qualifications, or secured an exemption therefrom, required
by any state for the offer and sale of the Series B Preferred and the Common
Stock issuable upon conversion of the Series B Preferred.
6.3 Restated Articles. The Restated Articles shall have been filed
with the Secretary of State of the State of Wyoming.
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6.4 Payment of Purchase Price. The Purchaser shall have delivered
to the Company the purchase price for the Shares and the Warrants.
SECTION 7
Miscellaneous
7.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Delaware, without giving effect to the
conflicts of laws principals thereof.
7.2 Survival. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by the Purchaser
and the closing of the transactions contemplated hereby.
7.3 Successors and Assigns. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties
hereto, provided, however, that the rights of the Purchaser to purchase Shares
and Warrants at the Closing shall not be assignable to a person or entity that
is not an affiliate of the Purchaser without the written consent of the Company.
7.4 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof and supersede all prior written and all prior or
contemporaneous oral negotiations, agreements, arrangements and
understandings. Neither this Agreement nor any term hereof may be amended,
waived, discharged, or terminated other than by a written instrument signed by
the party against whom enforcement of any such amendment, waiver, discharge, or
termination is sought.
7.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon delivery to the party to be notified in person or by courier service or
five days after deposit with the United States mail, by registered or certified
mail, postage prepaid, addressed (a) if to the Purchaser, at such Purchaser's
address set forth on the first page of this Agreement, or at such other address
as the Purchaser shall have furnished to the Company in writing, with a copy to
Hughes and Luce, L.L.P., 1717 Main Street, Dallas, Texas 75201, Attn.: Glen
Hettinger, Esq., or (b) if to any other holder of any Shares or Warrants, at
such address as such holder shall have furnished the Company in writing, or,
until any such holder so furnishes an address to the Company, then to and at
the address of the last holder of such Shares or warrants who has so furnished
an address to the Company, or (c) if to the Company, one copy should be sent
to its address set forth on the first page of this Agreement and addressed to
the attention of the President, or at such other address as the Company shall
have furnished to the Purchaser, with a copy to Wilson, Sonsini, Goodrich &
Rosati, Professional Corporation, 650 Page Mill Road, Palo Also, CA 94304,
Attn.: Richard C. DeGolia, Esq.
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<PAGE> 13
7.6 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Shares, upon any breach or
default of the Company under this Agreement, shall impair any such right, power
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
7.7 Expenses. The Company and the Purchaser shall each bear their
own expenses and legal fees with respect to this Agreement and the transactions
contemplated hereby; except that, the Company will pay the reasonable legal
fees and reasonable expenses (up to a maximum of $30,000) upon receipt of a
bill therefor, incurred by counsel to the Purchaser.
7.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
7.9 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in fill force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to
any party.
7.10 Gender. The use of the neuter gender herein shall be deemed to
include the masculine and the feminine gender, if the context so requires.
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<PAGE> 14
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY" FIRST VIRTUAL HOLDINGS INCORPORATED
a Wyoming corporation
By: /s/ LEE H. STEIN
----------------------------------
Lee H. Stein, President
"PURCHASER" FIRST USA MERCHANT SERVICES, INC.
a Nevada corporation
By: /s/ PAMELA PATSLEY
----------------------------------
Pamela Patsley, President
EXHIBITS:
A Restated Articles
B Schedule of Exceptions
C Shareholder Rights Agreement
D Proprietary Information Agreement
E Opinion of Company Counsel
F Series A Warrant
G Series B Warrant
H Incentive Warrant
I Acquisition Option Agreement
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<PAGE> 1
Exhibit 10.12
FIRST VIRTUAL HOLDINGS INCORPORATED
SECURITIES PURCHASE AGREEMENT
This Agreement is made as of July 3, 1996, among First Virtual
Holdings Incorporated, a Delaware corporation (the "COMPANY"), with its
principal office at 11975 El Camino Real, Suite 300, San Diego, CA 92130-2543,
and General Electric Capital Corporation, a New York corporation with its
principal place of business at 260 Long Ridge Road, Stamford, CT 06297 (the
"PURCHASER" or "GECC").
SECTION I
Authorization and Sale of Preferred Stock
1.1 Authorization. The Company has authorized or will have
authorized as of the Closing Date (as defined below) the sale and issuance of
up to 130,952 shares of its Series C Preferred Stock (the "SERIES C
PREFERRED"), and 40,000,000 shares of its Common Stock (the "COMMON STOCK")
having the rights, restrictions, privileges and preferences as set forth in the
Company's Amended and Restated Certificate of Incorporation in the form
attached to this Agreement as Exhibit A (the "RESTATED CERTIFICATE").
1.2 Sale of Series C Preferred. Subject to the terms and
conditions hereof, the Company will issue and sell to the Purchaser, and the
Purchaser will buy from the Company, 130,952 shares of Series C Preferred (the
"PREFERRED SHARES") at a cash purchase price of $15.00 per share, and 107,144
shares of its Common Stock (the "COMMON SHARES") at a cash purchase price of
$5.00 per share (collectively, the "SHARES").
1.3 Warrant; Letter of Intent. At the Closing (as hereinafter
defined) the Company shall issue to the Purchaser a warrant to purchase shares
of its Common Stock (the "Warrant") in substantially the form attached hereto
as Exhibit G. At the Closing, the Company and the Purchaser shall each execute
and deliver a letter of intent with respect to potential marketing arrangements
between the Company and Purchaser, in substantially the form attached hereto as
Exhibit F.
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<PAGE> 2
SECTION 2
Closing Date; Delivery
2.1 Closing Date. The closing of the purchase and sale of the
Shares hereunder (the "CLOSING") shall be held at 3:00 p.m. on July 3, 1996 or
on such later date as the Company and the Purchaser may agree to in writing
(the date of such Closing being referred to as the "CLOSING DATE"). The place
of the Closing (including the place of delivery to the Purchaser by the Company
of the certificates evidencing the Shares and the Warrant and the place of
payment to the Company by the Purchaser of the purchase price therefor) shall
be at the principle executive offices of the Company, or such other place as
the Purchaser and the Company may mutually agree.
2.2 Delivery. At the Closing, (i) the Company will deliver to the
Purchaser two certificates representing the Shares purchased by the Purchaser
against payment of the purchase price therefor, by check or wire transfer
payable to the Company, or by a combination thereof, and (ii) the Company shall
deliver the Warrant to the Purchaser against payment of the purchase price
therefor, by check or wire transfer payable to the Company, in the amount of
$1,000, provided that if the Closing shall not have occurred by July 15, 1996,
then, unless otherwise specifically agreed by the parties, this Agreement shall
terminate.
SECTION 3
Representations and Warranties of the Company
Except as set forth on Exhibit B attached hereto, the Company hereby
represents and warrants to the Purchaser as follows:
3.1 Organization and Standing. The Company is a corporation duly
organized and existing under, and by virtue of, the laws of the State of
Delaware and is in good standing under such laws. The Company has requisite
corporate power to own and operate its properties and assets, and to carry on
its business as presently conducted and as proposed to be conducted. The
Company is duly licensed or qualified to do business as a foreign corporation,
and is in good standing, in each state wherein the properties owned or leased
or the business transacted by the Company makes such qualification to do
business as a foreign corporation necessary and where the failure to qualify
would have a material and adverse effect on the condition of the Company,
financial or otherwise, and no other jurisdiction has demanded, requested or
otherwise indicated that (or inquired whether) the Company is required to so
qualify.
3.2 Corporate Power. The Company has all requisite legal and
corporate power to execute and deliver this Agreement, the Amended and Restated
Shareholder Rights Agreement attached hereto as Exhibit C (the "SHAREHOLDER
RIGHTS AGREEMENT"), and the Warrant (collectively, the "TRANSACTION
DOCUMENTS"), to sell and issue the Shares hereunder, to issue the Common Stock
issuable upon
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conversion of the Preferred Shares and upon exercise of the Warrant and to
carry out and perform its obligations under the terms of the Transaction
Documents.
3.3 Subsidiaries. The Company has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
voting security or other equity interest in any other corporation, association
or business entity.
3.4 Capitalization. The authorized capital stock of the Company
consists solely of 40,000,000 shares of Common Stock, of which 4,303,250 shares
are issued and outstanding, 1,545,816 shares of Series A Preferred Stock, of
which 693,544 are issued and outstanding, and 1,724,679 shares of Series B
Preferred, of which 1,248,945 are issued and outstanding, and 130,952 shares of
Series C Preferred, none of which has been or will be issued or outstanding
prior to the Closing. All such issued and outstanding shares have been duly
authorized and validly issued, and are fully paid and nonassessable. All
outstanding shares of capital stock of the Company have been issued free of
preemptive or similar rights. The Company has, and will at all relevant times
have, reserved 130,952 shares of Series C Preferred and 107,144 shares of
Common Stock for issuance hereunder and sufficient shares of Common Stock for
issuance upon conversion of the Preferred Shares and upon exercise of the
Warrant. The Company has reserved 2,000,000 shares of Common Stock for
issuance pursuant to its 1995 Stock Option Plan, of which options to purchase
505,083 shares are outstanding, and 468,750 shares of Common Stock for issuance
pursuant to its 1994 Stock Option Plan, of which options to purchase 468,750
shares are outstanding. The Company has reserved 1,000,000 shares for issuance
upon exercise of additional outstanding options granted to officers, directors,
employees and consultants of the Company, which options were not granted under
the 1994 Stock Option Plan or the 1995 Stock Option Plan. The Company has
further reserved 852,272 shares of Series A Preferred Stock and 475,734 shares
of Series B Preferred Stock for issuance upon exercise of outstanding warrants.
The Company has also issued a warrant to purchase a number of shares of Common
Stock equivalent to up to 4% of its outstanding capital stock as of the date of
exercise upon attainment of certain performance targets by the holder of such
warrant. All outstanding Common Stock and Preferred Stock was issued in
compliance with all federal and state securities laws. Assuming the accuracy
of the Purchaser's representations in Section 4 below, upon issuance the Shares
and the Warrant will have been issued in compliance with all federal and state
securities laws.
3.5 Authorization; Conflicts. All corporate action on the part of
the Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance of the Transaction Documents, the
authorization, sale, issuance and delivery of the Shares and the Warrant (and
the Common Stock issuable upon conversion of the Preferred Shares and upon
exercise of the Warrant) and the performance of the Company's obligations under
each of the Transaction Documents has been taken or will be taken prior to the
Closing. The Transaction Documents, when executed and delivered by the
Company, shall constitute valid and binding obligations of the Company
enforceable in accordance with their respective terms. The Shares, when issued
in compliance with the provisions of this Agreement, will be validly issued,
fully paid and nonassessable, and free of any preemptive or similar rights and
liens, encumbrances or other adverse claims (other than such preemptive rights,
liens, encumbrances or other rights which shall have been waived on or prior to
the Closing Date). The shares of Common Stock issuable upon conversion of the
Preferred Shares and upon exercise of the Warrant have been duly and
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<PAGE> 4
validly reserved and, when issued in compliance with the provisions of this
Agreement or of the Warrant, as the case may be, will be validly issued, fully
paid and nonassessable, and free of any preemptive or similar rights and liens.
encumbrances or other adverse claims (other than such preemptive rights, liens,
encumbrances or other rights as shall have been waived on or prior to the
Closing Date). The Series C Preferred Stock will have the rights, preferences
and privileges set forth in the Restated Certificate. Except as set forth
above, or in the Shareholder Rights Agreement, there are no outstanding
options, warrants, conversion privileges, preemptive rights or other rights to
purchase or subscribe for or otherwise acquire any security of the Company or
any subsidiary of the Company. Except as set forth in the Shareholder Rights
Agreement and the Shareholders Agreement dated September 19, 1994 among the
Company and certain of its shareholders, the Company is not a party to or
subject to any agreement or understanding, and to the knowledge of the Company
there is no agreement or understanding between any persons or entities, which
offers or relates to the voting of any securities of the Company. The Company
holds no stock in treasury. The execution, delivery and performance by the
Company of the Transaction Documents and compliance therewith will not result
in any violation of and will not conflict with, or result in a breach of any of
the terms of, or constitute a default under, the Company's Certificate of
Incorporation or Bylaws or any mortgage, indenture, agreement, instrument,
judgment, decree, order, rule or regulation or other restriction to which the
Company is a party or by which it is bound or any provision of state or Federal
law to which the Company is subject, or result in the creation of any mortgage,
pledge, lien, encumbrance or charge upon any of the properties or assets of the
Company pursuant to any such term or result in the suspension, revocation,
impairment, forfeiture or non-renewal of any permit, license, authorization or
approval applicable to the Company's operations or any of its assets or
properties.
3.6 Title to Properties and Assets; Liens, etc. The Company has
good and marketable title to its properties and assets, and has good title to
all its leasehold interests, in each case subject to no mortgage, pledge, lien.
lease, encumbrance or charge, other than (i) the lien of current taxes not yet
due and payable, and (ii) possible minor liens and encumbrances which do not in
any case materially detract from the value of the property subject thereto or
materially impair the operations of the Company, and which have not arisen
otherwise than in the ordinary course of business.
3.7 Financial Statements; Liabilities. The Company has delivered
to the Purchaser its audited balance sheet and statement of operations as of
and for fiscal year ended December 31, 1995, and its unaudited balance sheet
and statement of operations as of and for the five months ended May 31, 1996
(the "FINANCIAL STATEMENTS"). The Financial Statements are complete and
correct in all material respects and have been prepared in accordance with
generally accepted accounting principles, except that the unaudited Financial
Statements do not contain footnotes and are subject to normal recurring
adjustments for such period. The Financial Statements accurately set out and
describe the financial condition and operating results of the Company as of the
dates, and during the periods, indicated therein. Since May 31, 1996, there
has not been any change in the assets, liabilities, financial condition or
operations of the Company from that reflected in the Financial Statements,
except changes in the ordinary course of business which have not been, in the
aggregate, materially adverse. The Company does not have any liabilities of
any sort with a value in excess of $200,000 in the aggregate that are not
disclosed in the Financial Statements.
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<PAGE> 5
3.8 Outstanding Debt. Except as set forth in the Financial
Statements the Company has no outstanding indebtedness for borrowed money and
is not a guarantor or otherwise contingently liable for any indebtedness for
borrowed money (including, without limitation, liability by way of agreement,
contingent or otherwise, to purchase, provide funds for payment, supply funds
or otherwise invest in any debtor or otherwise to insure any creditor against
loss). There exists no default under the provisions of any instrument
evidencing any such indebtedness or otherwise or of any agreement relating
thereto.
3.9 Shareholders, Directors and Officers; Indebtedness. The
Company is not indebted, directly or indirectly, to any of its officers,
directors or shareholders or any of their respective relatives or affiliates.
No officer, director or shareholder of the Company, or any of their relatives
or affiliates, is indebted to the Company. The Company has provided to counsel
for GECC copies of all material written agreements which remain in effect
between the Company and its officers and directors or their relatives or
affiliates. To the knowledge of the Company, none of the officers or directors
or significant employees or advisors of the Company, or their respective
spouses, or relatives, owns directly or indirectly, a material interest in any
entity that is a competitor, customer or supplier of (or has any existing
contractual relationship with) the Company.
3.10 Litigation and Bankruptcy Proceedings.
(a) There is neither pending nor, to the knowledge of the Company,
threatened any action, suit, proceeding or claim, whether or not purportedly on
behalf of the Company, to which the Company is or may be named as a party or
its property is or may be subject, or to the knowledge of the Company, to which
any officer, key employee or principal shareholder of the Company is subject
and in which an unfavorable outcome, ruling or finding in any such matter or
for all such matters taken as a whole might have a material adverse effect on
the condition, financial or otherwise, prospects, or operations of the
Company. The Company is not aware of any specific valid basis for any claim of
the type described in the preceding sentence, and the Company has no knowledge
of any unasserted claim, the assertion of which is likely, and which, if
asserted, will seek damages, an injunction or other legal, equitable, monetary
or nonmonetary relief, which claim individually or collectively with other such
unasserted claims if granted would have a material adverse effect on the
condition, financial or otherwise, prospects or operations of the Company.
(b) The Company has not admitted in writing its inability to pay
its debts generally as they become due, filed or consented to the filing
against it of a petition in bankruptcy or a petition to take advantage of any
insolvency act, made an assignment for the benefit of creditors, consented to
the appointment of a receiver for itself or for the whole or any substantial
part of its property, or had a petition in bankruptcy filed against it, been
adjudicated a bankrupt or filed a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other similar law or
statute.
3.11 Consents. No consent, approval, qualification, order or
authorization of, or filing with, any governmental authority, is required in
connection with the Company's valid execution, delivery or performance of the
Transaction Documents or the offer, sale or issuance of the Shares or the
consummation of any other transaction contemplated on the part of the Company
except for the filing
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<PAGE> 6
of the Restated Certificate with the Delaware Secretary of State, which filing
will be completed prior to the Closing and filing of notices required by
applicable Federal and state securities laws.
3.12 Permits, Franchises, Licenses, Trademarks, Patents, and Other
Rights. To the knowledge of the Company, the Company has all governmental and
other permits, licenses and other similar authority necessary for the conduct
of its business as now being conducted by it, the lack of which could
materially and adversely affect the operations or condition, financial or
otherwise, or prospects of the Company, and it is not in default in any
material respect under any of such permits, licenses or other similar
authority.
3.13 Patents, Trademarks, etc. To the knowledge of the Company,
the Company owns or has the right, or prior to the Closing will own or have the
right, to use, free and clear of all liens, charges, claims and restrictions.,
all patents, trademarks, service marks, trade names, copyrights, licenses and
rights necessary to its business as now conducted (the "INTELLECTUAL PROPERTY")
and is not infringing upon or otherwise acting adversely to the right or
claimed right of any person or entity under or with respect to such party's
patents, trademarks, service marks, trade names or copyrights. The execution
and delivery by the Company of the Transaction Documents and its performance of
its obligations under the Transaction Documents will not violate the terms of
any of the Company's rights in the Intellectual Property. There are no
outstanding options, licenses, or agreements of any kind relating to the
Intellectual Property, nor is the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company
has not received any communications alleging that the Company has violated or,
by conducting its business as proposed, would violate any patent, trademark,
service mark, trade name, copyright or trade secret or other proprietary right
of any other person or entity. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere
with the use of such employee's best efforts to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted.
3.14 Material Contracts and Commitments. Neither the Company, nor,
to the best knowledge of the Company, any third party is in default under (a)
any material contract, agreement or instrument to which the Company is a party
or by which it is bound or (b) any agreement with respect to indebtedness for
borrowed money.
3.15 Compliance with Other Instruments, None Burdensome, etc. The
Company is not in violation of any term of the Restated Certificate or the
By-Laws, or in any material respect of any term or provision of any mortgage,
indenture, contract, agreement, instrument, judgment or decree, and to the
best of its knowledge, is not in violation of any order, statute, rule or
regulation applicable to the Company, which violation reasonably would be
expected to have a material adverse effect on the Company's business, condition
(financial or otherwise), prospects or operations. The execution, delivery and
performance of and compliance with the Transaction Documents and the issuance
of the Shares and the Common Stock issuable upon conversion of the Preferred
Shares, have not resulted and will not result in any violation of, or conflict
with, or constitute a default under, or result in the creation of, any
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<PAGE> 7
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company; and there is no such violation or default or event that,
with the passage of time or giving of notice or both, would constitute a
violation or default which materially and adversely affects the Company's
business, condition (financial or otherwise), prospects or operations.
3.16 Employees. To the best of the Company's knowledge, no
employee of the Company is in violation of any term of any employment contract,
patent disclosure agreement or any other contract or agreement relating to the
relationship of any such employee with the Company or any other person or
entity because of the nature of the business conducted or to be conducted by
the Company. The Company does not have and has never had any collective
bargaining agreements covering any of its employees.
3.17 Employee Agreements. Each person presently employed by the
Company, including its officers, has executed (or will execute by the Closing
Date) a Proprietary Information Agreement in substantially the form of Exhibit
D attached hereto.
3.18 Employee Benefit Plan Obligations. The Company does not
maintain or have any obligations with respect to any employee benefit plan
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974 ("ERISA")). The Company is not, nor was it at any time, obligated
to contribute to any employee pension benefit plan which is or was a
multi-employer plan within the meaning of Section 3(37) of ERISA.
3.19 Disclosure. This Agreement and the Exhibits hereto as well as
any other document, certificate, schedule, financial, business or other written
statement described in Exhibit B do not contain any untrue statement of a
material fact and do not omit to state a material fact necessary in order to
make the statements contained herein or therein not misleading. To the
knowledge of the Company, there is no fact or circumstance that materially and
adversely affects the condition, financial or otherwise, assets, business,
prospects or operations of the Company that has not been disclosed to the
Purchaser.
3.20 Registration Rights. Except as set forth in the Shareholder
Rights Agreement, the Company is not under any obligation to redeem, or to
register under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
any of its securities.
3.21 Governmental Consent, etc. No consent, approval or
authorization of, or designation, declaration or filing with, any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement and the other Transaction Documents,
or the offer, sale or issuance of the Shares (or the Common Stock issuable upon
conversion of the Shares), or the consummation of any other transaction
contemplated thereby, except (a) filing of the Restated Certificate in the
office of the Secretary of State of the State of Delaware, which the Company
will complete prior to the Closing, and (b) qualification (or taking such
action as may be necessary to secure an exemption from qualification, if
available) of the offer and sale of the Shares (and the Common Stock issuable
upon conversion of the Shares) under applicable Blue Sky laws, which filing and
qualification, if required, will be accomplished in a timely manner prior to or
promptly upon completion of the Closing.
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<PAGE> 8
3.22 Brokers or Finders. The Company has not incurred, and will
not incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
3.23 Section 83(b) Elections. To the knowledge of the Company,
each individual who purchased shares of the Company's Common Stock which vest
over time contingent on provision of services to the Company has timely filed
an election under Section 83(b) of the Internal Revenue Code of 1986, as
amended.
3.24 Use of Proceeds. The Company has not allocated any specific
portion of the proceeds of this transaction for any particular purpose. The
Company expects to add the proceeds of this transaction to working capital,
where such proceeds will be available for general corporate purposes.
SECTION 4
Representations and Warranties of the Purchaser
The Purchaser hereby represents and warrants to the Company with
respect to its purchase of the Shares and the Warrant as follows:
4.1 Investment Representations and Covenants of the Purchaser.
(a) This Agreement is made by the Company in reliance
upon the Purchaser's representations and covenants made in this Section 4. The
Purchaser represents that the Shares, the Warrant and the Shares issuable upon
conversion of the Preferred Shares and exercise of the Warrant will be acquired
for investment for its own account, not as a nominee or agent, and not with a
view to the sale or "distribution" of any part thereof within the meaning of
the Securities Act.
(b) The Purchaser understands and acknowledges that the
offering of the Shares and the Warrant pursuant to this Agreement will not, and
any issuance of Common Stock on conversion of the Preferred Shares may not, be
registered under the Securities Act on the ground that the sale provided for in
this Agreement and the issuance of securities hereunder is exempt pursuant to
Section 4(2) of the Securities Act, and that the Company's reliance on such
exemption is predicated on the Purchaser's representations set forth herein.
(c) The Purchaser is an "accredited investor" within the
meaning of Regulation D under the Securities Act.
(d) The Purchaser is experienced in making venture
capital investments in high-technology companies and it is able to fend for
itself in transactions such as the one contemplated by this Agreement, has such
knowledge and experience in financial and business matters that it is capable
of evaluating the merits and risks of its prospective investment in the
Company, and has the ability to bear the economic risks of the investment.
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(e) The Purchaser acknowledges that it has been informed of, and
has considered in evaluating its investment in the Shares and the Warrant, the
following factors (without limitation): (i) the Company's business and
prospects are highly dependent on the acceptance of the Company's Internet
Payment System and other Internet-related products and services, and on
widespread adoption of the Internet as a medium for commercial transactions;
(ii) the market for Internet-based transaction payment systems has only
recently begun to develop, is rapidly evolving and is characterized by an
increasing number of entrants and rapid technological change; (iii) the future
viability of the Internet as a medium for commercial transactions is highly
speculative; the Internet may not prove to be a viable commercial marketplace
because of inadequate development of the necessary infrastructure, such as a
reliable network backbone or timely development of complimentary products, such
as high speed modems; (iv) if the necessary infrastructure or complementary
products are not developed, if the Internet does not become a viable commercial
marketplace, or if the Company's Internet payment system is not widely adopted
by merchants and consumers, the Company's business, operating results and
financial condition will be materially adversely affected.
(f) The Purchaser acknowledges and understands that the Shares,
the Warrant and any Common Stock acquired upon the conversion of the Preferred
Shares and any shares acquired upon exercise of the Warrant, must be held
indefinitely unless they are subsequently registered under the Securities Act
or an exemption from such registration is available, and that, except as
otherwise provided in the Shareholder Rights Agreement, the Company is under no
obligation to register either the Shares or such Common Stock.
(g) The Purchaser acknowledges that it is familiar with Rule 144
promulgated under the Securities Act.
(h) The Purchaser acknowledges that in the event the applicable
requirements of Rule 144 are not met, registration under the Securities Act or
compliance with another exemption from registration will be required for any
disposition of its stock.
(i) The Purchaser covenants that, in the absence of an effective
registration statement covering the stock in question, it will not sell,
transfer or otherwise dispose of the Shares, the Warrant or any Common Stock
issued on conversion of the Preferred Shares or any shares issued upon exercise
of the Warrant other than in a transaction registered under the Securities Act
or exempt from the registration provisions thereof. In connection therewith the
Purchaser acknowledges that the Company shall make a notation on its stock
books regarding the restrictions on transfer set forth in this Section 4 and
shall transfer shares and warrants on the books of the Company only to the
extent not inconsistent therewith.
4.2 Receipt of Information. The Purchaser has received and
reviewed this Agreement and all Exhibits hereto, and a draft of Company's
Registration Statement on Form S-1 dated June 28, 1996 (but has had no
involvement in the preparation of such draft); to its knowledge, it, its
attorneys and its accountants have had access to, and an opportunity to review
all documents and other materials requested of the Company; to its knowledge,
it and they have been given an opportunity to ask any and all questions of, and
receive answers from, the Company concerning the terms and conditions of the
offering and to
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obtain all information it or they believe necessary or appropriate to verify
the accuracy of the Business Plan and to evaluate the suitability of an
investment in the Shares and the Warrant.
4.3 Authorization. This Agreement when executed and delivered by
the Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
4.4 Brokers of Finders. The Company has not, and will not, incur,
directly or indirectly, as a result of any action taken by the Purchaser, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement.
SECTION 5
Conditions to Closing of Purchaser
The Purchaser's obligation to purchase the Shares and the Warrant at
the Closing is, at the option of such Purchaser, subject to the fulfillment on
or prior to the Closing Date of the following conditions:
5.1 Representations and Warranties Correct. The representations
and warranties made by the Company in Section 3 hereof shall be true and
correct in all material respects when made, and shall be true and correct in
all material respects on the Closing Date with the same force and effect as if
they had been made on and as of the Closing Date.
5.2 Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company on or prior to the Closing
Date shall have been performed or complied with in all material respects.
5.3 Opinion of Company's Counsel. The Purchaser shall have
received from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an
opinion addressed to it, dated the Closing Date, in substantially the form of
Exhibit E.
5.4 Compliance Certificate. The Company shall have delivered to
the Purchaser a certificate executed by the President of the Company, dated the
Closing Date, and certifying to the fulfillment of the conditions specified in
Sections 5.1 and 5.2 of this Agreement, and that he has made, or caused to be
made, such investigations as he deemed necessary in order to permit him to
verify the accuracy of the information set forth in such certificate.
5.5 Blue Sky. The Company shall have obtained all necessary Blue
Sky law permits and qualifications, or secured an exemption therefrom, required
by any state for the offer and sale of the Shares, the Warrant, the issuance of
Common Stock upon conversion of the Shares and the issuance of shares upon
exercise of the Warrant.
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5.6 Restated Certificate. The Restated Certificate shall have
been filed with the Secretary of State of the State of Delaware.
5.7 Shareholder Rights Agreement. The Shareholder Rights
Agreement shall have been executed as set forth in Exhibit C hereto by each of
the parties listed on the signature pages thereto and shall be in full force
and effect as of the Closing Date.
5.8 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be satisfactory
in substance and form to the Purchaser and its counsel.
5.9 No Material Adverse Change. There shall have been no material
adverse change in the Company's business or financial condition or prospects,
except for continuing losses from operations consistent with past losses.
5.10 Letter of Intent. The Company shall have duly executed and
delivered a Letter of Intent in the form attached hereto as Exhibit F relating
to a strategic relationship between the Company and GECC.
5.11 Consents. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body or any other person or entity
that are required in connection with the lawful issuance and sale of the
Shares, or the Common Stock to be issued on conversion of the Preferred Shares
or shares to be issued upon exercise of the Warrant, or any of the other
transactions contemplated by this Agreement or the other Transaction Documents
shall have been duly obtained and effective as of the Closing.
5.12 Election of Director. John McKinley shall have been appointed
to the Company's Board of Directors for a term extending until the Company's
next Annual Meeting of Stockholders, which the Company currently expects to
hold in the spring of 1997.
SECTION 6
Conditions to Closing of Company
The Company's obligation to sell and issue the Shares at the Closing
is, at the option of the Company, subject to the fulfillment of the following
conditions:
6.1 Representations. The representations made by the Purchaser in
Section 4 hereof shall be true and correct in all material respects when made,
and shall be true and correct in all material respects on the Closing Date.
6.2 Blue Sky. The Company shall have obtained all necessary Blue
Sky law permits and qualifications, or secured an exemption therefrom, required
by any state for the offer and sale of the
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Shares, the Warrant, the issuance of Common Stock upon conversion of the Shares
and the issuance of shares upon exercise of the Warrant.
6.3 Restated Certificate. The Restated Certificate shall have
been filed with the Secretary of State of the State of Delaware.
6.4 Payment of Purchase Price. The Purchaser shall have delivered
to the Company the purchase price for the Shares and the Warrant.
6.5 Letter of Intent. The Purchaser shall have duly executed and
delivered a Letter of Intent in the form attached hereto as Exhibit F relating
to a strategic relationship between the Company and the Purchaser.
SECTION 7
Covenants of the Purchaser
The Purchaser hereby covenants to and agrees with the Company as
follows:
7.1 Limitation on Ownership of Voting Stock.
(a) For a period of one year from the closing date of the initial
public offering of the Company's Common Stock, the Purchaser and its Affiliates
shall not acquire beneficial ownership of any Voting Stock (as defined in
Section 8.1), any securities convertible into or exchangeable for Voting Stock,
or any other right to acquire Voting Stock (except, in any case, by way of
stock dividends or other distributions made available to holders of any Voting
Stock generally) without the written consent of the Company, if the effect of
such acquisition would be to increase the Voting Power of all Voting Stock then
beneficially owned by the Purchaser and its Affiliates (as defined in Section
8.1) or which it has a right to acquire to more than 10% of the Total Voting
Power of the Company. For purposes of this Section 7, "beneficial" ownership
shall not include, and this Section 7 shall not be applicable to, any
securities that are beneficially owned by a Purchaser in its capacity as a
fiduciary, employee benefit trustee, pension fund manager, investment adviser,
quasi-fiduciary, trustee, agent or similar role for the benefit of third
parties other than the Purchaser and its affiliates.
(b) Recapitalization or Repurchase. The Purchaser will not be
obligated to dispose of any shares of Voting Stock if the aggregate percentage
beneficial ownership of the Purchaser is increased as a result of a
recapitalization of the Company or a repurchase of securities by the Company or
any other action taken by the Company or any Affiliate of the Company.
7.2 Voting.
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(a) For a period of two years following the closing date of the
initial public offering of the Company's Common Stock, the Purchaser shall take
such action as may be required so that all shares of Common Stock of the
Company owned by the Purchaser and its Affiliates are voted for management's
nominees to the Board of Directors of the Company. The Purchaser, as the
holder of such shares of Common Stock, shall use its reasonable efforts to be
present, in person or by proxy, at all meetings of shareholders of the Company
as to which the designee of the Purchaser to the Board of Directors of the
Company has received at least 20 days prior written notice so that all shares
of Common Stock beneficially owned by the Purchaser may be counted for the
purposes of determining the presence of a quorum at such meetings.
(b) For so long as this Section 7.2 is in effect the Purchaser
shall not deposit any Common Shares in a voting trust or, except as otherwise
provided herein, subject any Common Shares to any arrangement or agreement with
respect to the voting of such Common Shares (except for the granting of proxies
to the proxy holders proposed by the Company's Board of Directors, if the
Purchaser so desires).
(c) Solicitation of Proxies. Without the Company's prior written
consent, the Purchaser and its Affiliates shall not solicit proxies with
respect to any Voting Stock, nor shall it become a "participant" in any
"election contest" (as such terms are used in Rule 14a-11 of Regulation 14A
under the Exchange Act) relating to the election of directors of the Company;
provided, however, that the Purchaser shall not be deemed to be a "participant"
by reason of the membership of any designee of the Purchaser on the Company's
Board of Directors. The Purchaser shall exercise its influence on the
management, Board of Directors and policies of the Company in a manner
consistent with its interests, the fiduciary duties of its designees on the
Company's Board of Directors, and any business agreements between the Purchaser
and the Company.
7.3 Right of First Offer. Prior to making any sale or transfer of
Common Shares, the Purchaser shall give the Company the opportunity to purchase
such Common Shares in the following manner:
(a) The Purchaser shall give notice (the "TRANSFER NOTICE") to the
Company in writing of such intention, specifying the amount of Common Shares
proposed to be sold or transferred, the proposed price per share therefor (the
"TRANSFER PRICE") and the other material terms upon which such disposition is
proposed to be made.
(b) The Company shall have the right, exercisable by irrevocable
written notice given by the Company to the Purchaser within 24 hours after
receipt of such Transfer Notice, to purchase all but not part of the Common
Shares specified in such Transfer Notice for a price per share equal to the
Transfer Price and otherwise on terms no less favorable to the Purchaser than
those described in the Transfer Notice; provided that if the Company notifies
the Purchaser of its election to exercise its right of first offer, the
Purchaser may, by notice to the Company, within 5 business days, withdraw the
Transfer Notice, and decline to sell or transfer the Common Shares.
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<PAGE> 14
(c) If the Company exercises its right of first offer hereunder,
the closing of the purchase (including the payment in full therefor) of the
Common Shares with respect to which such right has been exercised shall take
place on the date specified in the Company's acceptance (which date shall not
be more than 45 days after the date of such acceptance) at the offices of the
Purchaser located at the address set forth in this Agreement, or at such other
time and place as the Company and the Purchaser may agree. The Company and the
Purchaser will use their respective best efforts to comply with all Federal and
state laws, rules and regulations applicable to any purchase of Common Shares
under this Section 7.3.
(d) If the Company does not exercise its right of first offer
hereunder within the time specified for such exercise, the Purchaser shall be
free, during the period of 120 calendar days following the expiration of such
time for exercise, to sell the Common Shares specified in such Transfer Notice
on terms no less favorable to the buyer of such Common Shares than the terms
specified in such Transfer Notice.
(e) In the event that the Company elects to exercise a right of
first offer under this Section 7.3, the Company may specify prior to closing
such purchase another person as its designee to purchase the Common Shares to
which such notice relates. If the Company shall designate another person as
the Purchaser pursuant to this Section 7.3, the giving of notice of acceptance
of the right of first offer by the Company shall constitute a legally binding
obligation of the Company to complete such purchase if such person shall fail
to do so.
7.4 Common Stock Purchase Right.
(a) In the event that the Purchaser, or any transferee of the
Purchaser, elects to request redemption of any or all of the shares of Series C
Preferred purchased pursuant hereto by such Purchaser pursuant to Section II(4)
of the Restated Certificate, then following such redemption, the Company shall
be entitled to Purchase from the Purchaser a number of fully paid and
nonassessable shares of the Company's Common Stock determined as hereinafter
provided, at a purchase price of $0.01 per share (subject to adjustment in the
event of stock splits, stock dividends and similar events).
(b) The number of shares of Common Stock which the Company may
purchase pursuant to this Section 7.4. from time to time shall equal 81.8% of
the number of shares of Series C Preferred previously redeemed by the Company
in accordance with Section II(4) of the Restated Certificate (subject to
adjustment in the event of stock splits, stock dividends and similar events).
(c) The Company's purchase right shall be exercised by delivery of
written notice stating the number of shares to be purchased and requested
effective date of the purchase, which shall not be less than 10 days
subsequent to the date of delivery of the notice, and delivery of payment of
the purchase price of the shares thereby purchased in cash or check. At the
requested effective date of the purchase, the Purchaser shall deliver to the
Company at its principal executive offices a stock certificate for the number
of shares purchased. In the event that the number of shares represented by the
stock certificate tendered exceeds the number of shares purchased by the
Company, the Company shall promptly thereafter issue to the Purchaser a new
certificate for the balance of the shares.
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<PAGE> 15
(d) The Company's rights pursuant to this Section 7.4 shall expire
60 days after such date as no shares of Series C Preferred are held by the
Purchaser or its transferees.
SECTION 8
Miscellaneous
8.1 Certain Definitions. As used in this Agreement:
(a) Total Voting Power. The term "Total Voting Power of
the Company" means the total number of votes which may be cast in the election
of directors of the Company at any meeting of stockholders of the Company if
all securities entitled to vote in the election of directors of the Company
were present and voted at such meeting (other than votes that may be cast only
upon the happening of a contingency).
(b) Voting Stock. The term "Voting Stock" means the
Common Stock, and any other securities issued by the Company having the
ordinary power to vote in the election of directors of the Company (other than
securities having such power only upon the happening of a contingency).
(c) Person. The term "Person" shall mean any person,
individual, corporation, partnership, trust or other nongovernmental entity or
any governmental agency, court, authority or other body (whether foreign,
state, local or other wise).
(d) Affiliate. The term "Affiliate" of any person shall
mean any person controlling, controlled by or under common control with such
person.
8.2 No Obligation to Enter into Marketing Agreement. Nothing in
this Agreement or in any agreement or document attached as an exhibit hereto,
including without limitation the Restated Certificate, the Warrant and the
Letter of Intent attached hereto as Exhibit F, shall be construed to imply any
obligation on the part of the Company or the Purchaser to enter into any
marketing agreement or other agreement with the Purchaser or its affiliates at
any time hereafter. The Company or the Purchaser may elect, in its sole
discretion, for any reason or for no reason, not to enter into any such
agreement.
8.3 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California, without giving effect to the
conflicts of laws principals thereof.
8.4 Survival. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by the Purchaser
and the closing of the transactions contemplated hereby.
8.5 Successors and Assigns. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto
provided, however, that the rights of the Purchaser to purchase Shares at the
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<PAGE> 16
Closing shall not be assignable to a person or entity that is not an affiliate
of the Purchaser without the written consent of the Company.
8.6 Entire Agreement, Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof and supersede all prior written and all prior or
contemporaneous oral negotiations, agreements, arrangements and understandings.
Neither this Agreement nor any term hereof may be amended, waived, discharged,
or terminated other than by a written instrument signed by the party against
whom enforcement of any such amendment, waiver, discharge, or termination is
sought.
8.7 Disclosure. The Company shall not publicize the investment by
GECC or any other aspect of the relationship between GECC and the Company
(other than information as has been previously disclosed to the public with
GECC's consent in a substantially similar form), in any press releases or
promotional materials, without GECC's prior consent, which consent shall not be
unreasonably withheld or delayed. The Company shall exert reasonable efforts
to obtain GECC's prior consent to any description of GECC's investment
contained in filings with governmental agencies, including without limitation
the Securities and Exchange Commission; provided that the Company shall be
under no obligation to delay any such filing in order to obtain such consent if
the Company is not able to obtain such consent prior to the desired time of
filing. Without limiting the generality of the foregoing, the Company shall
not publicize the investment hereunder and the subject matter of the letter of
intent between the parties referred to in Sections 5 and 6 hereof, except as
provided in the preceding two sentences.
8.8 Notices, etc. All notices and other communications required
or permitted hereunder shall be in writing and shall be deemed effectively
given upon delivery to the party to be notified in person or by courier service
or five days after deposit with the United States mail, by registered or
certified mail, postage prepaid, addressed (a) if to the Purchaser, at such
Purchaser's address set forth on the first page of this Agreement, or at such
other address as the Purchaser shall have furnished to the Company in writing,
with a copy to Morrison & Foerster, LLP, 345 California Street, San Francisco,
CA 94104-2675, Attn.: Gavin B. Grover, Esq., or (b) if to any other holder of
any Shares, at such address as such holder shall have furnished the Company in
writing, or, until any such holder so furnishes an address to the Company, then
to and at the address of the last holder of such Shares who has so furnished an
address to the Company, or (c) if to the Company, one copy should be sent to
its address set forth on the first page of this Agreement and addressed to the
attention of the President, or at such other address as the Company shall have
furnished to the Purchaser, with a copy to Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, CA 94304, Attn.:
Richard C. DeGolia, Esq.
8.9 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Shares, upon any breach or
default of the Company under this Agreement, shall impair any such right, power
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the
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<PAGE> 17
part of any holder of any provisions or conditions of this Agreement, must be
in writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
8.10 Expenses. The Company and the Purchaser shall each bear their
own expenses and legal fees with respect to this Agreement and the transactions
contemplated hereby; except that, the Company will pay the reasonable legal
fees and reasonable expenses (up to a maximum of $20,000) upon receipt of a
bill therefor at the Closing, incurred by Morrison & Foerster in its capacity
as counsel to GECC.
8.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
8.12 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to
any party.
8.13 Gender. The use of the neuter gender herein shall be deemed
to include the masculine and the feminine gender, if the context so requires.
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<PAGE> 18
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY" FIRST VIRTUAL HOLDINGS
INCORPORATED
a Delaware corporation
By: /s/ Lee H. Stein
----------------------------------------
Lee H. Stein, President
"PURCHASER" GENERAL ELECTRIC CAPITAL CORPORATION
a New York corporation
By: /s/ Thomas Crowley
----------------------------------------
Thomas Crowley
EXHIBITS:
A Restated Certificate
B Schedule of Exceptions
C Shareholder Rights Agreement
D Proprietary Information Agreement
E Opinion of Company Counsel
F Form of Letter of Intent
G Form of Warrant
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<PAGE> 1
Exhibit 10.13
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
WARRANT
To Purchase Shares of Common Stock of
First Virtual Holdings Incorporated
THIS CERTIFIES that, for value received General Electric Capital
Corporation ("GECC"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, to purchase from First Virtual Holdings Incorporated, a
Delaware corporation (the "Company"), that number of fully paid and
nonassessable shares of the Company's Common Stock (the "Common Stock") at the
purchase price per share as set forth in Section 1 below ("Exercise Price").
The number of shares and Exercise Price are subject to adjustment as provided
in Section 11 hereof.
1. Number of Shares; Exercise Price.
(a) Subject to adjustments as provided herein, this
Warrant is exercisable for a number of shares of the Company's Common Stock
equal to $500,000 divided by the Exercise Price.
(b) Subject to adjustments as provided herein, the
Exercise Price shall be equal to the following:
(i) $10.50 per share, in the event that, prior to
the earlier of (A) the date of exercise of this Warrant and (B) December 31,
1996, the Company and GECC shall have entered into a marketing agreement which
contains a stipulation that such agreement is a "Qualified Marketing
Agreement"; or
(ii) $15.00 per share otherwise.
(c) This warrant shall expire on July 3, 1997.
2. Title to Warrant. This Warrant shall be transferrable only
with the prior written consent of the Company. Transfers shall occur at the
office or agency of the Company by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed.
3. Exercise of Warrant. The purchase rights represented by this
Warrant are exercisable by the registered holder hereof, in whole or in part,
at any time, or from time to time, during the term hereof as described in
Section l above, by the surrender of this Warrant and the Notice of Exercise
annexed
<PAGE> 2
hereto duly completed and executed on behalf of the holder hereof, at the
office of the Company in San Diego, California (or such other office or agency
of the Company as it may designate by notice in writing to the registered
holder hereof at the address of such holder appearing on the books of the
Company), and subject to Section 4 and Section 5 hereof, upon payment of the
purchase price of the shares thereby purchased in cash or check reasonably
acceptable to the Company, whereupon the holder of this Warrant shall be
entitled to receive a certificate for the number of shares so purchased and, if
this Warrant is exercised in part, a new Warrant for the unexercised portion of
this Warrant. The Company agrees that, upon exercise of this Warrant in
accordance with the terms hereof, the shares so purchased shall be deemed to be
issued to such holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been exercised.
Certificates for shares purchased hereunder and, on partial exercise
of this Warrant, a new Warrant for the unexercised portion of this Warrant
shall be delivered to the holder hereof as promptly as practicable after the
date on which this Warrant shall have been exercised.
The Company covenants that all shares which may be issued upon the
exercise of rights represented by this Warrant will, upon exercise of the
rights represented by this Warrant and payment of the Exercise Price or
exercise of the Conversion Right in Section 4(a), be fully paid and
nonassessable and free from all taxes, liens and charges in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously or otherwise specified herein).
4. Right to Convert Warrant into Common Stock.
(a) Right to Convert. If, prior to the date of exercise
of this warrant, the Company shall have effected an initial underwritten public
offering of its Common Stock with net proceeds to the Company of no less than
$15,000,000, the holder hereof shall have the right to require the Company to
convert this Warrant (the "Conversion Right") into shares of Common Stock (or
such other securities as may be determined pursuant to Section 11) as provided
in this Section 4. Upon exercise of the Conversion Right, the Company shall
deliver to the holder hereof (without payment by the holder hereof of any
Exercise Price) that number of shares of Common Stock (or such other
securities) equal to the quotient obtained by dividing (x) the value of this
Warrant at the time the Conversion Right is exercised (determined by
subtracting the aggregate Exercise Price in effect immediately prior to the
exercise of the Conversion Right from the aggregate fair market value of the
shares of the Company's Common Stock (or such other securities) issuable upon
exercise of this Warrant immediately prior to the exercise of the Conversion
Right) by (y) the fair market value of one share of Common Stock (or such other
securities) immediately prior to the exercise of the Conversion Right.
(b) Method of Exercise. The Conversion Right may be
exercised by the holder hereof by the surrender of this Warrant at the
principal office of the Company together with the Notice of Exercise annexed
hereto and a written statement specifying that the holder hereof thereby
intends to exercise the Conversion Right.
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<PAGE> 3
(c) Determination of Fair Market Value. For purposes of
this Section 4, fair market value of the Common Stock as of a particular date
(the "Determination Date") shall mean the amount determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the National Market of the Nasdaq Stock Market ("NASDAQ System"),
the fair market value of a share of Common Stock shall be the mean of the
closing sales prices for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the last twenty (20) market
trading days prior to the Determination Date, as reported in The Wall Street
Journal or such other source as the Company's Board of Directors deems
reliable;
(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the fair
market value of a share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last twenty (20) market
trading days prior to the Determination Date, as reported in The Wall Street
Journal or such other source as the Company's Board of Directors deems
reliable;
(iii) In the absence of an established market for
the Common Stock, the fair market value shall be determined in good faith by
the Company's Board of Directors upon review of relevant factors.
5. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which such holder would otherwise
be entitled, such holder shall be entitled, at its option, to receive either
(i) a cash payment equal to the excess of fair market value for such fractional
share above the Exercise Price for such fractional share (as mutually
determined by the Company and the holder) or (ii) a whole share if the holder
tenders the Exercise Price for one whole share.
6. Charges, Taxes and Expenses. Issuance of certificates for
shares upon the exercise of this Warrant shall be made without charge to the
holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by
the holder of this Warrant (with the prior written consent of the Company);
provided, however, that in the event certificates for shares are to be issued
in a name other than the name of the holder of this Warrant, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the holder hereof and the Notice of Exercise duly
completed and executed and stating in whose name and certificates are to be
issued; and provided further, that such assignment shall be subject to
applicable laws and regulations. Upon any transfer involved in the issuance or
delivery of any certificates for shares of the Company's securities, the
Company may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
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<PAGE> 4
7. No Rights as Shareholders. This Warrant does not entitle the
holder hereof to any voting rights, dividend rights or other rights as a
shareholder of the Company prior to the exercise hereof.
8. Exchange and Registry of Warrant. The Company shall maintain
a registry showing the name and address of the registered holder of this
Warrant. This Warrant may be surrendered for exchange, transfer or exercise,
in accordance with its terms, at the office of the Company, and the Company
shall be entitled to rely in all respects, prior to written notice to the
contrary, upon such registry.
9. Loss, Theft, Destruction or Mutilation of Warrant. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation,
in lieu of this Warrant.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday or a Sunday or shall be a legal holiday,
then such action may be taken or such right may be exercised on the next
succeeding day not a Saturday or a Sunday or a legal holiday.
11. Adjustments and Termination of Rights. The purchase price per
share and the number of shares purchasable hereunder are subject to adjustment
from time to time as follows:
(a) Merger. If at any time there shall be a merger or
consolidation of the Company with or into another corporation pursuant to which
the stockholders of the Company immediately prior to such merger or
consolidation control less than 50% of the voting securities of the surviving
corporation, then, as a part of such merger or consolidation, lawful provision
shall be made so that the holder of this Warrant shall thereafter be entitled
to receive upon exercise of this Warrant, during the period specified herein
and upon payment of the aggregate Exercise Price then in effect, the number of
shares of stock or other securities or property resulting from such merger or
consolidation, to which a holder of the stock deliverable upon exercise of this
Warrant would have been entitled in such merger or consolidation if this
Warrant had been exercised immediately before such merger or consolidation. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
holder after the merger or consolidation.
(b) Reclassification, etc. If the Company at any time
shall, by subdivision, combination or reclassification of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant exist into the same or a different number of securities of any other
class or classes, this Warrant shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the result of
such change with respect to the securities which were subject to the purchase
rights under this Warrant immediately prior to such subdivision, combination,
reclassification or other change.
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<PAGE> 5
(c) Split, Subdivision or Combination of Shares. If the
Company at any time while this Warrant remains outstanding and unexpired shall
split, subdivide or combine the securities as to which purchase rights under
this Warrant exist, the Exercise Price shall be proportionately decreased in
the case of a split or subdivision or proportionately increased in the case of
a combination.
(d) Common Stock Dividends. If the Company at any time
while this Warrant is outstanding and unexpired shall pay a dividend with
respect to Common Stock payable in, or make any other distribution with respect
to Common Stock of, shares of Common Stock, then the Exercise Price shall be
adjusted, from and after the date of determination of the shareholders entitled
to receive such dividend or distribution, to that price determined by
multiplying the Exercise Price in effect immediately prior to such date of
determination by a fraction (i) the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to such dividend
or distribution, and (ii) the denominator of which shall be the total number of
shares of the Common Stock outstanding immediately after such dividend or
distribution. This paragraph shall apply only if and to the extent that, at
the time of such event, this Warrant is then exercisable for Common Stock.
(e) Other Dividends. If the Company at any time while
this Warrant is outstanding and unexpired shall pay a dividend (other than
dividends out of retained earnings), or make any other distribution with
respect to Common Stock payable in stock (other than Common Stock) or other
securities or property, then the Company may, at its option, either (i)
decrease the per share Exercise Price of this Warrant by an appropriate amount
based upon the value distributed on each share of Common Stock as determined in
good faith by the Company's Board of Directors or (ii) provide by resolution of
the Company's Board of Directors that on exercise of this Warrant, the holder
hereof shall receive, in addition to the shares of Common Stock otherwise
receivable on exercise hereof, the same number and kind of stock, other
securities and property which such holder would have received had the holder
held the shares of Common Stock receivable on exercise hereof on and before the
record date for such dividend or distribution. This paragraph shall apply only
if and to the extent that, at the time of such event, this Warrant is then
exercisable for Common Stock.
(f) Adjustment of Number of Shares. Upon each adjustment
in the Exercise Price pursuant to 11(c) or 11(d) above, the number of shares
purchasable hereunder shall be adjusted, to the nearest whole share, to the
product obtained by multiplying the number of shares purchasable immediately
prior to such adjustment in the Exercise Price by a fraction (i) the numerator
of which shall be the Exercise Price immediately prior to such adjustment, and
(ii) the denominator of which shall be the Exercise Price immediately after
such adjustment.
12. Notice of Adjustments; Notices. Whenever the Exercise Price
or number of shares purchasable hereunder shall be adjusted pursuant to Section
11 hereof, the Company shall issue a certificate signed by its Chief Executive
Officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Exercise Price and number of shares purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of
such certificate to be mailed (by first class mail, postage prepaid) to the
holder of this Warrant.
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<PAGE> 6
13. "Lock-Up" Agreement. The holder hereof agrees, if requested
by the Company and an underwriter of Common Stock (or other securities) of the
Company in connection with the Company's initial public stock offering, not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by such holder during a period of time determined by the
Company and its underwriters (not to exceed 180 days) following the effective
date of the registration statement of the Company filed under the Securities
Act relating to such public offering, provided that all officers and directors
of the Company who then hold Common Stock (or other securities) of the Company
enter into similar agreements, and provided further that, in no event, the
holder be prohibited from transferring or selling Common Stock or other
securities of the Company to an affiliate of such holder. Such agreement shall
be in writing in a form reasonably satisfactory to the Company and such
underwriter. The Company may impose stop-transfer instructions with respect to
the Common Stock (or securities) subject to the foregoing restriction until the
end of said period.
14. Miscellaneous.
(a) Governing Law. This Warrant shall be binding upon
any successors or assigns of the Company. This Warrant shall constitute a
contract under the laws of California and for all purposes shall be construed
in accordance with and governed by the laws of said state, without giving
effect to the conflict of laws principles.
(b) Restrictions. THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO
THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
(c) Attorney's Fees. In any litigation, arbitration or
court proceeding between the Company and the holder relating hereto, the
prevailing party shall be entitled to reasonable attorneys' fees and expenses
incurred in enforcing this Warrant.
(d) Amendments. This Warrant may be amended and the
observance of any term of this Warrant may be waived only with the written
consent of the Company and the then holders of Warrants exercisable for a
majority of the shares of the Company's Preferred Stock (or other securities or
property, as the case may be) then issuable upon exercise of all outstanding
unexercised Warrants.
(e) Notice. Any notice required or permitted hereunder
shall be deemed effectively given upon personal delivery to the party to be
notified or upon deposit with the United States Post Office, by certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated below for such party, or at such other address as such other party
may designate by ten-day advance written notice.
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<PAGE> 7
IN WITNESS WHEREOF, First Virtual Holdings Incorporated has caused
this Warrant to be executed by its officer thereunto duly authorized.
Dated: July 3, 1996
FIRST VIRTUAL HOLDINGS INCORPORATED
By: /s/ Lee H. Stein
------------------------------
Title: President
-----------------------------
WARRANT HOLDER:
General Electric Capital Corporation
/s/ Thomas Crowley
- --------------------------------------
Thomas Crowley
<PAGE> 8
EXHIBIT A
NOTICE OF EXERCISE
To: First Virtual Holdings Incorporated
1. The undersigned hereby elects (check appropriate box):
[ ] to purchase ___________ shares of Common Stock ("Stock") of
First Virtual Holdings Incorporated (the "Company") pursuant
to the terms of the attached Warrant (payment of the purchase
price and any transfer taxes payable pursuant to the terms of
the Warrant is tendered herewith), or
[ ] to convert the attached Warrant into Stock of the Company
pursuant to the terms of the Warrant (payment of any transfer
taxes payable pursuant to the terms of the Warrant is tendered
herewith).
2. An executed Investment Representation Statement in the form
attached as Exhibit C to the Warrant is attached hereto.
2. The undersigned understands the instruments evidencing the
Stock may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH
ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO
RULE 144 OF SUCH ACT."
(b) Any legend required by applicable state law.
3. Please issue a certificate or certificates representing said
shares of Stock in the name of the undersigned:
---------------------------------
[Name]
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<PAGE> 9
4. Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned:
----------------------------------
[Name]
- ---------------------- ----------------------------------
[Date] [Signature]
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<PAGE> 10
EXHIBIT B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
- --------------------------------------------------------------------
(Please Print)
whose address is
---------------------------------------------------
(Please Print)
.
- --------------------------------------------------------------------
Dated: , 19 .
---------------- --------
Holder's Signature:
----------------------------
Holder's Address:
----------------------------
----------------------------
Signature Guaranteed:
----------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE> 11
EXHIBIT C
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : General Electric Capital Corporation
COMPANY : First Virtual Holdings Incorporated
SECURITIES : ______________ shares of Common Stock
DATE : __________________, 199__
In connection with the purchase of the above-listed Securities, the
undersigned, the Purchaser, represents to the Company the following:
(a) The above-listed Securities are being sold by the Company
in reliance upon the Purchaser's representations and covenants made in this
Investment Representation Statement. The Purchaser represents that the
Securities to be received will be acquired for investment for its own account,
not as a nominee or agent, and not with a view to the sale or "distribution" of
any part thereof within the meaning of the Securities Act of 1933, as amended
(the "Securities Act").
(b) The Purchaser understands and acknowledges that the sale
of the Securtities will not, be registered under the Securities Act on the
ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt pursuant to section 4(2) of the Securities Act,
and that the Company's reliance on such exemption is predicated on the
Purchaser's representations set forth herein.
(c) The Purchaser is an "accredited investor" within the
meaning of Regulation D under the Securities Act.
(d) The Purchaser represents that it is able to fend for
itself in transactions such as the one contemplated by this Warrant, has such
knowledge and experience in financial and business matters that it is capable
of evaluating the merits and risks of its prospective investment in the
Company, and has the ability to bear the economic risks of the investment.
(e) The Purchaser acknowledges and understands that the
Securities, must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
(f) The Purchaser acknowledges that it is familiar with Rule
144 promulgated under the Securities Act.
(g) The Purchaser acknowledges that in the event the
applicable requirements of Rule 144 are not met, registration under the
Securities Act or compliance with another exemption from registration will be
required for any disposition of the Company's stock.
<PAGE> 12
(h) The Purchaser covenants that, in the absence of an
effective registration statement covering the stock in question, it will sell,
transfer, or otherwise dispose of the Securities only in a transaction
registered under the Securities Act or exempt from the registration provisions
thereof. In connection therewith, the Purchaser acknowledges that the Company
shall make a notation on its stock books regarding the restrictions on transfer
set forth in this Investment Representation Statement and shall transfer shares
on the books of the Company only to the extent not inconsistent therewith.
(i) The Purchaser represents that, it has received and
reviewed the Warrant; that, to its knowledge and without special inquiry of any
sort, it, its attorney and its accountant have had access to, and an
opportunity to review all documents and other materials requested of, the
Company; it and they have been given an opportunity to ask any and all
questions of, and receive answers from, the Company and to obtain all
information it or they believe necessary or appropriate to evaluate the
suitability of an investment in the Securities.
Signature of Purchaser:
By:
----------------------------
Title:
-------------------------
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<PAGE> 1
Exhibit 10.14
FIRST VIRTUAL HOLDINGS INCORPORATED
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
This Series D Preferred Stock Purchase Agreement (the "Agreement") is
made as of August 26, 1996, among First Virtual Holdings Incorporated, a
Delaware corporation (the "COMPANY"), with its principal office at 11975 El
Camino Real, Suite 300, San Diego, CA 92130-2543, and First Data Corporation, a
Delaware corporation with a principal place of business at 6200 South Quebec
St., Inglewood, Colorado 80111 (the "PURCHASER" or "FDC").
SECTION 1
Authorization and Sale of Preferred Stock
1.1 Authorization. The Company has authorized or will have
authorized as of the Closing Date (as defined below) the sale and issuance of
200,000 shares of its Series D Preferred Stock (the "SERIES D PREFERRED"), and
40,000,000 shares of its Common Stock (the "COMMON STOCK") having the rights,
restrictions, privileges and preferences as set forth in the Company's Amended
and Restated Certificate of Incorporation in the form attached to this
Agreement as Exhibit A (the "RESTATED CERTIFICATE").
1.2 Sale of Series D Preferred. Subject to the terms and
conditions hereof, the Company will issue and sell to the Purchaser, and the
Purchaser will buy from the Company, 200,000 shares of Series D Preferred (the
"SHARES") at a cash purchase price of $15.00 per share.
1.3 Warrant; Letter of Intent. At the Closing (as hereinafter
defined) the Company shall issue to the Purchaser a warrant (the "WARRANT") to
purchase shares of its Common Stock (the "WARRANT SHARES") in substantially the
form attached hereto as Exhibit G. At the Closing, the Company and the
Purchaser shall each execute and deliver a Marketing and Product Development
Agreement between the Company and Purchaser, in substantially the form attached
hereto as Exhibit F.
SECTION 2
Closing Date; Delivery
2.1 Closing Date. The closing of the purchase and sale of the
Shares hereunder (the "CLOSING") shall be held at 10:00 a.m. on August 21, 1996
or on such other date as the Company and the Purchaser may agree to (the date
of such Closing being referred to as the "CLOSING DATE"). The place
<PAGE> 2
of the Closing (including the place of delivery to the Purchaser by the Company
of the certificates evidencing the Shares and the Warrant and the place of
payment to the Company by the Purchaser of the purchase price therefor) shall
be at the principle executive offices of the Company, or such other place as
the Purchaser and the Company may mutually agree.
2.2 Delivery. At the Closing, (i) the Company will deliver to the
Purchaser a certificate representing the Shares purchased by the Purchaser
against payment of the purchase price therefor, by check or wire transfer
payable to the Company, or by a combination thereof, and (ii) the Company shall
deliver the Warrant to the Purchaser against payment of the purchase price
therefor, by check or wire transfer payable to the Company, in the amount of
$20,000. In the event the Closing shall not have occurred by August 31, 1996
(the "Termination Date") then, unless otherwise specifically agreed by the
parties, this Agreement shall terminate and none of the parties hereto shall
have any obligation or liability to the other party for any reason, including
without limitation any failure to take any action which may be necessary to
ensure that the condition to closing set forth in Section 5 and Section 6
hereof are satisfied prior to the Termination Date.
SECTION 3
Representations and Warranties of the Company
Except as set forth on Exhibit B attached hereto, the Company hereby
represents and warrants to the Purchaser as follows:
3.1 Organization and Standing. The Company is a corporation duly
organized and existing under, and by virtue of, the laws of the State of
Delaware and is in good standing under such laws. The Company has requisite
corporate power to own and operate its properties and assets, and to carry on
its business as presently conducted and as proposed to be conducted. The
Company is duly licensed or qualified to do business as a foreign corporation,
and is in good standing, in each state wherein the properties owned or leased
or the business transacted by the Company makes such qualification to do
business as a foreign corporation necessary and where the failure to qualify
would have a material and adverse effect on the condition of the Company,
financial or otherwise, and no other jurisdiction has demanded, requested or
otherwise indicated that (or inquired whether) the Company is required to so
qualify.
3.2 Corporate Power. The Company has all requisite legal and
corporate power to execute and deliver this Agreement, the Amended and Restated
Shareholder Rights Agreement attached hereto as Exhibit C (the "SHAREHOLDER
RIGHTS AGREEMENT"), the Warrant and the Marketing and Product Development
Agreement (collectively, the "TRANSACTION DOCUMENTS"), to sell and issue the
Shares hereunder, to issue the Common Stock issuable upon conversion of the
Preferred Shares and upon exercise of the Warrant and to carry out and perform
its obligations under the terms of the Transaction Documents.
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<PAGE> 3
3.3 Subsidiaries. The Company has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
voting security or other equity interest in any other corporation, association
or business entity.
3.4 Capitalization. The authorized capital stock of the Company
consists solely of 40,000,000 shares of Common Stock, of which 4,441,519 shares
are issued and outstanding, 1,545,816 shares of Series A Preferred Stock, of
which 693,544 are issued and outstanding, and 1,724,679 shares of Series B
Preferred Stock, of which 1,248,945 are issued and outstanding, 130,952 shares
of Series C Preferred Stock, of which 130,952 are issued and outstanding, and
200,000 shares of Series D Preferred none of which has been or will be issued
or outstanding prior to the Closing. All such issued and outstanding shares
have been duly authorized and validly issued, and are fully paid and
nonassessable. All outstanding shares of capital stock of the Company have
been issued free of preemptive or similar rights. The Company has, and will at
all relevant times have, reserved 200,000 shares of Series D Preferred for
issuance hereunder and sufficient shares of Common Stock for issuance upon
conversion of the Shares and upon exercise of the Warrant. The Company has
reserved 2,000,000 shares of Common Stock for issuance pursuant to its 1995
Stock Option Plan, of which options to purchase 720,395 shares are outstanding,
and 468,750 shares of Common Stock for issuance pursuant to its 1994 Stock
Option Plan, of which options to purchase 468,750 shares are outstanding. The
Company has reserved 1,000,000 shares for issuance upon exercise of additional
outstanding options granted to officers, directors, employees and consultants
of the Company, which options were not granted under the 1994 Stock Option Plan
or the 1995 Stock Option Plan. The Company has further reserved 852,272 shares
of Series A Preferred Stock, 475,734 shares of Series B Preferred Stock and
47,619 shares of Common Stock for issuance upon exercise of outstanding
warrants. The Company has also issued a warrant to purchase a number of shares
of Common Stock equivalent to up to 4% of its outstanding capital stock as of
the date of exercise upon attainment of certain performance targets by the
holder of such warrant. All outstanding Common Stock and Preferred Stock was
issued in compliance with all federal and state securities laws. Assuming the
accuracy of the Purchaser's representations in Section 4 below, upon issuance
the Shares and the Warrant will have been issued in compliance with all federal
and state securities laws.
3.5 Authorization; Conflicts. All corporate action on the part of
the Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance of the Transaction Documents, the
authorization, sale, issuance and delivery of the Shares and the Warrant (and
the Common Stock issuable upon conversion of the Shares and upon exercise of
the Warrant) and the performance of the Company's obligations under each of
the Transaction Documents has been taken or will be taken prior to the Closing.
The Transaction Documents, when executed and delivered by the Company, shall
constitute valid and binding obligations of the Company enforceable in
accordance with their respective terms. The Shares, when issued in compliance
with the provisions of this Agreement, will be validly issued, fully paid and
nonassessable, and free of any preemptive or similar
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<PAGE> 4
rights and liens, encumbrances or other adverse claims (other than such
preemptive rights, liens, encumbrances or other rights which shall have been
waived on or prior to the Closing Date). The shares of Common Stock issuable
upon conversion of the Shares and upon exercise of the Warrant have been duly
and validly reserved and, when issued in compliance with the provisions of this
Agreement or of the Warrant, as the case may be, will be validly issued, fully
paid and nonassessable, and free of any preemptive or similar rights and liens,
encumbrances or other adverse claims (other than such preemptive rights, liens,
encumbrances or other rights as shall have been waived on or prior to the
Closing Date). The Series D Preferred will have the rights, preferences and
privileges set forth in the Restated Certificate. Except as set forth above,
or in the Shareholder Rights Agreement, there are no outstanding options,
warrants, conversion privileges, preemptive rights or other rights to purchase
or subscribe for or otherwise acquire any security of the Company or any
subsidiary of the Company. Except as set forth in the Shareholder Rights
Agreement among the Company and certain of its shareholders, the Company is not
a party to or subject to any agreement or understanding, and to the knowledge
of the Company there is no agreement or understanding between any persons or
entities, which offers or relates to the voting of any securities of the
Company. The Company holds no stock in treasury. The execution, delivery and
performance by the Company of the Transaction Documents and compliance
therewith will not result in any violation of and will not conflict with, or
result in a breach of any of the terms of, or constitute a default under, the
Company's Certificate of Incorporation or Bylaws or any mortgage, indenture,
agreement, instrument, judgment, decree, order, rule or regulation or other
restriction to which the Company is a party or by which it is bound or any
provision of state or Federal law to which the Company is subject, or result in
the creation of any mortgage, pledge, lien, encumbrance or charge upon any of
the properties or assets of the Company pursuant to any such term or result in
the suspension, revocation, impairment, forfeiture or non-renewal of any
permit, license, authorization or approval applicable to the Company's
operations or any of its assets or properties.
3.6 Title to Properties and Assets; Liens, etc. The Company has
good and marketable title to its properties and assets, and has good title to
all its leasehold interests, in each case subject to no mortgage, pledge, lien,
lease, encumbrance or charge, other than (i) the lien of current taxes not yet
due and payable, and (ii) possible minor liens and encumbrances which do not in
any case materially detract from the value of the property subject thereto or
materially impair the operations of the Company, and which have not arisen
otherwise than in the ordinary course of business.
3.7 Financial Statements; Liabilities. The Company has delivered
to the Purchaser its audited balance sheet and statement of operations as of
and for fiscal year ended December 31, 1995, and its unaudited balance sheet
and statement of operations as of and for the six months ended June 30, 1996
(the "FINANCIAL STATEMENTS"). The Financial Statements are complete and
correct in all material respects and have been prepared in accordance with
generally accepted accounting principles, except that the unaudited Financial
Statements do not contain footnotes and are subject to normal recurring
adjustments for such period. The Financial Statements accurately set out and
describe the financial condition and operating results of the Company as of the
dates, and during the periods, indicated therein. Since June 30, 1996, there
has not been any change in the assets, liabilities, financial condition or
operations of the Company from that reflected in the Financial Statements,
except changes in the ordinary course of business which have not been, in the
aggregate, materially adverse. The Company does not have any liabilities of
any sort with a value in excess of $200,000 in the aggregate that are not
disclosed in the Financial Statements.
3.8 Outstanding Debt. Except as set forth in the Financial
Statements the Company has no outstanding indebtedness for borrowed money and
is not a guarantor or otherwise contingently liable for any indebtedness for
borrowed money (including, without limitation, liability by way of agreement,
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<PAGE> 5
contingent or otherwise, to purchase, provide funds for payment, supply funds
or otherwise invest in any debtor or otherwise to insure any creditor against
loss). There exists no default under the provisions of any instrument
evidencing any such indebtedness or otherwise or of any agreement relating
thereto.
3.9 Shareholders, Directors and Officers; Indebtedness. The
Company is not indebted, directly or indirectly, to any of its officers,
directors or shareholders or any of their respective relatives or affiliates.
No officer, director or shareholder of the Company, or any of their relatives
or affiliates, is indebted to the Company. To the knowledge of the Company,
none of the officers or directors or significant employees or advisors of the
Company, or their respective spouses, or relatives, owns directly or
indirectly, a material interest in any entity that is a competitor, customer or
supplier of (or has any existing contractual relationship with) the Company.
3.10 Litigation and Bankruptcy Proceedings.
(a) There is neither pending nor, to the knowledge of the
Company, threatened any action, suit, proceeding or claim, whether or not
purportedly on behalf of the Company, to which the Company is or may be named
as a party or its property is or may be subject, or to the knowledge of the
Company, to which any officer, key employee or principal shareholder of the
Company is subject and in which an unfavorable outcome, ruling or finding in
any such matter or for all such matters taken as a whole might have a material
adverse effect on the condition, financial or otherwise, prospects, or
operations of the Company. The Company is not aware of any specific valid
basis for any claim of the type described in the preceding sentence, and the
Company has no knowledge of any unasserted claim, the assertion of which is
likely, and which, if asserted, will seek damages, an injunction or other
legal, equitable, monetary or nonmonetary relief, which claim individually or
collectively with other such unasserted claims if granted would have a material
adverse effect on the condition, financial or otherwise, prospects or
operations of the Company.
(b) The Company has not admitted in writing its inability
to pay its debts generally as they become due, filed or consented to the filing
against it of a petition in bankruptcy or a petition to take advantage of any
insolvency act, made an assignment for the benefit of creditors, consented to
the appointment of a receiver for itself or for the whole or any substantial
part of its property, or had a petition in bankruptcy filed against it, been
adjudicated a bankrupt or filed a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other similar law or
statute.
3.11 Consents. No consent, approval, qualification, order or
authorization of, or filing with, any governmental authority, is required in
connection with the Company's valid execution, delivery or performance of the
Transaction Documents or the offer, sale or issuance of the Shares or the
consummation of any other transaction contemplated on the part of the Company
except for the filing of the Restated Certificate with the Delaware Secretary
of State, which filing will be completed prior to the Closing and filing of
notices required by applicable Federal and state securities laws.
3.12 Permits, Franchises, Licenses, Trademarks, Patents, and Other
Rights. To the knowledge of the Company, the Company has all governmental and
other permits, licenses and other similar authority necessary for the conduct
of its business as now being conducted by it, the lack of which could
materially
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<PAGE> 6
and adversely affect the operations or condition, financial or otherwise, or
prospects of the Company, and it is not in default in any material respect
under any of such permits, licenses or other similar authority.
3.13 Patents, Trademarks, etc. To the knowledge of the Company,
the Company owns or has the right, or prior to the Closing will own or have the
right, to use, free and clear of all liens, charges, claims and restrictions,
all patents, trademarks, service marks, trade names, copyrights, licenses and
rights necessary to its business as now conducted (the "INTELLECTUAL PROPERTY")
and is not infringing upon or otherwise acting adversely to the right or
claimed right of any person or entity under or with respect to such party's
patents, trademarks, service marks, trade names or copyrights. The execution
and delivery by the Company of the Transaction Documents and its performance of
its obligations under the Transaction Documents will not violate the terms of
any of the Company's rights in the Intellectual Property. There are no
outstanding options, licenses, or agreements of any kind relating to the
Intellectual Property, nor is the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company
has not received any communications alleging that the Company has violated or,
by conducting its business as proposed, would violate any patent, trademark,
service mark, trade name, copyright or trade secret or other proprietary right
of any other person or entity. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere
with the use of such employee's best efforts to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted.
3.14 Material Contracts and Commitments. Neither the Company, nor,
to the best knowledge of the Company, any third party is in default under (a)
any material contract, agreement or instrument to which the Company is a party
or by which it is bound or (b) any agreement with respect to indebtedness for
borrowed money.
3.15 Compliance with Other Instruments, None Burdensome, etc. The
Company is not in violation of any term of the Restated Certificate or the
By-Laws, or in any material respect of any term or provision of any mortgage,
indenture, contract, agreement, instrument, judgment or decree, and to the best
of its knowledge, is not in violation of any order, statute, rule or regulation
applicable to the Company, which violation reasonably would be expected to have
a material adverse effect on the Company's business, condition (financial or
otherwise), prospects or operations. The execution, delivery and performance
of and compliance with the Transaction Documents and the issuance of the
Shares and the Common Stock issuable upon conversion of the Shares and the
exercise of the Warrant, have not resulted and will not result in any violation
of, or conflict with, or constitute a default under, or result in the creation
of, any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company; and there is no such violation or default
or event that, with the passage of time or giving of notice or both, would
constitute a violation or default which materially and adversely affects the
Company's business , condition (financial or otherwise), prospects or
operations.
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<PAGE> 7
3.16 Employees. To the best of the Company's knowledge, no
employee of the Company is in violation of any term of any employment contract,
patent disclosure agreement or any other contract or agreement relating to the
relationship of any such employee with the Company or any other person or
entity because of the nature of the business conducted or to be conducted by
the Company. The Company does not have and has never had any collective
bargaining agreements covering any of its employees.
3.17 Employee Agreements. Each person presently employed by the
Company, including its officers, has executed (or will execute by the Closing
Date) a Proprietary Information Agreement in substantially the form of Exhibit
D attached hereto.
3.18 Employee Benefit Plan Obligations. The Company does not
maintain or have any obligations with respect to any employee benefit plan
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974 ("ERISA")). The Company is not, nor was it at any time, obligated
to contribute to any employee pension benefit plan which is or was a
multi-employer plan within the meaning of Section 3(37) of ERISA.
3.19 Disclosure. This Agreement and the Exhibits hereto as well as
any other document, certificate, schedule, financial, business or other written
statement described in Exhibit B do not contain any untrue statement of a
material fact and do not omit to state a material fact necessary in order to
make the statements contained herein or therein not misleading. To the
knowledge of the Company, there is no fact or circumstance that materially and
adversely affects the condition, financial or otherwise, assets, business,
prospects or operations of the Company that has not been disclosed to the
Purchaser.
3.20 Registration Rights. Except as set forth in the Shareholder
Rights Agreement, the Company is not under any obligation to redeem, or to
register under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
any of its securities.
3.21 Governmental Consent, etc. No consent, approval or
authorization of, or designation, declaration or filing with, any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement and the other Transaction Documents,
or the offer, sale or issuance of the Shares (or the Common Stock issuable
upon conversion of the Shares or exercise of the Warrant), or the consummation
of any other transaction contemplated thereby, except (a) filing of the
Restated Certificate in the office of the Secretary of State of the State of
Delaware, which the Company will complete prior to the Closing, and (b)
qualification (or taking such action as may be necessary to secure an exemption
from qualification, if available) of the offer and sale of the Shares (and the
Common Stock issuable upon conversion of the Shares or exercise of the
Warrant) under applicable Blue Sky laws, which filing and qualification, if
required, will be accomplished in a timely manner prior to or promptly upon
completion of the Closing.
3.22 Brokers or Finders. The Company has not incurred, and will
not incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
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<PAGE> 8
3.23 Section 83(b) Elections. To the knowledge of the Company,
each individual who purchased shares of the Company's Common Stock which vest
over time contingent on provision of services to the Company has timely filed
an election under Section 83(b) of the Internal Revenue Code of 1986, as
amended.
3.24 Use of Proceeds. The Company has not allocated any specific
portion of the proceeds of this transaction for any particular purpose. The
Company expects to add the proceeds of this transaction to working capital,
where such proceeds will be available for general corporate purposes
SECTION 4
Representations and Warranties of the Purchaser
The Purchaser hereby represents and warrants to the Company with
respect to its purchase of the Shares and the Warrant as follows:
4.1 Investment Representations and Covenants of the Purchaser.
(a) This Agreement is made by the Company in reliance
upon the Purchaser's representations and covenants made in this Section 4. The
Purchaser represents that the Shares, the Warrant and the Common Stock issuable
upon conversion of the Shares and exercise of the Warrant will be acquired for
investment for its own account, not as a nominee or agent, and not with a view
to the sale or "distribution" of any part thereof within the meaning of the
Securities Act.
(b) The Purchaser understands and acknowledges that the
offering of the Shares and the Warrant pursuant to this Agreement will not, and
any issuance of Common Stock on conversion of the Shares may not, be registered
under the Securities Act on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt pursuant to
Section 4(2) of the Securities Act, and that the Company's reliance on such
exemption is predicated on the Purchaser's representations set forth herein.
(c) The Purchaser is an "accredited investor" within the
meaning of Regulation D under the Securities Act.
(d) The Purchaser is experienced in making venture
capital investments in high-technology companies and it is able to fend for
itself in transactions such as the one contemplated by this Agreement, has such
knowledge and experience in financial and business matters that it is capable
of evaluating the merits and risks of its prospective investment in the
Company, and has the ability to bear the economic risks of the investment.
(e) The Purchaser acknowledges that it has been informed
of, and has considered in evaluating its investment in the Shares and the
Warrant, the following factors (without limitation): (i) the Company's business
and prospects are highly dependent on the acceptance of the Company's Internet
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<PAGE> 9
Payment System and other Internet-related products and services, and on
widespread adoption of the Internet as a medium for commercial transactions;
(ii) the market for Internet-based transaction payment systems has only
recently begun to develop, is rapidly evolving and is characterized by an
increasing number of entrants and rapid technological change; (iii) the future
viability of the Internet as a medium for commercial transactions is highly
speculative; the Internet may not prove to be a viable commercial marketplace
because of inadequate development of the necessary infrastructure, such as a
reliable network backbone or timely development of complimentary products, such
as high speed modems; (iv) if the necessary infrastructure or complementary
products are not developed, if the Internet does not become a viable commercial
marketplace, or if the Company's Internet Payment System is not widely adopted
by merchants and consumers, the Company's business, operating results and
financial condition will be materially adversely affected.
(f) The Purchaser acknowledges and understands that the
Shares, the Warrant and any Common Stock acquired upon the conversion of the
Shares and exercise of the Warrant, must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available, and that, except as otherwise provided in the
Shareholder Rights Agreement, the Company is under no obligation to register
either the Shares or such Common Stock.
(g) The Purchaser acknowledges that it is familiar with
Rule 144 promulgated under the Securities Act.
(h) The Purchaser acknowledges that in the event the
applicable requirements of Rule 144 are not met, registration under the
Securities Act or compliance with another exemption from registration will be
required for any disposition of its stock.
(i) The Purchaser covenants that, in the absence of an
effective registration statement covering the stock in question, it will not
sell, transfer or otherwise dispose of the Shares, the Warrant or any Common
Stock issued on conversion of the Shares or exercise of the Warrant other than
in a transaction registered under the Securities Act or exempt from the
registration provisions thereof. In connection therewith the Purchaser
acknowledges that the Company shall make a notation on its stock books
regarding the restrictions on transfer set forth in this Section 4 and shall
transfer shares and warrants on the books of the Company only to the extent not
inconsistent therewith.
4.2 Receipt of Information. The Purchaser has received and
reviewed this Agreement and all Exhibits hereto, and a draft of Company's
Registration Statement on Form S-1 dated July 2, 1996 (but has had no
involvement in the preparation of such draft); to its knowledge, it, its
attorneys and its accountants have had access to, and an opportunity to review
all documents and other materials requested of the Company; to its knowledge,
it and they have been given an opportunity to ask any and all questions of; and
receive answers from, the Company concerning the terms and conditions of the
offering and to obtain all information it or they believe necessary or
appropriate to evaluate the suitability of an investment in the Shares and the
Warrant.
4.3 Authorization. This Agreement when executed and delivered by
the Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its
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<PAGE> 10
terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies.
4.4 Brokers or Finders. The Company has not, and will not, incur,
directly or indirectly, as a result of any action taken by the Purchaser, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement.
SECTION 5
Purchaser Conditions to Closing
The Purchaser's obligation to purchase the Shares and the Warrant at
the Closing is, at the option of such Purchaser, subject to the fulfillment on
or prior to the Closing Date of the following conditions:
5.1 Representations and Warranties Correct. The representations
and warranties made by the Company in Section 3 hereof shall be true and
correct in all material respects when made, and shall be true and correct in
all material respects on the Closing Date with the same force and effect as if
they had been made on and as of the Closing Date.
5.2 Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company on or prior to the Closing
Date shall have been performed or complied with in all material respects.
5.3 Opinion of Company's Counsel. The Purchaser shall have
received from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an
opinion addressed to it, dated the Closing Date, in substantially the form of
Exhibit E.
5.4 Compliance Certificate. The Company shall have delivered to
the Purchaser a certificate executed by the President of the Company, dated the
Closing Date, and certifying to the fulfillment of the conditions specified in
Sections 5.1 and 5.2 of this Agreement, and that he has made, or caused to be
made, such investigations as he deemed necessary in order to permit him to
verify the accuracy of the information set forth in such certificate.
5.5 Blue Sky. The Company shall have obtained all necessary Blue
Sky law permits and qualifications, or secured an exemption therefrom, required
by any state for the offer and sale of the Shares, the Warrant, the issuance of
Common Stock upon conversion of the Shares and the issuance of Common Stock
upon exercise of the Warrant.
5.6 Restated Certificate. The Restated Certificate shall have
been filed with the Secretary of State of the State of Delaware.
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<PAGE> 11
5.7 Shareholder Rights Agreement. The Shareholder Rights
Agreement shall have been executed as set forth in Exhibit C hereto by each of
the parties listed on the signature pages thereto and shall be in full force
and effect as of the Closing Date.
5.8 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be satisfactory
in substance and form to the Purchaser and its counsel.
5.9 No Material Adverse Change. There shall have been no material
adverse change in the Company's business or financial condition or prospects,
except for continuing losses from operations consistent with past losses.
5.10 Marketing Agreement. The Company shall have duly executed and
delivered the Marketing and Product Development Agreement in the form attached
hereto as Exhibit F.
5.11 Consents. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body or any other person or entity
that are required in connection with the lawful issuance and sale of the
Shares, or the Common Stock to be issued on conversion of the Preferred Shares
or upon exercise of the Warrant, or any of the other transactions contemplated
by this Agreement or the other Transaction Documents shall have been duly
obtained and effective as of the Closing.
5.12 First USA Right. Section 20 of the Shareholder Rights
Agreement dated July 3, 1996 by and among the Company and certain of its
stockholders shall have been amended, terminated or waived so as to allow the
Company to commence utilizing payment card transaction acquirors other than
First USA Merchant Services, Inc. for payment processing services.
SECTION 6
Company Conditions to Closing
The Company's obligation to sell and issue the Shares at the Closing
is, at the option of the Company, subject to the fulfillment of the following
conditions:
6.1 Representations. The representations made by the Purchaser in
Section 4 hereof shall be true and correct in all material respects when made,
and shall be true and correct in all material respects on the Closing Date.
6.2 Blue Sky. The Company shall have obtained all necessary Blue
Sky law permits and qualifications, or secured an exemption therefrom, required
by any state for the offer and sale of the Shares, the Warrant, the issuance of
Common Stock upon conversion of the Shares and the issuance of Common Stock
upon exercise of the Warrant.
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<PAGE> 12
6.3 Restated Certificate. The Restated Certificate shall have
been filed with the Secretary of State of the State of Delaware.
6.4 Payment of Purchase Price. The Purchaser shall have delivered
to the Company the purchase price for the Shares and the Warrant.
6.5 Marketing Agreement. The Purchaser shall have duly executed
and delivered a Marketing and Product Development Agreement in the form
attached hereto as Exhibit F.
SECTION 7
Covenants of the Purchaser
The Purchaser hereby covenants to and agrees with the Company as
follows:
7.1 Limitation on Ownership of Voting Stock.
(a) For a period of one year from the closing date of the
initial public offering of the Company's Common Stock, the Purchaser and its
Affiliates shall not acquire beneficial ownership of any Voting Stock (as
defined in Section 8.1), any securities convertible into or exchangeable for
Voting Stock, or any other right to acquire Voting Stock (except, in any case,
by way of stock dividends or other distributions made available to holders of
any Voting Stock generally) without the written consent of the Company, if the
effect of such acquisition would be to increase the Voting Power of all Voting
Stock then beneficially owned by the Purchaser and its Affiliates(as defined in
Section 8.1) or which it has a right to acquire to more than 10% of the Total
Voting Power of the Company. For purposes of this Section 7, "beneficial"
ownership shall not include, and this Section 7 shall not be applicable to, any
securities that are beneficially owned by a Purchaser in its capacity as a
fiduciary, employee benefit trustee, pension fund manager, investment adviser ,
quasi-fiduciary, trustee, agent or similar role for the benefit of third
parties other than the Purchaser and its affiliates.
(b) Recapitalization or Repurchase. The Purchaser will
not be obligated to dispose of any shares of Voting Stock if the aggregate
percentage beneficial ownership of the Purchaser is increased as a result of a
recapitalization of the Company or a repurchase of securities by the Company or
any other action taken by the Company or any Affiliate of the Company.
7.2 Voting.
(a) For a period of two years following the closing date
of the initial public offering of the Company's Common Stock, the Purchaser
shall take such action as may be required so that all shares of Common Stock of
the Company owned by the Purchaser and its Affiliates are voted for
management's nominees to the Board of Directors of the Company. The Purchaser,
as the holder of such shares of Common Stock, shall use its reasonable efforts
to be present, in person or by proxy, at all meetings of shareholders of the
Company as to which the designee of the Purchaser to the Board of
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<PAGE> 13
Directors of the Company has received at least 20 days prior written notice so
that all shares of Common Stock beneficially owned by the Purchaser may be
counted for the purposes of determining the presence of a quorum at such
meetings.
(b) For so long as this Section 7.2 is in effect the
Purchaser shall not deposit any Warrant Shares in a voting trust or, except as
otherwise provided herein, subject any Warrant Shares to any arrangement or
agreement with respect to the voting of such Warrant Shares (except for the
granting of proxies to the proxy holders proposed by the Company's Board of
Directors, if the Purchaser so desires).
(c) Solicitation of Proxies. Without the Company's prior
written consent, the Purchaser and its Affiliates shall not solicit proxies
with respect to any Voting Stock, nor shall it become a "participant" in any
"election contest" (as such terms are used in Rule 14a-11 of Regulation 14A
under the Exchange Act) relating to the election of directors of the Company;
provided, however, that the Purchaser shall not be deemed to be a "participant"
by reason of the membership of any designee of the Purchaser on the Company's
Board of Directors. The Purchaser shall exercise its influence on the
management, Board of Directors and policies of the Company in a manner
consistent with its interests, the fiduciary duties of its designees on the
Company's Board of Directors, and any business agreements between the Purchaser
and the Company.
7.3 Right of First Offer. Prior to making any sale or transfer of
the Warrant or the Warrant Shares, the Purchaser shall give the Company the
opportunity to purchase such Warrant or Warrant Shares in the following manner:
(a) The Purchaser shall give notice (the "TRANSFER
NOTICE") to the Company in writing of such intention, specifying the portion of
the Warrant (the "WARRANT INTEREST") the amount of Warrant Shares proposed to
be sold or transferred, the proposed price per share therefor (the "TRANSFER
PRICE") and the other material terms upon which such disposition is proposed to
be made.
(b) The Company shall have the right, exercisable by
irrevocable written notice given by the Company to the Purchaser within 24
hours after receipt of such Transfer Notice, to purchase all but not part of
the Warrant Interest or the Warrant Shares specified in such Transfer Notice
for a price per share equal to the Transfer Price and otherwise on terms no
less favorable to the Purchaser than those described in the Transfer Notice;
provided that if the Company notifies the Purchaser of its election to exercise
its right of first offer, the Purchaser may, by notice to the Company, within 5
business days, withdraw the Transfer Notice, and decline to sell or transfer
the Warrant Interest or the Warrant Shares.
(c) If the Company exercises its right of first offer
hereunder, the closing of the purchase (including the payment in full therefor)
of the Warrant Interest or Warrant Shares with respect to which such right has
been exercised shall take place on the date specified in the Company's
acceptance (which date shall not be more than 45 days after the date of such
acceptance) at the offices of the Purchaser located at the address set forth in
this Agreement, or at such other time and place as the Company and the
Purchaser may agree. The Company and the Purchaser will use their respective
best
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<PAGE> 14
efforts to comply with all Federal and state laws, rules and regulations
applicable to any purchase of a Warrant Interest or Warrant Shares under this
Section 7.3.
(d) If the Company does not exercise its right of first
offer hereunder within the time specified for such exercise, the Purchaser
shall be free, during the period of 120 calendar days following the expiration
of such time for exercise, to sell the Warrant Interest or Warrant Shares
specified in such Transfer Notice on terms no less favorable to the buyer of
such Warrant Interest or Warrant Shares than the terms specified in such
Transfer Notice.
(e) In the event that the Company elects to exercise a
right of first offer under this Section 7.3, the Company may specify prior to
closing such purchase another person as its designee to purchase the Warrant
Interest or Warrant Shares to which such notice relates. If the Company shall
designate another person as the Purchaser pursuant to this Section 7.3, the
giving of notice of acceptance of the right of first offer by the Company shall
constitute a legally binding obligation of the Company to complete such
purchase if such person shall fail to do so.
7.4 Common Stock Purchase Right.
(a) In the event that the Purchaser, or any transferee of
the Purchaser, elects to request redemption of any or all of the shares of
Series D Preferred purchased pursuant hereto by such Purchaser pursuant to
Section II(4) of the Restated Certificate, then following such redemption, the
Company shall be entitled to purchase from the Purchaser a number of fully paid
and nonassessable shares of the Company's Common Stock determined as
hereinafter provided, at a purchase price of $0.01 per share (subject to
adjustment in the event of stock splits, stock dividends and similar events).
(b) The number of shares of Common Stock which the
Company may purchase pursuant to this Section 7.4. from time to time shall
equal 250% of the number of shares of Series D Preferred previously redeemed by
the Company in accordance with Section IV(4) of the Restated Certificate
(subject to adjustment in the event of stock splits, stock dividends and
similar events).
(c) The Company's purchase right shall be exercised by
delivery of written notice stating the number of shares to be purchased and
requested effective date of the purchase, which shall not be less than 10 days
subsequent to the date of delivery of the notice, and delivery of payment of
the purchase price of the shares thereby purchased in cash or check. At the
requested effective date of the purchase, the Purchaser shall deliver to the
Company at its principal executive offices a stock certificate for the number
of shares purchased. In the event that the number of shares represented by the
stock certificate tendered exceeds the number of shares purchased by the
Company, the Company shall promptly thereafter issue to the Purchaser a new
certificate for the balance of the shares.
(d) The Company's rights pursuant to this Section 7.4
shall expire 60 days after such date as no shares of Series D Preferred are
held by the Purchaser or its transferees.
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<PAGE> 15
SECTION 8
Miscellaneous
8.1 Certain Definitions. As used in this Agreement:
(a) Total Voting Power. The term "Total Voting Power of
the Company" means the total number of votes which may be cast in the election
of directors of the Company at any meeting of stockholders of the Company if
all securities entitled to vote in the election of directors of the Company
were present and voted at such meeting (other than votes that may be cast only
upon the happening of a contingency).
(b) Voting Stock. The term "Voting Stock" means the
Common Stock, and any other securities issued by the Company having the
ordinary power to vote in the election of directors of the Company (other than
securities having such power only upon the happening of a contingency).
(c) Person. The term "Person" shall mean any person,
individual, corporation, partnership, trust or other nongovernmental entity or
any governmental agency, court, authority or other body (whether foreign,
federal, state, local or otherwise).
(d) Affiliate. The term "Affiliate" of any person shall
mean any person controlling, controlled by or under common control with such
person.
8.2 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California, without giving effect to the
conflicts of laws principals thereof.
8.3 Survival. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by the Purchaser
and the closing of the transactions contemplated hereby.
8.4 Successors and Assigns. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties
hereto, provided, however, that the rights of the Purchaser to purchase Shares
at the Closing shall not be assignable to a person or entity that is not an
affiliate of the Purchaser without the written consent of the Company.
8.5 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof and supersede all prior written and all prior or
contemporaneous oral negotiations, agreements, arrangements and understandings.
Neither this Agreement nor any term hereof may be amended, waived, discharged,
or terminated other than by a written instrument signed by the party against
whom enforcement of any such amendment, waiver, discharge, or termination is
sought.
8.6 Notices, etc. All notices and other communications required
or permitted hereunder shall be in writing and shall be deemed effectively
given upon delivery to the party to be notified in person or
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<PAGE> 16
by courier service or five days after deposit with the United States mail, by
registered or certified mail, postage prepaid, addressed (a) if to the
Purchaser, at such Purchaser's address set forth on the first page of this
Agreement, or at such other address as the Purchaser shall have furnished to the
Company in writing, with a copy to Thomas Rossi, First Data Corporation, 2121
North 117th Avenue, NP-30, Omaha, Nebraska 68164-3600 or (b) if to any other
holder of any Shares, at such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Shares who has so
furnished an address to the Company, or (c) if to the Company, one copy should
be sent to its address set forth on the first page of this Agreement and
addressed to the attention of the President, or at such other address as the
Company shall have furnished to the Purchaser, with a copy to Wilson Sonsini
Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, CA
94304, Attn.: Richard C. DeGolia, Esq.
8.7 Disclosure. The Company shall not publicize the investment by
FDC or any other aspect of the relationship between FDC and the Company (other
than information as has been previously disclosed to the public with FDC's
consent in a substantially similar form), in any press releases or promotional
materials, without FDC's prior consent, which consent shall not be unreasonably
withheld or delayed provided further that FDC's prior consent shall not be
required for statements which (a) refer to FDC as an investor in the Company or
to the dollar amount of FDC's investment in the Company or (b) refer to the
general nature of any agreements between the Company and FDC. The Company
shall exert reasonable efforts to obtain FDC's prior consent to any description
of FDC's investment contained in filings with governmental agencies, including
without limitation the Securities and Exchange Commission; provided that the
Company shall be under no obligation to delay any such filing in order to
obtain such consent if the Company is not able to obtain such consent prior to
the desired time of filing.
8.8 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Shares, upon any breach or
default of the Company under this Agreement, shall impair any such right, power
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
8.9 Expenses. The Company and the Purchaser shall each bear
their own expenses and legal fees with respect to this Agreement and the
transactions contemplated hereby; except that, the Company will pay the
reasonable legal fees and reasonable expenses (up to a maximum of $20,000) upon
receipt of a bill therefor at the Closing, incurred by counsel to FDC.
8.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
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<PAGE> 17
8.11 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in fill force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to
any party.
8.12 Gender. The use of the neuter gender herein shall be deemed
to include the masculine and the feminine gender, if the context so requires.
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<PAGE> 18
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY" FIRST VIRTUAL HOLDINGS
INCORPORATED
a Delaware corporation
By: /s/ Lee H. Stein
------------------------------------
Lee H. Stein, President
"PURCHASER" FIRST DATA CORPORATION
a Delaware corporation
By: /s/ Tom Rossi
------------------------------------
Title: Assistant Secretary
-----------------------------------
EXHIBITS:
A Restated Certificate
B Schedule of Exceptions
C Shareholder Rights Agreement
D Proprietary Information Agreement
E Opinion of Company Counsel
F Form of Marketing and Product Development Agreement
G Form of Warrant
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<PAGE> 1
EXHIBIT 10.15
FIRST VIRTUAL HOLDINGS INCORPORATED
AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT
This Amended and Restated Shareholder Rights Agreement (the "AGREEMENT"),
dated as of August 26, 1996, is entered into by and among First Virtual Holdings
Incorporated, a Delaware corporation (the "COMPANY"), and the individuals and
entities listed on Exhibit A attached hereto (collectively, the "SHAREHOLDERS").
R E C I T A L S
A. Those Shareholders designated as Series A Shareholders on Exhibit A
hereto (the "SERIES A HOLDERS") are parties with the Company to the Series A
Preferred Stock Purchase Agreement dated as of May 25, 1995 (the "SERIES A
AGREEMENT"), the Shareholder designated as Series B Shareholder (the "SERIES B
HOLDER") on Exhibit A hereto is a party with the Company to the Series B
Preferred Stock Purchase Agreement (the "SERIES B AGREEMENT") dated as of
December 22, 1995, the Shareholder designated as Series C Shareholder (the
"SERIES C HOLDER") on Exhibit A hereto is a party with the Company to the
Securities Purchase Agreement (the "SECURITIES AGREEMENT") dated as of July 5,
1996, and the Shareholder Designated as Series D Shareholder (the "SERIES D
HOLDER") on Exhibit A hereto is a party with the Company to the Series D
Preferred Stock Purchase Agreement (the "SERIES D AGREEMENT") dated as of August
26, 1996 (the "CLOSING DATE").
B. The Company, the Series A Holders, the Series B Holder and the Series C
Holder are parties to a Shareholder Rights Agreement dated July 3, 1996 (the
"PRIOR SHAREHOLDER RIGHTS AGREEMENT").
C. In order to induce the Series D Holder to enter into the Series D
Agreement, the parties to the Prior Shareholder Rights Agreement wish to amend
and restate such agreement to allow the Series D Holder to become a party to
such agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree that the Prior Shareholder
Rights Agreement shall be amended and restated in its entirety to read as
follows:
1. Certain Definitions. As used in this Agreement, the terms defined in
the preamble to this Agreement shall have the meanings given therein and the
following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act.
<PAGE> 2
"Holder" shall mean any holder of Registrable Securities or Rubin
Securities.
"Founders" shall mean Tawfiq N. Khoury and Lee H. Stein.
"Founder Securities" shall mean the shares of Common Stock acquired
by Lee H. Stein, June L. Stein, Tawfiq N. Khoury and Richel G. Khoury, trustees
of the TNKRGK Family T/D 12/23/76, Jason B. Khoury, trustee of the Jason B.
Khoury T/D 1/27/87, Brian N. Khoury, trustee of the Brian N. Khoury T/D 1/27/87,
Noelle F. Khoury, trustee of the Noelle F. Khoury T/D 1/27/89 on March 11, 1994,
and any additional shares of Common Stock issued with respect to such shares
upon any stock split, stock dividend, recapitalization or similar event,
provided that the Founder Securities shall cease to be Founder Securities if (i)
such securities are sold in the public market pursuant to the Company's IPO or
otherwise or (ii) as to any such securities at such time as the holder thereof
may sell all such securities in a three month period pursuant to Rule 144 or
Rule 144(k) of the Securities Act.
"Initiating Holders" shall mean Holders of thirty percent (30%) or
more of the then outstanding Registrable Securities.
"IPO" shall mean an underwritten public offering pursuant to an
effective registration statement under the Securities Act, covering the initial
offer and sale of Common Stock for the account of the Company to the public at
an aggregate offering price to the public of not less than $10,000,000 and a per
share price to the public of at least $7.50 per share (as adjusted for stock
splits and like events after the Closing Date).
"Preferred Stock" shall mean the Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred Stock.
"Restricted Securities" shall mean the securities of the Company
required to bear or bearing the legend set forth in Section 3 hereof.
"Registrable Securities" shall mean shares of Common Stock issued
pursuant to the Securities Agreement or issued or issuable upon conversion of
the Preferred Stock (including the shares of Preferred Stock issuable upon
exercise of any warrants to purchase Preferred Stock or Common Stock issuable
upon exercise of warrants to purchase Common Stock issued pursuant to the
Securities Agreement, to the extent that such warrants are exercisable, and
shares issued with respect to such Registrable Securities in connection with
stock splits stock dividends and similar events), provided that, Registrable
Securities shall cease to be Registrable Securities if (x) such securities are
sold in the public market pursuant to the Company's IPO or otherwise or (y) as
to any such securities held by a Holder, at such time as such Holder may
immediately sell all such securities in a three month period pursuant to Rule
144 or Rule 144(k) of the Securities Act.
The terms "register", "registered" and "registration" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
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<PAGE> 3
"Registration Expenses" shall mean all expenses incurred by the
Company in compliance with Sections 5, 6 and 8 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company which shall include any fees and
disbursements for legal services provided by counsel for the Company on behalf
of the Holders, blue sky fees and expenses for qualification or registration in
not more than five states, and the expense of any audit of the Company's fiscal
year-end financial statements incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company).
"Rubin Securities" shall mean the shares of Common Stock acquired by
Jon Rubin ("Rubin") pursuant to that certain Subscription Agreement dated
September 16, 1994, between the Company and Rubin and any additional shares of
Common Stock issued with respect to such shares upon any stock split, stock
dividend, recapitalization or similar event, provided that Rubin Securities
shall cease to be Rubin Securities if (i) such securities are sold in the public
market pursuant to the Company's IPO or otherwise or (ii) as to any such
securities at such time as the holder thereof may sell all such securities in a
three month period pursuant to Rule 144 or Rule 144(k) of the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Exchange Act" shall mean the Securities Exchange of 1934, as
amended.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and expense allowances applicable to the sale of Registrable
Securities and all fees and disbursements of counsel for any Holder (other than
the fees and disbursements of the Company's counsel included in Registration
Expenses, and the fees of one special counsel to the Holders and holders of
Founder Securities, which shall be borne by the Company).
"Series A Preferred" shall mean shares of Series A Preferred Stock
of the Company.
"Series B Preferred" shall mean shares of Series B Preferred Stock
of the Company.
"Series C Preferred" shall mean shares of Series C Preferred Stock
of the Company.
"Series D Preferred" shall mean shares of Series D Preferred Stock
of the Company.
"Shares" shall mean all Registrable Securities, Founder Securities
and Rubin Securities.
2. Restrictions on Transferability. The Restricted Securities shall not be
transferred except upon the conditions specified in this Agreement, which
conditions are intended to ensure compliance with the provisions of the
Securities Act. Any transferee of Restricted Securities shall take and hold
those securities subject to the provisions and upon the conditions specified in
this Agreement.
3. Restrictive Legend. Each certificate representing (i) the Shares, and
(ii) shares of the Company's Common Stock issued upon conversion of the
Preferred Stock, and (iii) any other securities issued in respect of the Shares,
or the Common Stock issued upon conversion of the Preferred Stock,
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<PAGE> 4
upon any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless otherwise permitted or unless the securities
evidenced by such certificate shall have been registered under the Securities
Act) be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required under applicable state
securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, (THE "ACT") OR ANY STATE SECURITIES LAWS. SUCH SHARES MAY NOT
BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF SUCH REGISTRATION OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT. COPIES OF THE AGREEMENTS
COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICE OF THE CORPORATION.
Upon request of a holder of such a certificate, the Company shall
remove the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if, with such request, the
Company shall have received either the opinion referred to in Section 4(a) or
the "no-action" letter referred to in Section 4(b) to the effect that any
transfer by such holder of the securities evidenced by such certificate will not
violate the Securities Act and applicable state securities laws, unless any such
transfer legend may be removed pursuant to Rule 144(k), in which case no such
opinion or "no-action" letter shall be required, and provided that the Company
shall not be obligated to remove any such legends prior to the date of the
release of the lock-up provisions set forth in Section 15 hereof following the
initial public offering of the Company's Common Stock under the Securities Act.
4. Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed transfer
of any Restricted Securities (other than under circumstances described in
Section 5, 6 or 8 hereof), the holder thereof shall give written notice to the
Company of such holder's intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall be accompanied (except in transactions in
compliance with Rule 144 promulgated under the Securities Act or for a transfer
to a holder's majority owned subsidiary or an entity that directly or indirectly
controls a majority of the voting securities of such holder or to such holder's
spouse, ancestors, descendants or a trust for any of their benefit, or in
transactions involving the distribution without consideration of Restricted
Securities by a holder to any of its partners or retired partners or to the
estate of any of its partners or retired partners) by either (a) a written
opinion of legal counsel to the holder who shall be reasonably satisfactory to
the Company, addressed to the Company, to the effect that the proposed transfer
of the Restricted Securities may be effected without registration under the
Securities Act or (b) a "no-action" letter from the Commission to the effect
that the distribution of such securities without registration will not result in
a recommendation by the staff of the Commission that action be taken with
respect thereto, whereupon the holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by such
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<PAGE> 5
holder to the Company. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear the restrictive legend set forth in
Section 3 above, except that such certificate shall not bear such restrictive
legend after the date of the Company's initial public offering under the
Securities Act if the opinion of counsel or "no-action" letter referred to above
expressly indicates that such legend is not required in order to establish
compliance with the Act or if such legend is no longer required pursuant to Rule
144(k).
5. Requested Registrations.
(a) Request for Registration. If at any time during the period
beginning six months after the closing of a registered public offering by the
Company and ending on the fourth anniversary of the closing of such offering,
the Company shall receive from Initiating Holders a written request that the
Company effect a registration with respect to the Registrable Securities
specified by such Initiating Holders the Company will:
(i) promptly give written notice of the proposed registration
to all other Holders; and
(ii) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable
regulations issued under the Securities Act) as may be so requested
and as would permit or facilitate the sale and distribution of all
of such Registrable Securities, together with the Registrable
Securities or Rubin Securities specified by any Holder or Holders
joining in such request as are specified in a written request given
within 30 days after receipt of such written notice from the
Company.
The Company shall file a registration statement covering the
Registrable Securities and Rubin Securities, if any, so requested to be
registered as soon as practicable after receipt of the request of the Initiating
Holders; provided, however, that if the Company shall furnish to such Initiating
Holders a certificate signed by the representatives of the underwriters of the
offering to which such registration statement relates, to the effect that market
conditions are such that a delay in the filing of such registration statement is
advisable (or, in the event of a non-underwritten offering, a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company a delay in filing such registration statement
is necessary in order to avoid a serious detriment to the Company), the Company
shall have the right, exercisable on only one occasion, to defer such filing for
a period of not more than 120 days after receipt of the request of the
Initiating Holders; and provided further than the Company shall have no
obligation to effect such registration if the Company would be required to
conduct an audit of an interim financial period if the Holders do not undertake
to pay the reasonable fees and expenses of the Company's auditor with respect to
such audit.
The Company shall not be obligated to effect, or to take any action
to effect, any registration pursuant to this Section 5 after the Company has
effected two such registrations pursuant to this Section 5 and such
registrations have been declared or ordered effective by the Commission.
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<PAGE> 6
Any registration statement filed pursuant to this Section 5(a) may,
subject to the provisions of Section 5(b) below, include securities of the
Company being sold for the account of the Company.
(b) Underwriting. If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 5(a) and the Company shall include such information in the written
notice referred to in Section 5(a)(i) above. The right of any Holder to
registration pursuant to Section 5(a) shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities or Rubin Securities in the underwriting (unless otherwise
mutually agreed by a majority in interest of the Initiating Holders and such
Holder with respect to such participation and inclusion) to the extent provided
herein. A Holder may elect to include in such underwriting all or a part of the
Registrable Securities and/or Rubin Securities then held.
If the Company shall request inclusion in any registration pursuant
to Section 5(a) of securities being sold for its own account, the Initiating
Holders shall, on behalf of all Holders, offer to include the securities of the
Company in the underwriting and may condition such offer on the Company's
acceptance of the further applicable provisions of this paragraph. The Company
shall (together with all Holders proposing to distribute their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or representative of the underwriters selected for
such underwriting by a majority in interest of the Initiating Holders.
Notwithstanding any other provision of this Section 5, if the representative of
the underwriters advises the Initiating Holders in writing that marketing
factors require a limitation (the "Underwriter's Limitation") on the number of
shares to be underwritten, the Initiating Holders shall so advise the Company
and all Holders of Registrable Securities and Rubin Securities whose securities
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities, Rubin Securities and other securities that may be
included in the registration and underwriting shall be allocated in the
following manner: First, the securities of the Company shall be excluded from
such registration and underwriting to the extent required by such Underwriter's
Limitation. If, after fully excluding the securities of the Company from such
underwriting and registration, a further reduction in the number of shares to be
included in such underwriting and registration is required, the number of Rubin
Securities to be included in such underwriting and registration shall be reduced
to the extent required by the Underwriter's Limitation; provided, however, that
the number of Rubin Securities to be included in such registration and
underwriting shall not be reduced to less than 12.5% of the total number of
securities included in such registration or underwriting. If, after fully
excluding the securities of the Company from such underwriting and registration,
and reducing the number of Rubin Securities from such underwriting and
registration to the full extent permitted by the preceding sentence, a further
reduction in the number of shares to be included in such underwriting and
registration is required, the number of shares that may be included in the
registration and underwriting shall be allocated among all Holders of
Registrable Securities in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by each Holder at the time of
the filing of the registration statement. No Registrable Securities, Rubin
Securities or any other securities excluded from the underwriting by reason of
the Underwriter's Limitation shall be included in such registration. If the
Company or any holder in its sole discretion disapproves of the terms of the
underwriting, it may elect to withdraw therefrom by written notice to the
underwriter and the Initiating Holders. The securities so withdrawn shall also
be withdrawn from registration.
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<PAGE> 7
(c) Additional Demand Registration Right. In the event that General
Electric Capital Corporation ("GECC") shall not have had the opportunity to
register at least 72,000 shares of Registrable Securities held by GECC pursuant
to Section 5(a) or Section 6 hereof pursuant to a registration initiated within
30 days after expiration of the underwriters' "lock-up" applicable to GECC in
connection with the Company's initial public stock offering, the Company shall,
upon the written request of GECC, use its best efforts to effect a registration
with respect to the number of Registrable Securities specified by GECC, provided
that such number of Registrable Securities shall not exceed the difference
between (a) 72,000 shares, and (b) the number of Registrable Securities GECC had
previously had an opportunity to register pursuant to Section 5(a) or Section 6,
if any.
The Company shall have no obligation to effect a registration
pursuant to this Section 5(c) if the Company would be required to conduct an
audit of an interim financial period if GECC does not undertake to pay the
reasonable fees and expenses of the Company's auditor with respect to such
audit. The Company shall comply with the requirements of Section 7, 9 and 10
hereof with respect to any registration effected pursuant to this Section 5(c),
except that the Company shall have no obligation to keep any registration
statement filed pursuant to this Section 5(c) effective for a period of more
than sixty (60) days.
The Company shall not be obligated to take any action to effect more
than one registration pursuant to this Section 5(c). This Section 5(c) shall
expire at such time as GECC has had an opportunity to register no less than
72,000 Registrable Securities pursuant to Section 5(a), Section 6(b) or Section
8 hereof.
6. Company Registration.
(a) If, at any time, the Company shall determine to register any of
its securities either for its own account or the account of a security holder or
holders (other than Holders of Registrable Securities or Rubin Securities)
exercising their respective demand registration rights, other than (i) a
registration relating solely to employee benefit plans, (ii) a registration
relating solely to a Commission Rule 145 transaction involving the acquisition
of a business (but not a Rule 145 Transaction designed solely to exchange
restricted securities for registered securities in a manner that is the
functional equivalent of registration rights), (iii) a registration pursuant to
Section 5(c) hereof, or (iv) a registration on any registration form which does
not permit secondary sales, the Company will:
(i) promptly give to each Holder and each Founder written
notice thereof (which shall include a list of the jurisdictions in
which the Company intends to attempt to qualify such securities
under the applicable blue sky or other state securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all of the Registrable Securities,
Rubin Securities and Founder Securities specified in a written
request or requests made by any Holder or Founder within 30 days
after receipt of the written notice from the Company described in
clause (i) above, except as set forth in Section 6(b) below. Such
written request may specify all or a part of a Holder's Registrable
Securities, Rubin Securities or Founder Securities.
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<PAGE> 8
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders and Founders as a part of the written notice
given pursuant to Section 6(a)(i). In such event the right of any Holder or
holder of Founder Securities to registration pursuant to Section 6 shall be
conditioned upon such Holder's or holders' of Founder Securities participation
in such underwriting and the inclusion of such Holder's Registrable Securities
or Rubin Securities or such Founder Securities, as the case may be, in the
underwriting to the extent provided herein. All Holders and holders of Founder
Securities proposing to distribute their securities through such underwriting
shall (together with the Company) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 6, if the underwriter
advises the Company in writing that marketing factors require an Underwriter's
Limitation on the number of shares to be underwritten, the underwriter may
(subject to the allocation priority set forth below) limit the number of
Registrable Securities, Rubin Securities and Founder Securities to be included
in the registration and underwriting, or in the case of the Company's IPO, the
underwriters may exclude all of the Registrable Securities, Rubin Securities and
Founder Securities from the registration and underwriting. In such event, the
Company shall so advise all holders of securities requesting registration and,
if applicable, the number of shares or securities that are entitled to be
included in the registration and underwriting shall be allocated in the
following manner: First, the number of Founder Securities that shall be included
in such registration and underwriting shall be reduced to the extent required by
the Underwriter's Limitation; provided, however, that the number of Founder
Securities to be included in such registration and underwriting which is not for
the Company's IPO shall not be reduced to less than 5% of the total number of
securities included in such registration or underwriting. The number of shares
of Founder Securities that may be included in the registration and underwriting
shall be allocated among all holders of Founder Securities in proportion, as
nearly as practicable, to the number of shares of Founder Securities held by
each holder of Founder Securities. If, after fully reducing the number of
Founder Securities from such underwriting and registration to the full extent
permitted by the preceding sentence, a further reduction in the number of shares
to be included in such underwriting and registration is required, the number of
Registrable Securities and Rubin Securities that shall be included in the
registration and underwriting shall be reduced to the extent required by the
Underwriter Limitation, in proportion, as nearly as practicable, to the number
of shares of Rubin Securities and Registrable Securities held by each Holder;
provided, however, that the number of Registrable Securities to be included in
such registration and underwriting which is not for the Company's IPO shall not
be reduced to less than 20% of the total number of securities included in such
registration or underwriting; and provided further, that the number of Rubin
Securities to be included in such registration and underwriting which is not for
the Company's IPO shall not be reduced to less than 10% of the total number of
securities included in such registration or underwriting. The number of shares
of Registrable Securities and Rubin Securities that may be included in the
registration and underwriting shall be allocated among all Holders in
proportion, as nearly as practicable, to the number of shares of Rubin
Securities and Registrable Securities held by each Holder. If, after reducing
the number of Founder Securities, Registrable Securities and Rubin Securities to
be included in such registration or underwriting to the full extent permitted in
this section, a further reduction in the number of shares to be included in such
underwriting and registration is required, then the number of securities of the
Company that shall be included in such registration and underwriting shall be
reduced to the extent required by the Underwriter's Limitation. If any Holder or
holder of Founder Securities disapproves of the terms of any such underwriting,
such Holder or holder of Founder Securities may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any Registrable
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<PAGE> 9
Securities, Rubin Securities, Founder Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
7. Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification or
compliance pursuant to this Agreement and all underwriting discounts, selling
commissions and expense allowances applicable to the sale of any securities by
the Company for its own account in any registration. All Selling Expenses shall
be borne by the Holders and holders of Founder Securities, if any, whose
securities are included in such registration pro rata on the basis of the number
of their Registrable Securities, Rubin Securities or Founder Securities so
registered, provided, however, that if in such registration, the Company pays
any expenses included in the defined term "Selling Expenses" for other security
holders, the Company will pay such expenses for the Holders.
8. Registration on Form S-3. The Company shall use its best efforts to
qualify for registration on Form S-3 or any comparable or successor form or
forms, and to that end the Company shall register (whether or not required by
law to do so) the Common Stock under the Exchange Act in accordance with the
provisions of the Exchange Act following the closing of the first registration
of any securities of the Company on Form SB-2, S-1 or any comparable or
successor form. After the Company has qualified for the use of Form S-3, in
addition to the rights contained in the foregoing provisions of this Agreement,
the Holders of Registrable Securities shall have unlimited rights to request
from time to time registrations on Form S-3 (such requests shall be in writing
and shall state the number of shares of Registrable Securities to be disposed of
and the intended methods of disposition of such shares by such Holder or
Holders) provided that in each case the aggregate proceeds of such registration
are expected to exceed $500,000.
9. Registration Procedures. In the case of each registration effected by
the Company pursuant to this Agreement, the Company will keep each Holder and
holder of Founder Securities who is entitled to registration rights hereunder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company will:
(a) Except as otherwise provided herein, keep such registration
effective for a period of six months or until such Holders or holder of Founder
Securities, if any, have completed the distribution described in the
registration statement relating thereto, whichever first occurs; provided,
however, that in the case of any registration of Registrable Securities on Form
S-3 that are intended to be offered on a continuous or delayed basis, such six
month period shall be extended, if necessary, to keep the registration statement
effective until all such Registrable Securities are sold;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of securities
covered by such registration statement;
(c) Furnish such number of prospectuses and other documents incident
thereto, including supplements and amendments, as a Holder or holder of Founder
Securities may reasonably request;
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<PAGE> 10
(d) Notify each seller of Registrable Securities, Rubin Securities
or Founder Securities covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a fact required to be stated therein or
necessary to make the statements therein not misleading or incomplete in the
light of the circumstances then existing, and at the request of any such seller,
prepare and furnish to such seller a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchaser of such shares, such prospectus shall not include 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 or
incomplete in the light of the circumstances then existing;
(e) Cause all such Registrable Securities, Rubin Securities or
Founder Securities to be listed on each securities exchange on which the same
securities issued by the Company are then listed;
(f) Provide a transfer agent and registrar for all such Registrable
Securities, Rubin Securities or Founder Securities and a CUSIP number for all
such Registrable Securities, Rubin Securities or Founder Securities, in each
case not later than the effective date of such registration;
(g) Make available for inspection by any seller of Registrable
Securities, Rubin Securities or Founder Securities, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney or accountant retained by any such seller or underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers and directors to supply all
information reasonably requested by any such seller, underwriter, attorney or
accountant in connection with such registration statement; provided, however,
that such seller, underwriter, attorney or accountant shall agree to hold in
confidence and trust all information so provided;
(h) Furnish to each selling Holder and holder of Founder Securities
a signed counterpart, addressed to the selling Holder or holder of Founder
Securities, of
(i) an opinion of counsel for the Company, dated the effective
date of the registration statement, and
(ii) "comfort" letters signed by the Company's independent
public accountants who have examined and reported on the Company's
financial statements included in the registration statement, to the
extent permitted by the standards of the AICPA or other relevant
authorities, covering substantially the same matters with respect to
the registration statement (and the prospectus included therein) and
(in the case of the accountants' "comfort" letters, with respect to
events subsequent to the date of the financial statements) as are
customarily covered in opinions of issuer's counsel and in
accountants' "comfort" letters delivered to the underwriters in
underwritten public offerings of securities;
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<PAGE> 11
(i) Furnish to each selling Holder and holder of Founder Securities
a copy of all documents filed with and all correspondence from or to the
Commission in connection with any such offering other than nonsubstantive cover
letters and the like;
(j) Otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
(k) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 6 hereof, the Company will
enter into any underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions; and
(l) From and after the date of this Agreement, the Company shall not
enter into any agreement with any holder or prospective holder of any securities
of the Company giving such holder or prospective holder rights that are superior
to the rights given to the holders of Registrable Securities hereunder to
require the Company to initiate registration of any securities of the Company or
to require the Company, upon any registration of any of its securities, to
include, among the securities that the Company is then registering, securities
owned by such holder, unless such agreement does not adversely affect the
registration rights of the holders of Registrable Securities hereunder.
10. Indemnification.
(a) The Company will indemnify each Holder and holder of Founder
Securities, each of its officers, directors, agents , employees and partners,
and each person controlling such Holder and holder of Founder Securities, with
respect to each registration, qualification or compliance effected pursuant to
this Agreement, and each underwriter, if any, and each person who controls any
underwriter, and their respective counsel against all claims, losses, damages
and liabilities (or actions, proceedings or settlements in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
prepared by the Company (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act or
any rule or regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder
and holder of Founder Securities, each of its officers, directors, agents,
employees and partners, and each person controlling such Holder and holder of
Founder Securities, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses as they are reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement (or alleged untrue statement)
or omission (or alleged
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<PAGE> 12
omissions) based upon written information furnished to the Company by such
Holder, holder of Founder Securities or underwriter and stated to be
specifically for use therein.
(b) Each Holder whose Registrable Securities or Rubin Securities and
each holder of Founder Securities whose Founder Securities are included in any
registration, qualification or compliance effected pursuant to this Agreement
will indemnify the Company, each of its directors and officers and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of the Securities Act and the rules and regulations thereunder, each
other such Holder and holder of Founder Securities and each of their officers,
directors and partners, and each person controlling such Holder and holder of
Founder Securities, and their respective counsel against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and such Holders and
holders of Founder Securities, directors, officers, partners, persons,
underwriters or control persons for any legal or any other expenses as they are
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder or
holders of Founder Securities and stated to be specifically for use therein;
provided, however, that the obligations of such Holders and holders of Founder
Securities hereunder shall be limited to an amount equal to the proceeds to each
such Holder and holder of Founder Securities of securities sold under such
registration statement, prospectus, offering circular or other document as
contemplated herein.
(c) Each party entitled to indemnification under this Section 10
(the "INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further that if any Indemnified
Party reasonably concludes that there may be one or more legal defenses
available to it that are not available to the Indemnifying Party, or that such
claim or litigation involves or could have an effect on matters beyond the scope
of this Agreement, then the Indemnified Party may retain its own counsel at the
expense of the Indemnifying Party; and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless and only to
the extent that such failure to give notice results in material prejudice to the
Indemnifying Party. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself
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<PAGE> 13
or the claim in question as an Indemnifying Party may reasonably request in
writing and as shall be reasonably required in connection with defense of such
claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 10 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
11. Information by Holder. Each Holder of Registrable Securities and/or
Rubin Securities and each holder of Founder Securities to be included in a
registration referred to in this agreement shall furnish to the Company such
information regarding such Holder and such holder of Founder Securities, the
securities to be offered and sold and the intended plan of distribution of the
securities by such Holder and such holder of Founder Securities as the Company
may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Agreement and shall promptly advise the Company in writing of any material
changes to such information while the registration is in effect. Each Holder and
holder of Founder Securities agrees that upon notice from the Company that a
registration statement, prospectus, offering circular or other document is
required to be revised, amended, supplemented or replaced, such Holder and
holder of Founder Securities shall use its reasonable efforts to cause all
copies thereof in its possession to be promptly returned to the Company
(including copies thereof which are in the possession of any broker or other
person acting on behalf of the Holder or holder of Founder Securities), and the
Holder and holder of Founder Securities shall cease to make any public offer or
sale of the registered securities until the Company shall have revised, amended,
supplemented or replaced such registration statement, prospectus, offering
circular or other document.
12. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
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<PAGE> 14
(b) Use its reasonable best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements; and
(c) So long as a Shareholder owns any Restricted Securities, furnish
to the Shareholder forthwith upon request a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any time from
and after ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents as a Shareholder may reasonably request in availing itself of any rule
or regulation of the Commission allowing a Shareholder to sell any such
securities without registration.
13. No-Action Letter or Opinion of Counsel in Lieu of Registration.
Notwithstanding anything in this Agreement to the contrary, if at any time after
the closing of the initial offering to the public of the Company's Common Stock
pursuant to a firm commitment registered underwriting in which the aggregate
gross proceeds received by the Company exceed $10,000,000 (the "PUBLIC
OFFERING") of its securities under the Securities Act the Company shall have
obtained from the Commission a "no-action" letter, upon which the holders of
Registrable Securities are reasonably justified in relying, in which the staff
of the Commission has indicated that it will recommend that no action be taken
if, without registration under the Securities Act, any Holder disposes of
Registrable Securities, Rubin Securities or Founder Securities covered by any
request for registration made under this Agreement in the manner in which such
Holder proposes to dispose of the Registrable Securities, Rubin Securities or
Founder Securities included in such request, or if in the opinion of counsel for
the Company concurred in by counsel for such Holder no registration under the
Securities Act is required in connection with such disposition, the Registrable
Securities, Rubin Securities or Founder Securities included in such request
shall not be eligible for registration under this Agreement for so long as such
no action position remains available to such Holder; provided, however, with
respect to any Holder who may be deemed to be an "affiliate," as that term is
defined under Rule 144, if, notwithstanding the opinion of such counsel, the
Holder is unable to dispose of all of the Registrable Securities, Rubin
Securities or Founder Securities included in his request in the manner in which
such Holder so proposes without registration, the Registrable Securities
included in such request shall be eligible for registration under this
Agreement.
14. Transfer or Assignment of Registration Rights. The rights to cause the
Company to register a Shareholder's securities granted by the Company under
Section 5 hereof may be transferred or assigned by a Shareholder to a transferee
or assignee of any of the Restricted Securities, provided that the Company is
given written notice prior to the time that such right is exercised, stating the
name and address of said transferee or assignee and identifying the securities
with respect to which such registration rights are being transferred or
assigned, and provided further that the transferee or assignee of such rights is
not deemed by the Board of Directors of the Company, in its reasonable judgment,
to be a competitor of the Company; and provided further that the transferee or
assignee of such rights assumes in writing the obligations of a Shareholder
under this Agreement.
15. "Lock-Up" Agreement. Each Shareholder agrees, if requested by the
Company and an underwriter of Common Stock (or other securities) of the Company
in connection with the Company's
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<PAGE> 15
Public Offering, not to sell or otherwise transfer or dispose of any Common
Stock (or other securities) of the Company held by such Shareholder during a
period of time determined by the Company and its underwriters (not to exceed 180
days) following the effective date of the registration statement of the Company
filed under the Securities Act relating to such Public Offering, provided that
all officers and directors of the Company who then hold Common Stock (or other
securities) of the Company enter into similar agreements, and provided further
that, in no event, shall a Shareholder be prohibited from transferring or
selling Common Stock or other securities of the Company to an affiliate of such
Shareholder.
Such agreement shall be in writing in a form reasonably satisfactory
to the Company and such underwriter. The Company may impose stop-transfer
instructions with respect to the Shares (or securities) subject to the foregoing
restriction until the end of said period. The Company agrees that any release of
shares subject to the foregoing lock-up agreement shall be made on a pro rata
basis among all Shareholders based upon their percentage ownership of the
outstanding shares of Common Stock of the Company.
16. Preemptive Rights.
(a) New Issuances. The Company hereby agrees not to issue or sell
any "NEW SECURITIES" (as defined in this Section 16) in a transaction in which
the Company receives any consideration other than cash without the prior written
consent of holders of a majority of the outstanding Preferred Stock (voting
together as a single class). The Company hereby grants to the Shareholders a
right (the "PREEMPTIVE RIGHT") to purchase all or any part of their pro rata
portion of any New Securities that the Company may, from time to time, propose
to sell and issue for solely for cash. Such pro rata share, for purposes of this
Preemptive Right, is the ratio of (x) the sum of the number of shares of Common
Stock then owned by such Shareholder and the number of shares of Common Stock
issuable upon the conversion of any such Preferred Stock, to (y) the sum of the
total number of shares of Common Stock then outstanding and the total number of
shares of Common Stock issuable upon the conversion of the total number of
shares of Preferred Stock then outstanding. This Preemptive Right shall be
subject to the following provisions:
(i) "NEW SECURITIES" shall mean any common stock or preferred
stock of the Company, whether or not authorized on the date hereof,
and rights, options or warrants to purchase Common Stock or
preferred stock and securities of any type whatsoever that are, or
may become, convertible into Common Stock or Preferred Stock;
provided, however, that "NEW SECURITIES" does not include the
following:
(A) shares of capital stock of the Company issuable upon
conversion or exercise of any currently outstanding securities
or any New Securities issued in accordance with this
agreement;
(B) shares or options granted to officers, directors and
employees of, and consultants to, the Corporation in a manner
determined by the Board of Directors and in an amount not to
exceed 1,962,025 shares (as adjusted for stock
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<PAGE> 16
splits, stock dividends, recapitalizations and similar events)
at any time outstanding;
(C) shares issuable upon exercise of options or warrants
to purchase shares of Series A Preferred Stock, Series B
Preferred Stock and Common Stock of the Corporation issued to
First USA Merchant Services, Inc., National Direct Marketing
Corp., Lee H. Stein, Tawfiq N. Khoury, Jon Rubin, Nathaniel
Borenstein and Marshall Rose prior to the date hereof;
(D) warrants to purchase up to 50,000 shares issued or
issuable to General Electric Capital Corporation or its
affiliates, and the shares issuable upon exercise of such
warrants;
(E) up to 2,500,000 shares, and warrants to purchase any
portion of such shares, issuable to First Data Corporation,
VISA International Service Association or other entities in
connection with marketing relationships entered into with such
entities; or
(F) shares of Common Stock or Preferred Stock issued in
connection with any pro rata stock split, stock dividend or
recapitalization by the Company (in which case, all numbers of
shares and per share amounts referenced in this Section
16(a)(i) will be adjusted accordingly).
(ii) In the event that the Company proposes to undertake an
issuance of New Securities for cash, it shall give each Shareholder
written notice (the "NOTICE") of its intention, describing the type
of New Securities, the price, and the general terms upon which the
Company proposes to issue the same. Each Shareholder shall have
twenty (20) business days after receipt of such notice to agree to
purchase all or any portion of its pro rata share of such New
Securities at the price and upon the terms specified in the notice
by giving written notice to the Company and stating therein the
quantity of New Securities to be purchased. If any Shareholder fails
to agree to purchase its full pro rata share within such twenty (20)
business day period, the Company will give the Shareholders who did
so agree (the "ELECTING SHAREHOLDERS") notice of the number of
shares that were not subscribed for. Such notice may be by telephone
if followed by written confirmation within two days. The Electing
Shareholders shall have five (5) business days from the date of
receipt of such notice to agree to purchase all or any portion of
such Electing Shareholders pro rata portion of the New Securities
not purchased in response to the Notice.
(iii) In the event that any New Securities subject to the
Preemptive Right are not be purchased by the Shareholders within the
twenty (20) business plus five (5) business day period specified
above, the Company shall have one hundred twenty (120) days
thereafter to sell (or enter into an agreement pursuant to which the
sale of New Securities that had been subject to the Preemptive Right
shall be closed, if at all, within sixty (60) days from the date of
said agreement) the New Securities with respect to which
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<PAGE> 17
the rights of the Shareholders were not exercised at a price and
upon terms, including manner of payment, no more favorable to the
purchasers thereof than specified in the Notice. In the event the
Company has not sold all offered New Securities within such one
hundred twenty (120) day period (or sold and issued New Securities
in accordance with the foregoing within sixty (60) days from the
date of such agreement) the Company shall not thereafter issue or
sell any New Securities, without first offering such New Securities
to the Shareholders in the manner provided above.
(iv) This Preemptive Right is nonassignable except to any
transferee to whom registration rights may be transferred under this
Agreement.
(v) This Preemptive Right shall terminate as to any
Shareholder (or any transferee or assignee of such Shareholder) at
such time as such Shareholder ceases to own any Shares or Common
Stock issuable upon conversion of the Shares, and shall terminate as
to all shareholders immediately prior to the closing of the IPO.
17. Certain Rights.
(a) Basic Financial Information. The Company will furnish the
following reports to each Shareholder (or its representative) so long as such
Shareholder owns at least 75,000 shares (as adjusted for stock splits and like
events) of Preferred Stock (including the Common Stock issued upon conversion of
such Preferred Stock), Rubin Securities or Founder Securities:
(i) As soon as practicable after the end of each fiscal year
of the Company, and in any event within 120 days thereafter, the
consolidated balance sheet of the Company and its subsidiaries, if
any, as at the end of such fiscal year, and consolidated statements
of income and cash flow of the Company and its subsidiaries, if any,
for such year, prepared in accordance with generally accepted
accounting principles consistently applied and setting forth in each
case in comparative form the figures for the previous fiscal year,
all in reasonable detail and certified by independent public
accountants of recognized national standing that are among the six
largest accounting firms in the United States selected by the
Company and approved by its Board of Directors.
(ii) As soon as practicable after the end each month in each
fiscal year of the Company, and in any event within 45 days
thereafter, a consolidated balance sheet of the Company and its
subsidiaries, if any, as of the end of each such month, and
consolidated statements of income and cash flow of the Company and
its subsidiaries for such period and for the current fiscal year to
date, prepared in accordance with generally accepted accounting
principles consistently applied, subject to changes resulting from
year-end audit adjustments, all in reasonable detail and certified
by the principal financial or accounting officer of the Company.
(iii) Annually (but in any event at least 30 days prior to the
commencement of each fiscal year of the Company) the yearly budget
and operating plan of the Company, in such manner and form as
approved by the Board of Directors of the Company, which
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<PAGE> 18
plan shall include projected statements of income and cash flow for
such fiscal year and a projected balance sheet as of the end of such
fiscal year. Any material changes in such plan shall be delivered to
the Shareholders as promptly as practicable after such changes have
been approved by the Board of Directors of the Company.
The provisions of this Section 17(a) shall not be in limitation of any
rights that the Shareholders may have with respect to the books and records of
the Company and its subsidiaries, or to inspect their properties or discuss
their affairs, finances and accounts; and, in the event that the Company is
unable to comply with the provisions of Section 17(a), the Board of Directors of
the Company shall, by resolution duly adopted, authorize and cause a firm of
independent public accountants of nationally recognized standing that is among
the six largest accounting firms in the United States to prepare promptly and
furnish such information to the eligible Shareholders at the Company's expense.
From the date the Company becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
lieu of the information required pursuant to this Section 17(a), Company may
furnish to the Shareholders copies of its annual reports on Form 10-K, its
quarterly reports on Form 10-Q, any current reports on Form 8-K and such other
information or interim reports as it provides to all shareholders.
(b) Transfers of Rights. The rights granted to the Shareholders
under Section 17(a) hereof may be transferred or assigned by a Shareholder to
any transferee or assignee of any Shares, Rubin Securities or Founder
Securities, provided that the Company is given written notice at the time of or
within a reasonable time after such transfer or assignment, stating the name and
address of the transferee or assignee and identifying the securities with
respect to which such rights are being transferred or assigned, and provided
further that the transferee or assignee holds following the transfer at least
75,000 shares (as adjusted for stock splits and like events) of Preferred Stock
(including shares of Common Stock issuable upon conversion thereof), Rubin
Securities or Founder Securities.
(c) Protective Provisions. In addition to any rights of the
Preferred Stock under applicable law or under the Certificate of Incorporation
or Bylaws of the Company, the Company will not, and will not permit any
subsidiary of the Company to take any of the following actions without the prior
written consent of holders of a majority of the outstanding shares of Preferred
Stock of the Company (voting together as a single class, on an as-converted to
Common Stock basis): (i) make or permit any payment of a distribution with
respect to, or repurchase of any shares of, the Common Stock by the Company or
any entity in which the Company holds a majority equity interest (but excluding
employee share repurchases upon bona fide termination by the Company of the
employment of such individual at less than fair market value); (ii) enter into
any transaction with an affiliate of the Company or any spouse or relative of
such affiliate; (iii) effect any transfer, in one or more transactions, of a
material portion of the Company's assets to any subsidiary, partnership or joint
venture; (iv) permit the incurrence of indebtedness or the issuance of any
security by any subsidiary; or (v) permit any issuance or other sale or
disposition of the capital stock of any subsidiary.
18. Visitation. The Company will permit each of Sybase, Inc., Unterberg
Harris Interactive Media, L.P., GECC and First Data Corporation ("FDC") (or a
representative of thereof), so long as such Shareholder owns at least 125,000
shares (as adjusted for stock splits and like events) of Preferred Stock
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<PAGE> 19
(including shares of Common Stock issued upon conversion of such Preferred
Stock), during such periods as no designee of such Shareholder is a member of
the Company's Board of Directors, to attend all meetings of the Board of
Directors and will provide to such shareholders copies of written materials
provided to all members of the Board of Directors; provided, however, that the
Board of Directors shall have the right to keep confidential from such
Shareholders for such period of the time as the Board of Directors deems
reasonable any information and copies of written materials the Board of
Directors in good faith considers to be trade secrets or to contain confidential
or classified information or which the Company is required by law or agreement
with a third party to keep confidential.
19. Sybase Inc. Rights
(a) Subject to the obligations of the Company set forth in its
Amended and Restated Articles of Incorporation (the "Restated Articles"),
without the prior written consent of Sybase, Inc. ("SYBASE") the Company will
not redeem, repurchase, reacquire or otherwise take any action which would
result in Sybase holding at any time an amount of the Company's capital stock
equal to or in excess of 20% of the total number of shares of the Company's
capital stock then outstanding.
(b) Sybase and the Company acknowledge the Company's intention to
utilize the Sybase platform in connection with the business of the Company. In
the event that the Company elects, in its sole discretion, not to utilize the
Sybase platform in connection with the business of the Company, Sybase shall
have the right to require the Company, to the extent the Shares have not
theretofore been converted into shares of Common Stock, to redeem all of
Sybase's Shares at a price equal to $1.76 per share plus all declared but unpaid
dividends. Sybase shall exercise the foregoing right by written notice to the
Company within 60 days following delivery of written notice to Sybase of the
decision of the Board of Directors of the Company not to utilize the Sybase
platform in connection with the business of the Company. In the event
insufficient funds are legally available to redeem all Shares electing to be
redeemed pursuant to this Section 19(b), the Company may (i) delegate its duty
to purchase Shares pursuant to this Section 19(b) or (ii) redeem as many of the
Shares as it has funds legally available and the Company's obligation to redeem
Shares shall be carried over and Shares shall continue to be purchased as and
when funds become legally available until all Shares entitled to be redeemed
pursuant to this Section 19(b) have been redeemed.
20. Board of Directors
(a) Election of Directors. For so long as this Section 20 is in
effect, each of First USA, Lee H. Stein ("STEIN"), Tawfiq N. Khoury ("KHOURY")
and Jon Rubin ("RUBIN"), shall have the right to nominate for election to the
Company's Board of Directors one member of the Board (collectively the "DIRECTOR
DESIGNEES"). In addition, if the Company does not effect an initial public
offering of its Common Stock prior to December 31, 1996, GECC and FDC shall each
have the right to nominate a Director Designee. The Company agrees to take all
actions necessary or appropriate to present each of the Director Designees to
the Shareholders for election as a director. The Shareholders agree to take all
actions necessary to elect each of the Director Designees to the Board of
Directors of the Company and each of them agrees to vote their shares in favor
of election of the Director Designees. If a Director Designee resigns or is
removed by a vote of the Company's shareholders, or if his or her Board seat is
otherwise vacated for any reason, then the Shareholder
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<PAGE> 20
represented by such Director Designee shall have the right to nominate his or
her replacement, and each Shareholder agrees to vote its shares for the election
of such replacement Director Designee. The provisions of this Section 21 shall
be construed to constitute the granting of proxies coupled with interests.
(b) Effectiveness and Termination of Rights. The rights of First
USA, Stein, Khoury and Rubin pursuant to Section 20(a) shall terminate and be
without further effect upon the earlier of (i) the closing of the IPO and (ii)
as to each such Shareholder, at such time as the number of shares of the
Company's capital stock beneficially held by such Shareholder and its affiliates
constitute less than 8% of the Company's capital stock in the case of First USA
and Messrs. Stein, Khoury and Rubin, or less than 1.5% of the Company's capital
stock in the case of GECC and FDC, after giving effect to the exercise of all
outstanding but unexercised options (whether or not vested), warrants or other
securities exercisable for or convertible into shares of capital stock of the
Company.
21. Termination of Prior Agreements. The parties to the Prior Shareholder
Rights Agreement agree that the Prior Shareholder Rights Agreement shall
terminate and be superseded in its entirety by this Agreement. The parties to
the Prior Shareholder Rights Agreement further waive all preemptive rights or
rights of first refusal that such parties may be entitled to with respect to the
issuance and sale of (a) the Series D Preferred pursuant to the Series D
Preferred Stock Purchase Agreement, (b) the stock warrant issued pursuant to the
Series D Preferred Stock Purchase Agreement (the "Warrant"), (c) shares of
Common Stock issuable upon conversion of shares of Series D Preferred sold
pursuant to the Series C Agreement, and (d) shares issuable upon exercise of the
Warrant.
22. Governing Law. This Agreement shall be governed in all respects by the
laws of the State of Delaware, without giving effect to the conflicts of laws
principles thereof.
23. Entire Agreement. This Agreement and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
24. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto.
25. Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon delivery to the party to be notified in person or by courier service or
five days after deposit with the United States mail, by First Class mail,
postage prepaid, addressed (a) if to a Shareholder, at the Shareholder's address
as set forth on Exhibit A hereto, or (b) if to any other holder of any
securities, at such address as such holder shall have furnished the other
parties hereto in writing, or, until any such holder so furnishes an address to
the Company, then to and at the address of the last holder of such Shares who
has so furnished an address to the Company, or (c) if to the Company, to First
Virtual Holdings Incorporated, 11975 El Camino Real, Suite 300, San Diego CA
92130 and addressed to the attention of the President, or at such other address
as the Company shall have furnished to the Shareholders, with a copy to Richard
C. DeGolia, Esq., Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo
Alto CA 94304.
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<PAGE> 21
26. Amendments or Waivers. This Agreement may not be amended, waived,
discharged or terminated other than by written instrument signed by (a) holders
of more than seventy-five percent (75%) of the outstanding shares of Preferred
Stock of the Company (on an as-converted to Common Stock basis) and (b) holders
of more than fifty percent (50%) of the then outstanding Common Stock; provided
that any amendment or waiver adversely affecting holders of a series of
Preferred Stock but not so affecting other series of Preferred Stock shall
require the consent of holders of more than fifty percent (50%) of the then
outstanding shares of the adversely affected series (in particular, the consent
of holders of a majority of the Series C Preferred Stock shall be required for
any amendment or waiver of Section 5(c) hereof or the right of GECC and FDC to
nominate a Director Designee pursuant to Section 21 hereof). No amendment to
this Agreement will be necessary in order to add an additional party as a
Shareholder hereunder upon the acquisition of shares of Common Stock by such
party, or a Shareholder and Holder hereunder upon acquisition of shares of
Preferred Stock by such party (provided, in each case, that such Shares are
issued or transferred to such party in accordance with this Agreement and the
Restated Articles).
27. Waiver of Conflict. Each party to this Agreement that has been or
continues to be represented by Wilson Sonsini Goodrich & Rosati P.C., counsel to
the Company, hereby acknowledges that Rule 3-310 of the Rules of Professional
Conduct promulgated by the State Bar of California requires an attorney to avoid
representations in which the attorney has or had a relationship with another
party interested in the representation without the informed written consent of
all parties affected. By executing this Agreement, each such party gives his or
its informed written consent to the representation of the Company by Wilson
Sonsini Goodrich & Rosati P.C. in connection with this Agreement and the
transactions contemplated hereby.
28. Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by fewer than all of parties hereto,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
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<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
FIRST VIRTUAL HOLDINGS
INCORPORATED
By: /s/ Lee H. Stein
--------------------------------------
Lee H. Stein, President
SHAREHOLDERS
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ General Electric Capital Corporation
-----------------------------------------
FIRST USA MERCHANT SERVICES, INC.
By: /s/ Phil Taken
--------------------------------------
Title: General Counsel
------------------------------------
SYBASE, INC.
By: /s/ Robert Epstein
---------------------------------------
UNTERBERG HARRIS INTERACTIVE MEDIA, L.P.
By: /s/ Andrew J. Kessler
---------------------------------------
Andrew J. Kessler
Partner
---------------------------------------
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<PAGE> 1
EXHIBIT 10.18
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933.
WARRANT
To Purchase Shares of Series A Preferred Stock of
First Virtual Holdings Incorporated
THIS CERTIFIES that, for value received First USA Merchant Services,
Inc., is entitled, upon the terms and subject to the conditions hereinafter
set forth, to purchase from First Virtual Holdings Incorporated, a Wyoming
corporation (the "Company"), that number of fully paid and nonassessable
shares of the Company's Series A Preferred Stock at the purchase price per
share as set forth in Section 1 below ("Exercise Price"). The number of shares
and Exercise Price are subject to adjustment as provided in Section 10 hereof.
1. Number of Shares; Exercise Price: Term.
(a) Subject to adjustments as provided herein, this Warrant is
exercisable for a number of shares of the Company's Series A Preferred Stock
(the "Shares") stated in Section 1(b) hereof at a purchase price of $.01 per
Share.
(b) The number of Shares which may be purchased upon exercise of
this Warrant shall be 852,272; provided that from and after the time of a firm
commitment underwritten public offering of the Common Stock of the Company (the
"Common Stock") 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 to the public at an offering price to the public
of at least $7.50 per share (as adjusted for stock splits, stock dividends,
reclassifications, and like events) and in which the aggregate gross proceeds
received by the Company (net of underwriting discounts) equal or exceed
$10,000,000, the Warrant will be exercisable for the number of shares of Common
Stock or other securities into which the Shares would have been converted upon
the occurrence of such event under the Restated Articles as in effect on the
date hereof, with the exercise price per share being appropriately adjusted.
(c) Subject to the terms and conditions set forth herein, this
Warrant shall be exercisable during the term commencing on the date of this
Warrant and ending at 5:00 p.m., Dallas time on March 4, 2001.
(d) The Company shall provide notice to the holder of this Warrant
of any firm commitment underwritten public offering of the Common Stock no less
than ten (10) days prior to the closing of such offering.
1
<PAGE> 2
2. Title to Warrant. This Warrant and all rights hereunder are
transferable, in whole or in part, but only with the prior written consent of
the Company, which shall not be unreasonably withheld or delayed, provided that
the prior consent of the Company shall not be required for any transfer to
affiliates of First USA. Transfers shall occur at the office or agency of the
Company by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.
3. Exercise of Warrant. The purchase rights represented by this Warrant
are exercisable by the registered holder hereof, in whole or in part, at any
time, or from time to time, during the term hereof as described in Section 1
above, by the surrender of this Warrant and the Notice of Exercise annexed
hereto as Exhibit A duly completed and executed on behalf of the holder hereof,
at the office of the Company in San Diego, California (or such other office or
agency of the Company as it may designate by notice in writing to the registered
holder hereof at the address of such holder appearing on the books of the
Company), and subject to Section 4 hereof, upon payment of the purchase price of
the shares thereby purchased in (i) company or certified or official bank check,
(ii) cancellation of any debt owed by the Company to the holder, or (iii)
cancellation of Warrants, valued at fair market value of the underlying
securities as determined in good faith by the board of directors of the Company
with due reference to then current market prices. If the holder surrenders a
combination of cash or cancellation of any debt owed by the Company to the
holder or Warrants, the holder will specify the respective number of shares of
Preferred Stock to be purchased with each form of consideration, and the
foregoing provisions will be applied to each form of consideration with the same
effect as if the Warrant were being separately exercised with respect to each
form of consideration; provided, however, that the holder may designate that any
cash to be remitted to the holder in payment of debt be applied, together with
other monies, to the exercise of the portion of the Warrant being exercised for
cash. The Company agrees that, upon exercise of this Warrant in accordance with
the terms hereof, the shares so purchased shall be deemed to be issued to such
holder as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been exercised. Upon such exercise, the
holder of this Warrant shall be entitled to receive a certificate for the number
of shares so purchased and, if this Warrant is exercised in part, a new Warrant
for the unexercised portion of this Warrant.
Certificates for shares purchased hereunder and, on partial exercise of
this Warrant, a new Warrant for the unexercised portion of this Warrant shall
be delivered to the holder hereof as promptly as practicable after the date on
which this Warrant shall have been exercised.
The Company covenants that all shares which may be issued upon the
exercise of rights represented by this Warrant will, upon exercise of the
rights represented by this Warrant and payment of the Exercise Price, be fully
paid and nonassessable and free from all taxes, liens and charges in respect of
the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously or otherwise specified herein).
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which such holder would otherwise
be entitled, such holder shall be entitled, at its option, to receive either
(i) a cash payment equal to the excess of fair market value for such fractional
share above
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<PAGE> 3
the Exercise Price for such fractional share (as mutually determined by the
Company and the holder) or (ii) a whole share if the holder tenders the
Exercise Price for one whole share.
5. Charges, Taxes and Expenses. Issuance of certificates for shares
upon the exercise of this Warrant shall be made without charge to the holder
hereof for any issue or transfer tax or other incidental expense in respect of
the issuance of such certificates, all of which taxes and expenses shall be
paid by the Company, and such certificates shall be issued in the name of the
holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant (with the prior written consent of the Company);
provided, however, that in the event certificates for shares are to be issued
in a name other than the name of the holder of this Warrant, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the holder hereof and the Notice of Exercise attached
hereto as Exhibit A duly completed and executed and stating in whose name and
certificates are to be issued; and provided further, that such assignment shall
be subject to applicable laws and regulations. Upon any transfer involved in the
issuance or delivery of any certificates for shares of the Company's
securities, the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any transfer tax incidental thereto.
6. No Rights as Shareholders. This Warrant does not entitle the holder
hereof to any voting rights, dividend rights or other rights as a shareholder
of the Company prior to the exercise hereof.
7. Exchange and Registry of Warrant. The Company shall maintain a
registry showing the name and address of the registered holder of this Warrant.
This Warrant may be surrendered for exchange, transfer or exercise, in
accordance with its terms, at the office of the Company, and the Company shall
be entitled to rely in all respects, prior to written notice to the contrary,
upon such registry.
8. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor and dated as of such
cancellation, in lieu of this Warrant.
9. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a Saturday or a Sunday or a legal holiday.
10. Adjustments and Termination of Rights. The purchase price per share
and the number of shares purchasable hereunder are subject to adjustment from
time to time as follows:
(a) Merger. If at any time there shall be a merger or
consolidation of the Company with or into another corporation when the Company
is not the surviving corporation, then, as a part of such merger or
consolidation, lawful provision shall be made so that the holder
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<PAGE> 4
of this Warrant shall thereafter be entitled to receive upon exercise of this
Warrant, during the period specified herein and upon payment of the aggregate
Exercise Price then in effect, the number of shares of stock or other securities
or property of the successor corporation resulting from such merger or
consolidation, to which a holder of the stock deliverable upon exercise of this
Warrant would have been entitled in such merger or consolidation if this
Warrant had been exercised immediately before such merger or consolidation. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
holder after the merger or consolidation.
(b) Reclassification, etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise, change
any of the securities as to which purchase rights under this Warrant exist into
the same or a different number of securities of any other class or classes, this
Warrant shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with
respect to the securities which were subject to the purchase rights under this
Warrant immediately prior to such subdivision, combination, reclassification or
other change.
(c) Split, Subdivision or Combination of Shares. If the Company
at any time while this Warrant remains outstanding and unexpired shall split,
subdivide or combine the securities as to which purchase rights under this
Warrant exist, the Exercise Price shall be proportionately decreased in the
case of a split or subdivision or proportionately increased in the case of a
combination.
(d) Adjustment of Number of Shares. Upon each adjustment in the
exercise Price pursuant to 10(c) above, the number of shares purchasable
hereunder shall be adjusted, to the nearest whole share, to the product
obtained by multiplying the number of shares purchasable immediately prior to
such adjustment in the Exercise Price by a fraction (i) the numerator of which
shall be the Exercise Price immediately prior to such adjustment, and (ii) the
denominator of which shall be the Exercise Price immediately after such
adjustment.
11. Notice of Adjustments: Notices. Whenever the Exercise Price or
number of shares purchasable hereunder shall be adjusted pursuant to Section 10
hereof, the Company shall issue a certificate signed by its Chief Executive
Officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Exercise Price and number of shares purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of
such certificate to be mailed (by first class mail, postage prepaid) to the
holder of this Warrant.
12. Miscellaneous.
(a) GOVERNING LAW. THIS WARRANT SHALL BE BINDING UPON ANY
SUCCESSORS OR ASSIGNS OF THE COMPANY. THIS WARRANT SHALL CONSTITUTE A CONTRACT
UNDER THE LAWS OF DELAWARE AND FOR ALL PURPOSES SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID STATE, WITHOUT GIVING EFFECT
TO THE CONFLICT OF LAWS PRINCIPLES.
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<PAGE> 5
(b) Restrictions. THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
(c) Attorney's Fees. In any litigation, arbitration or court
proceeding between the Company and the holder hereto, the prevailing party
shall be entitled to reasonable attorneys' fees and expenses incurred in
enforcing this Warrant.
(d) Amendments. This Warrant may be amended and the observance
of any term of this Warrant may be waived only with the written consent of the
Company and the then holders of Warrants exercisable for a majority of the
shares of the Company's Preferred Stock (or other securities or property, as
the case may be) then issuable upon exercise of all outstanding unexercised
Warrants.
(e) Notice. Any notice required or permitted hereunder shall be
deemed effectively given upon personal delivery to the party to be notified or
upon deposit with the United States Post Office, by certified mail, postage
prepaid and addressed to the party to be notified at the address indicated
below for such party, or at such other address as such other party may
designate by ten-day advance written notice.
IN WITNESS WHEREOF, First Virtual Holdings Incorporated has caused this
Warrant to be executed by its officer thereunto duly authorized.
Dated: April 22, 1996
FIRST VIRTUAL HOLDINGS INCORPORATED
By: /s/ Lee H. Stein
---------------------------------------
Title: Chairman and Chief Executive Officer
------------------------------------
WARRANT HOLDER:
First USA Merchant Services, Inc.
1601 Elm Street, 47th Floor
Dallas, TX 75201
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<PAGE> 6
EXHIBIT A
NOTICE OF EXERCISE
To: First Virtual Holdings Incorporated
1. The undersigned hereby elects to purchase ________ shares of
Series A Preferred Stock ("Stock") of First Virtual Holdings Incorporated (the
"Company") pursuant to the terms of the attached Warrant, and tenders herewith
payment of the purchase price and any transfer taxes payable pursuant to the
terms of the Warrant, together with an Investment Representation Statement in
the form attached as Exhibit C to the Warrant.
2. The undersigned understands the instruments evidencing the Stock may
bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT."
(b) Any legend required by applicable state law.
3. Please issue a certificate or certificates representing said shares
of Stock in the name of the undersigned:
----------------------------
[Name]
4. Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned:
----------------------------
[Name]
- ----------------------
[Date] [Signature]
EXHIBIT A-1
<PAGE> 7
EXHIBIT B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_________________________________________
(Please Print)
whose address is_________________________
(Please Print)
_________________________________________
Dated:___________________________, 19__
Holder's Signature:___________________
Holder's Address:_____________________
______________________________________
Signature Guaranteed:____________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
EXHIBIT B-1
<PAGE> 8
EXHIBIT C
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: First USA Merchant Services, Inc.
COMPANY: First Virtual Holdings Incorporated
SECURITIES: ____________ shares of Series A Preferred Stock
DATE: _______________, 1996
In connection with the purchase of the above-listed Securities, the
undersigned, the Purchaser, represents to the Company the following:
(a) The above-listed Securities are being sold by the Company in
reliance upon the Purchaser's representations and covenants made in this in
this Investment Representation Statement. The Purchaser represents that the
Securities to be received will be acquired for investment for its own account,
not as a nominee or agent, and not with a view to the sale or "distribution" of
any part thereof within the meaning of the Securities Act of 1933, as amended
(the "Securities Act").
(b) The Purchaser understands and acknowledges that the sale of the
Securities will not, and any issuance of Common Stock on conversion thereof may
not, be registered under the Securities Act on the ground that the sale
provided for in this Agreement and the issuance of securities hereunder is
exempt pursuant to section 4(2) of the Securities Act, and that the Company's
reliance on such exemption is predicated on the Purchaser's representations set
forth herein.
(c) The Purchaser is an "accredited investor" within the meaning of
Regulation D under the Securities Act.
(d) Without limiting the effect of any representation or warranty
made by the Company in that certain Series B Stock Purchase Agreement dated
December ___, 1995 (the "Purchase Agreement") by and between the Company and
the Purchaser as of the date of such Purchase Agreement, the Purchaser
represents that it is able to fend for itself in transactions such as the one
contemplated by this Warrant, has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
its prospective investment in the Company, and has the ability to bear the
economic risks of the investment.
(e) The Purchaser acknowledges and understands that the Securities,
and any Common Stock acquired upon the conversion thereof, must be held
indefinitely unless they are subsequently registered under the Securities Act
or an exemption from such registration is
EXHIBIT C-1
<PAGE> 9
available, and that, except as otherwise provided in the Shareholder Rights
Agreement dated December __, 1995 among the Company and certain shareholders
thereof, the Company is under no obligation to register either the Shares or
Common Stock.
(f) The Purchaser acknowledges that it is familiar with Rule 144
promulgated under the Securities Act.
(g) The Purchaser acknowledges that in the event the applicable
requirements of Rule 144 are not met, registration under the Securities Act or
compliance with another exemption from registration will be required for any
disposition of its stock.
(h) The Purchaser covenants that, in the absence of an effective
registration statement covering the stock in question, it will sell, transfer,
or otherwise dispose of the Securities and any Common Stock issued on
conversion thereof only in a transaction registered under the Securities Act
or exempt from the registration provisions thereof. In connection therewith,
the Purchaser acknowledges that the Company shall make a notation on its stock
books regarding the restrictions on transfer set forth in this Investment
Representation Statement and shall transfer shares on the books of the Company
only to the extent not inconsistent therewith.
(i) Without limiting the effect of any representation or warranty
made by the Company in the Purchase Agreement, the Purchaser represents that, it
has received and reviewed this Warrant, the Purchase Agreement and all
exhibits thereto, and the Company's draft Business Plan and all exhibits
thereto; that, to its knowledge and without special inquiry of any sort, it,
its attorney and its accountant have had access to, and an opportunity to
review all documents and other materials requested of, the Company; it and they
have been given an opportunity to ask any and all questions of, and receive
answers from, the Company concerning the terms and conditions of the offering
and to obtain all information it or they believe necessary or appropriate to
verify the accuracy of the Business Plan and to evaluate the suitability of an
investment in the Securities.
(j) The undersigned agrees that, if requested by the Company and
an underwriter of Common Stock (or other securities) of the Company in
connection with the Company's initial public offering to the public of shares
of its Common Stock pursuant to a firm commitment registered underwriting in
which aggregate gross proceeds received by the Company exceed $10,000,000, not
to sell or otherwise transfer or dispose of any of the Securities (or other
securities) of the Company held by the undersigned during a period of time
determined by the Company and its underwriters (not to exceed 180 days)
following the effective date of the registration statement of the Company filed
under the Securities Act relating to such initial public offering, provided
that all officers and directors of the Company who then hold Common Stock (or
other securities) of the Company and all other shareholders of the Company
enter into similar agreements, and provided further that, in no event, shall
the undersigned be prohibited from transferring or selling Common Stock or
other securities of the Company to an affiliate of the undersigned. Such
agreement shall be in writing in a form reasonably satisfactory to the Company
and such underwriter. The Company may impose stop-transfer instructions with
respect to the Securities (or other securities) subject to the foregoing
restriction until the end of said period. The Company agrees that any release
of shares subject to the foregoing lock-up agreement shall
EXHIBIT C-2
<PAGE> 10
be made on a pro rata basis among all shareholders based upon their percentage
ownership of the outstanding shares of Common Stock of the Company.
Signature of Purchaser:
By: ____________________________________
Title: _________________________________
EXHIBIT C-3
<PAGE> 1
EXHIBIT 10.19
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR
AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
WARRANT
To Purchase Shares of Series B Preferred Stock of
First Virtual Holdings Incorporated
THIS CERTIFIES that, for value received First USA Merchant Services,
Inc. ("First USA"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, to purchase from First Virtual Holdings Incorporated, a
Wyoming corporation (the "Company"), that number of fully paid and
nonassessable shares of the Company's Series B Preferred Stock at the purchase
price per share as set forth in Section 1 below ("Exercise Price"). The number
of shares and Exercise Price are subject to adjustment as provided in Section
10 hereof.
1. Number of Shares; Exercise Price; Term.
(a) Subject to adjustments as provided herein, this Warrant is
exercisable for 475,734 shares (the "Shares") of the Company's Series B
Preferred Stock at a purchase price of $.01 per share; provided that from and
after the time of a firm commitment underwritten public offering of the
Company's Common Stock (the "Common Stock") 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 to the public
at an offering price to the public of at least $7.50 per share (as adjusted for
stock splits, stock dividends, reclassifications, and like events) and in which
the aggregate gross proceeds received by the Company (net of underwriting
discounts) equal or exceed $10,000,000 (a "Qualified Offering"), the Warrant
will be exercisable for the number of shares of Common Stock or other
securities into which the Shares would have been converted upon the occurrence
of such event under the Restated Articles as in effect on the date hereof, with
the exercise price per share being appropriately adjusted.
(b) Subject to the terms and conditions set forth herein,
including but not limited to Section 1(c) hereof, this Warrant shall be
exercisable during the term commencing on the date of this Warrant and ending
at 5:00 p.m., Dallas time on March 4, 2001.
(c) In connection with the closing of any sale by the Company
of no less than 50,000 shares of its capital stock (as adjusted for stock
splits, stock dividends and similar events) (a "Subsequent Offering"), the
number of Shares for which this Warrant is exercisable shall be reduced by 25%
of the number of shares sold in the Subsequent Offering ten (10) days after the
Company provides First USA with notice of the closing of such Subsequent
Offering. This
1
<PAGE> 2
Section 1(c) shall terminate and be without further force or effect immediately
subsequent to the closing of a Qualified Offering.
(d) The Company shall provide notice to the holder of this
Warrant of any firm commitment underwritten public offering of the Common Stock
no less than ten (10) days prior to the closing of such offering.
2. Title to Warrant. This Warrant and all rights hereunder are
transferable, in whole or in part, but only with the prior written consent of
the Company, which shall not be unreasonably withheld or delayed, provided that
the prior consent of the Company shall not be required for any transfer to
affiliates of First USA. Transfers shall occur at the office or agency of the
Company by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.
3. Exercise of Warrant. The purchase rights represented by this
Warrant are exercisable by the registered holder hereof, in whole or in part,
at any time, or from time to time, during the term hereof as described in
Section 1 above, by the surrender of this Warrant and the Notice of Exercise
annexed hereto duly completed and executed on behalf of the holder hereof, at
the office of the Company in San Diego, California (or such other office or
agency of the Company as it may designate by notice in writing to the
registered holder hereof at the address of such holder appearing on the books
of the Company), and subject to Section 4 hereof, upon payment of the purchase
price of the shares thereby purchased by (i) company or certified or official
bank check, (ii) cancellation of any debt owed by the Company to the holder,
or (iii) cancellation of Warrants, valued at fair market value of the
underlying securities as determined in good faith by the board of directors of
the Company with due reference to then current market prices. If the holder
surrenders a combination of cash or cancellation of any debt owed by the
Company to the holder or Warrants, the holder will specify the respective
number of shares of Preferred Stock to be purchased with each form of
consideration, and the foregoing provisions will be applied to each form of
consideration with the same effect as if the Warrant were being separately
exercised with respect to each form of consideration; provided, however, that
the holder may designate that any cash to be remitted to the holder in payment
of debt be applied, together with other monies, to the exercise of the portion
of the Warrant being exercised for cash. The holder of this Warrant shall be
entitled to receive a certificate for the number of shares so purchased and, if
this Warrant is exercised in part, a new Warrant for the unexercised portion of
this Warrant. The Company agrees that, upon exercise of this Warrant in
accordance with the terms hereof, the shares so purchased shall be deemed to be
issued to such holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been exercised.
Certificates for shares purchased hereunder and, on partial exercise of
this Warrant, a new Warrant for the unexercised portion of this Warrant shall
be delivered to the holder hereof as promptly as practicable after the date on
which this Warrant shall have been exercised.
The Company covenants that all shares which may be issued upon the
exercise of rights represented by this Warrant will, upon exercise of the
rights represented by this Warrant and payment of the Exercise Price, be fully
paid and nonassessable and free from all taxes, liens and
2
<PAGE> 3
charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously or otherwise specified herein).
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which such holder would otherwise
be entitled, such holder shall be entitled, at its option, to receive either
(i) a cash payment equal to the excess of fair market value for such fractional
share above the Exercise Price for such fractional share (as mutually
determined by the Company and the holder) or (ii) a whole share if the holder
tenders the Exercise Price for one whole share.
5. Charges, Taxes and Expenses. Issuance of certificates for shares
upon the exercise of this Warrant shall be made without charge to the holder
hereof for any issue or transfer tax or other incidental expense in respect of
the issuance of such certificates, all of which taxes and expenses shall be
paid by the Company, and such certificates shall be issued in the name of the
holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant (with the prior written consent of the Company);
provided, however, that in the event certificates for shares are to be issued
in a name other than the name of the holder of this Warrant, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the holder hereof and the Notice of Exercise attached
hereto as Exhibit A duly completed and executed and stating in whose name and
certificates are to be issued; and provided further, that such assignment shall
be subject to applicable laws and regulations. Upon any transfer involved in
the issuance or delivery of any certificates for shares of the Company's
securities, the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any transfer tax incidental thereto.
6. No Rights as Shareholders. This Warrant does not entitle the holder
hereof to any voting rights, dividend rights or other rights as a shareholder
of the Company prior to the exercise hereof.
7. Exchange and Registry of Warrant. The Company shall maintain a
registry showing the name and address of the registered holder of this Warrant.
This Warrant may be surrendered for exchange, transfer or exercise, in
accordance with its terms, at the office of the Company, and the Company shall
be entitled to rely in all respects, prior to written notice to the contrary,
upon such registry.
8. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation,
in lieu of this Warrant.
9. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a
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<PAGE> 4
Sunday or shall be a legal holiday, then such action may be taken or such right
may be exercised on the next succeeding day not a Saturday or a Sunday or a
legal holiday.
10. Adjustments and Termination of Rights. The purchase price per share
and the number of shares purchasable hereunder are subject to adjustment from
time to time as follows:
(a) Merger. If at any time there shall be a merger or
consolidation of the Company with or into another corporation when the Company
is not the surviving corporation, then, as a part of such merger or
consolidation, lawful provision shall be made so that the holder of this
Warrant shall thereafter be entitled to receive upon exercise of this Warrant,
during the period specified herein and upon payment of the aggregate Exercise
Price then in effect, the number of shares of stock or other securities or
property of the successor corporation resulting from such merger or
consolidation, to which a holder of the stock deliverable upon exercise of this
Warrant would have been entitled in such merger or consolidation if this
Warrant had been exercised immediately before such merger or consolidation. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
holder after the merger or consolidation.
(b) Reclassification, etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise, change
any of the securities as to which purchase rights under this Warrant exist into
the same or a different number of securities of any other class or classes,
this Warrant shall thereafter represent the right to acquire such number and
kind of securities as would have been issuable as the result of such change
with respect to the securities which were subject to the purchase rights under
this Warrant immediately prior to such subdivision, combination,
reclassification or other change.
(c) Split, Subdivision or Combination of Shares. If the Company
at any time while this Warrant remains outstanding and unexpired shall split,
subdivide or combine the securities as to which purchase rights under this
Warrant exist, the Exercise Price shall be proportionately decreased in the
case of a split or subdivision or proportionately increased in the case of a
combination.
(d) Adjustment of Number of Shares. Upon each adjustment in the
Exercise Price pursuant to 10(c) above, the number of shares purchasable
hereunder shall be adjusted, to the nearest whole share, to the product
obtained by multiplying the number of shares purchasable immediately prior to
such adjustment in the Exercise Price by a fraction (i) the numerator of which
shall be the Exercise Price immediately prior to such adjustment, and (ii) the
denominator of which shall be the Exercise Price immediately after such
adjustment.
11. Notice of Adjustments: Notices. Whenever the Exercise Price or
number of shares purchasable hereunder shall be adjusted pursuant to Section 10
hereof, the Company shall issue a certificate signed by its Chief Executive
Officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Exercise Price and number of shares purchasable
hereunder after giving effect
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<PAGE> 5
to such adjustment, and shall cause a copy of such certificate to be mailed (by
first class mail, postage prepaid) to the holder of this Warrant.
12. Miscellaneous
(a) GOVERNING LAW. THIS WARRANT SHALL BE BINDING UPON ANY
SUCCESSORS OR ASSIGNS OF THE COMPANY. THIS WARRANT SHALL CONSTITUTE A CONTRACT
UNDER THE LAWS OF DELAWARE AND FOR ALL PURPOSES SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID STATE, WITHOUT GIVING EFFECT
TO THE CONFLICT OF LAWS PRINCIPLES.
(b) Restrictions. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
(c) Attorney's Fees. In any litigation, arbitration or court
proceeding between the Company and the holder relating hereto, the prevailing
party shall be entitled to reasonable attorneys' fees and expenses incurred in
enforcing this Warrant.
(d) Amendments. This Warrant may be amended and the observance of
any term of this Warrant may be waived only with the written consent of the
Company and the then holders of Warrants exercisable for a majority of the
shares of the Company's Preferred Stock (or other securities or property, as the
case may be) then issuable upon exercise of all outstanding unexercised
Warrants.
(e) Notice. Any notice required or permitted hereunder shall be
deemed effectively given upon personal delivery to the party to be notified or
upon deposit with the United States Post Office, by certified mail, postage
prepaid and addressed to the party to be notified at the address indicated
below for such party, or at such other address as such other party may
designate by ten-day advance written notice.
IN WITNESS WHEREOF, First Virtual Holdings Incorporated has caused this
Warrant to be executed by its officer thereunto duly authorized.
Dated: April 22, 1995
FIRST VIRTUAL HOLDINGS INCORPORATED
By: /s/ Lee H. Stein
---------------------------------------
Title: Chairman and Chief Executive Officer
------------------------------------
5
<PAGE> 6
WARRANT HOLDER:
First USA Merchant Services, Inc.
1601 Elm Street, 47th Floor
Dallas, TX 75201
6
<PAGE> 7
EXHIBIT A
NOTICE OF EXERCISE
To: First Virtual Holdings Incorporated
1. The undersigned hereby elects to purchase ___________________
shares of Series B Preferred Stock ("Stock") of First Virtual Holdings
Incorporated (the "Company") pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price and any transfer taxes payable
pursuant to the terms of the Warrant, together with an Investment
Representation Statement in the form attached as Exhibit C to the Warrant.
2. The undersigned understands the instruments evidencing the
Stock may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT."
(b) Any legend required by applicable state law.
3. Please issue a certificate or certificates representing said
shares of Stock in the name of the undersigned:
----------------------------------
[Name]
4. Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned:
----------------------------------
[Name]
- ---------------------------------- ----------------------------------
[Date] [Signature]
EXHIBIT A-1
<PAGE> 8
EXHIBIT B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
- -------------------------------------------------
(Please Print)
whose address is
---------------------------------
(Please Print)
- -------------------------------------------------
Dated: , 19
--------------------------------- ------
Holder's Signature:
-----------------------
Holder's Address:
-------------------------
------------------------------------------
Signature Guaranteed:
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
EXHIBIT B-1
<PAGE> 9
EXHIBIT C
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : First USA Merchant Services, Inc.
COMPANY : First Virtual Holdings Incorporated
SECURITIES : _____________ shares of Series B Preferred Stock
DATE : ____________________, 199__
In connection with the purchase of the above-listed Securities, the
undersigned, the Purchaser, represents to the Company the following:
(a) The above-listed Securities are being sold by the Company in
reliance upon the Purchaser's representations and covenants made in this in
this Investment Representation Statement. The Purchaser represents that the
Securities to be received will be acquired for investment for its own account,
not as a nominee or agent, and not with a view to the sale or "distribution" of
any part thereof within the meaning of the Securities Act of 1933, as amended
(the "Securities Act").
(b) The Purchaser understands and acknowledges that the sale of the
Securities will not, and any issuance of Common Stock on conversion thereof may
not, be registered under the Securities Act on the ground that the sale
provided for in this Agreement and the issuance of securities hereunder is
exempt pursuant to section 4(2) of the Securities Act, and that the Company's
reliance on such exemption is predicated on the Purchaser's representations set
forth herein.
(c) The Purchaser is an "accredited investor" within the meaning of
Regulation D under the Securities Act.
(d) Without limiting the effect of any representation or warranty made
by the Company in that certain Series B Preferred Stock Purchase Agreement
dated December 22, 1995 (the "Purchase Agreement") by and between the Company
and the Purchaser as of the date of such Purchase Agreement, the Purchaser
represents that it is able to fend for itself in transactions such as the one
contemplated by this Warrant, has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
its prospective investment in the Company, and has the ability to bear the
economic risks of the investment.
(e) The Purchaser acknowledges and understands that the Securities,
and any Common Stock acquired upon the conversion thereof, must be held
indefinitely unless they are subsequently registered under the Securities Act
or an exemption from such registration is
EXHIBIT C-1
<PAGE> 10
available, and that, except as otherwise provided in the Shareholder Rights
Agreement dated December 22, 1995 among the Company and certain shareholders
thereof, the Company is under no obligation to register either the Shares or
Common Stock.
(f) The Purchaser acknowledges that it is familiar with
Rule 144 promulgated under the Securities Act.
(g) The Purchaser acknowledges that in the event the
applicable requirements of Rule 144 are not met, registration under the
Securities Act or compliance with another exemption from registration will be
required for any disposition of its stock.
(h) The Purchaser covenants that, in the absence of an
effective registration statement covering the stock in question, it will sell,
transfer, or otherwise dispose of the Securities and any Common Stock issued on
conversion thereof only in a transaction registered under the Securities Act or
exempt from the registration provisions thereof. In connection therewith, the
Purchaser acknowledges that the Company shall make a notation on its stock
books regarding the restrictions on transfer set forth in this Investment
Representation Statement and shall transfer shares on the books of the Company
only to the extent not inconsistent therewith.
(i) Without limiting the effect of any representation or
warranty made by the Company in the Purchase Agreement, the Purchaser
represents that, it has received and reviewed this Warrant, the Purchase
Agreement and all exhibits thereto, and the Company's draft Business Plan and
all exhibits thereto; that, to its knowledge and without special inquiry of any
sort, it, its attorney and its accountant have had access to, and an
opportunity to review all documents and other materials requested of, the
Company; it and they have been given an opportunity to ask any and all
questions of, and receive answers from, the Company concerning the terms and
conditions of the offering and to obtain all information it or they believe
necessary or appropriate to verify the accuracy of the Business Plan and to
evaluate the suitability of an investment in the Securities.
(j) The undersigned agrees that, if requested by the
Company and an underwriter of Common Stock (or other securities) of the Company
in connection with the Company's initial public offering to the public of
shares of its Common Stock pursuant to a firm commitment registered
underwriting in which aggregate gross proceeds received by the Company exceed
$10,000,000, not to sell or otherwise transfer or dispose of any of the
Securities (or other securities) of the Company held by the undersigned during
a period of time determined by the Company and its underwriters (not to exceed
180 days) following the effective date of the registration statement of the
Company filed under the Securities Act relating to such initial public
offering, provided that all officers and directors of the Company who then hold
Common Stock (or other securities) of the Company and all other shareholders of
the Company enter into similar agreements, and provided further that, in no
event, shall the undersigned be prohibited from transferring or selling Common
Stock or other securities of the Company to an affiliate of the undersigned.
Such agreement shall be in writing in a form reasonably satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the Securities (or other securities) subject to the foregoing
restriction until the end of said period. The Company agrees that any release
of shares subject to the foregoing lock-up agreement shall
EXHIBIT C-2
<PAGE> 11
be made on a pro rata basis among all shareholders based upon their percentage
ownership of the outstanding shares of Common Stock of the Company.
Signature of Purchaser:
By: ___________________________________
Title: ________________________________
EXHIBIT C-3
<PAGE> 1
EXHIBIT 10.20
OFFICE LEASE
FOR THE
CARMEL VALLEY CENTRE
by and between
Landlord: Carmel Valley Partners I
and
Tenant: First Virtual Holdings. Inc., a Wyoming corporation
Date: February 1, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
LEASE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
BASIC LEASE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 3
1.1. Additional Rent . . . . . . . . . . . . . . . . . . . . . . 3
1.2. Building; Office Building . . . . . . . . . . . . . . . . . 3
1.3. Commencement Date . . . . . . . . . . . . . . . . . . . . . 3
1.4. Common Areas . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5. Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6. Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . 3
1.8. Monthly Rent . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9. Operating Expenses . . . . . . . . . . . . . . . . . . . . . 4
1.10. Premises . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.11. Prime Rate . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.12. Property Taxes . . . . . . . . . . . . . . . . . . . . . . . 5
1.13. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.14. Rent Adjustment . . . . . . . . . . . . . . . . . . . . . . 6
1.15. Rentable Area . . . . . . . . . . . . . . . . . . . . . . . 6
1.16. Rules and Regulations . . . . . . . . . . . . . . . . . . . 6
1.17. Supplemental Provisions . . . . . . . . . . . . . . . . . . 6
1.18. Target Commencement Date . . . . . . . . . . . . . . . . . . 6
1.19. Tenant Improvements . . . . . . . . . . . . . . . . . . . . 6
1.20. Tenant Improvements Agreement . . . . . . . . . . . . . . . 6
1.21. Usable Area . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 2 - LEASE OF PREMISES AND TERM OF LEASE . . . . . . . . . . . 6
2.1. Lease of Premises . . . . . . . . . . . . . . . . . . . . . 6
2.2. Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3. Delay in Commencement . . . . . . . . . . . . . . . . . . . 6
2.4. Early Occupancy . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 3 - RENT . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1. Monthly Rent . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1.1. Payment of Monthly Rent . . . . . . . . . . . . . . 7
3.1.2. Rent Adjustments . . . . . . . . . . . . . . . . . 7
3.2. Additional Rent . . . . . . . . . . . . . . . . . . . . . . 7
3.2.1. Tenant's Share of Operating Expenses . . . . . . . 7
3.2.2. Expense Statements . . . . . . . . . . . . . . . . 7
3.2.3. Year-End Adjustments . . . . . . . . . . . . . . . 8
3.2.4. Audit and Adjustment Procedures . . . . . . . . . . 8
3.2.5. Adjustment Upon Termination of Lease . . . . . . . 8
3.2.6. Tenant's Taxes . . . . . . . . . . . . . . . . . . 8
3.3. Interest and Late Charges . . . . . . . . . . . . . . . . . 8
3.4. Security Deposit . . . . . . . . . . . . . . . . . . . . . 8
3.5. Advance Rent . . . . . . . . . . . . . . . . . . . . . . . . 9
3.6. Disputed Sums . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 4 - USE OF PREMISES . . . . . . . . . . . . . . . . . . . . . 9
4.1. Permitted Use . . . . . . . . . . . . . . . . . . . . . . . 9
4.2. Acceptance of Premises . . . . . . . . . . . . . . . . . . . 9
4.3. Conduct of Business . . . . . . . . . . . . . . . . . . . . 9
4.3.1. Nuisances . . . . . . . . . . . . . . . . . . . . . 9
4.3.2. Noxious Activities . . . . . . . . . . . . . . . . 10
4.3.3. Compliance with Laws and Recorded Covenants . . . . 10
4.3.4. Increase Insurance . . . . . . . . . . . . . . . . 10
4.4. Rules and Regulations . . . . . . . . . . . . . . . . . . . 10
4.5. Signage Requirements . . . . . . . . . . . . . . . . . . . . 10
4.6. Toxic Materials . . . . . . . . . . . . . . . . . . . . . . 10
4.7. Exterior Balcony Areas . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 5 - SERVICES AND UTILITIES . . . . . . . . . . . . . . . . . 11
5.1. Landlord's Provision of Services . . . . . . . . . . . . . . 11
5.1.1. HVAC Services . . . . . . . . . . . . . . . . . . . 11
5.1.2. Elevator Service . . . . . . . . . . . . . . . . . 12
5.1.3. Cleaning Service . . . . . . . . . . . . . . . . . 12
5.2. Utility Failure . . . . . . . . . . . . . . . . . . . . . . 12
5.3. Changes by Landlord . . . . . . . . . . . . . . . . . . . . 12
5.4. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.5. Tenant's Utilities Services . . . . . . . . . . . . . . . . 12
ARTICLE 6 MAINTENANCE AND REPAIR . . . . . . . . . . . . . . . . 13
6.1. Tenant to Maintain . . . . . . . . . . . . . . . . . . . . . 13
6.2. Landlord's Maintenance . . . . . . . . . . . . . . . . . . . 13
ARTICLE 7 - ALTERATIONS AND IMPROVEMENTS . . . . . . . . . . . . . . 13
7.1. Consent of Landlord to Alterations . . . . . . . . . . . . . 13
7.2. General Contractor and Bonds . . . . . . . . . . . . . . . . 14
7.3. Builder's Insurance . . . . . . . . . . . . . . . . . . . . . 14
7.4. Freedom From Liens . . . . . . . . . . . . . . . . . . . . . 14
7.5. Restoration . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 8 - RIGHTS OF LANDLORD . . . . . . . . . . . . . . . . . . . 15
8.1. Entry and Inspection . . . . . . . . . . . . . . . . . . . . 15
8.1.1. Landlord's Inspection and Maintenance . . . . . . . 15
8.1.2. Emergency Entry . . . . . . . . . . . . . . . . . . 15
8.1.3. Exhibition of Premises . . . . . . . . . . . . . . 15
8.2. Transfer by Landlord . . . . . . . . . . . . . . . . . . . . 16
8.3. Common Areas . . . . . . . . . . . . . . . . . . . . . . . . 16
8.4. Relocation of Premises . . . . . . . . . . . . . . . . . . . 16
8.5. Right of Landlord to Perform . . . . . . . . . . . . . . . . 16
8.6. Rights Reserved . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 9 - INSURANCE AND INDEMNITY . . . . . . . . . . . . . . . . . 17
9.1. Tenant's Insurance . . . . . . . . . . . . . . . . . . . . . 17
9.1.1. Required Insurance . . . . . . . . . . . . . . . . 17
9.1.3. Adjustments to Insurance . . . . . . . . . . . . . 18
9.1.4. Use of Premises . . . . . . . . . . . . . . . . . . 18
9.2. Landlord's Insurance . . . . . . . . . . . . . . . . . . . . 18
9.3. Increase in Premiums . . . . . . . . . . . . . . . . . . . . 18
9.4. Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . 18
9.5. Indemnification of Landlord . . . . . . . . . . . . . . . . 18
9.6. Landlord's Nonliability . . . . . . . . . . . . . . . . . . . 19
ARTICLE 10 - ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . 19
10.1. Lease is Personal . . . . . . . . . . . . . . . . . . . . . . 19
10.2. "Transfer of the Premises" Defined . . . . . . . . . . . . . 19
10.3. No Transfer Without Consent . . . . . . . . . . . . . . . . 20
10.4. When Consent Granted . . . . . . . . . . . . . . . . . . . . 20
10.5. Procedure for Obtaining Consent . . . . . . . . . . . . . . 20
10.6. Effect of Transfer . . . . . . . . . . . . . . . . . . . . . 21
10-7. Recapture of the Premises . . . . . . . . . . . . . . . . . 21
10.8. Liability . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 11 - DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . 22
11.1. Insured Damage . . . . . . . . . . . . . . . . . . . . . . . 22
11.2. Uninsured Casualty . . . . . . . . . . . . . . . . . . . . . 22
11.3. Temporary Reduction of Rent . . . . . . . . . . . . . . . . 23
11.4. Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . 23
11.5. Tenant's Property . . . . . . . . . . . . . . . . . . . . . . 23
11.6. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.7. Landlord's Election . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 12 - CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . 23
12.1. Substantial or Total Taking . . . . . . . . . . . . . . . . . . 23
12.2. Temporary Taking . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 13 - DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . 24
13.1. Events of Default . . . . . . . . . . . . . . . . . . . . . 24
13.1.1. Vacation or Abandonment . . . . . . . . . . . . . . 24
13.1.2. Failure to Pay . . . . . . . . . . . . . . . . . . 24
13.1.3. Failure to Perform . . . . . . . . . . . . . . . . 24
13.1.4. Other Defaults . . . . . . . . . . . . . . . . . . 24
13.2. Landlord's Remedies . . . . . . . . . . . . . . . . . . . . 25
13.2.1. Termination of Possession . . . . . . . . . . . . . 25
13.2.2. Reentry and Removal . . . . . . . . . . . . . . . . 25
13.2.3. Damages . . . . . . . . . . . . . . . . . . . . . . 25
13.2.4. No Termination; Recovery of Rent . . . . . . . . . 26
13.2.5. Reletting the Premises . . . . . . . . . . . . . . 26
13.2.6. No Waiver; Remedies Cumulative . . . . . . . . . . 26
13.2.7. Landlord's Right to Cure Defaults . . . . . . . . . 26
13.3. Legal Costs . . . . . . . . . . . . . . . . . . . . . . . . 27
13.3.1. Legal Proceedings . . . . . . . . . . . . . . . . . 27
13.4. Landlord's Consent . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 14 - ESTOPEL CERTIFICATES . . . . . . . . . . . . . . . . . . 27
14.1. Estoppel Certificates . . .. . . . . . . . . . . . 27
14.1.1. Landlord's Request . . . . . . . . . . . . . . . . 27
14.1.2. Failure to Deliver . . . . . . . . . . . . . . . . 28
14.1.3. Financing . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 15 - SURRENDER OF PREMISES; REMOVAL OF PROPERTY . . . . . . . 28
15.1. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . 28
15.2. Surrender of Premises . . . . . . . . . . . . . . . . . . . 29
15.2.1. Surrender of Lease not Merger . . . . . . . . . . . 29
15.2.2. Condition of Premises . . . . . . . . . . . . . . . 29
15.2.3. Abandoned Property . . . . . . . . . . . . . . . . 29
15.2.4. Improvements to Premises . . . . . . . . . . . . . 29
ARTICLE 16 - TENANT IMPROVEMENT AGREEMENT . . . . . . . . . . . . . . 29
ARTICLE 17 - SUBORDINATION AND QUIET ENJOYMENT . . . . . . . . . . . 30
17.1. Priority of Encumbrances . . . . . . . . . . . . . . . . . . 30
17.2. Attornment . . . . . . . . . . . . . . . . . . . . . . . . . 30
17.3. Signing of Documents . . . . . . . . . . . . . . . . . . . . 30
17.4. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 18 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 30
18.1. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 30
18.2. Headings and Titles . . . . . . . . . . . . . . . . . . . . . 30
18.3. Interpretation . . . . . . . . . . . . . . . . . . . . . . . 30
18.4. Successors and Assigns . . . . . . . . . . . . . . . . . . . 31
18.5. Time is of the Essence . . . . . . . . . . . . . . . . . . . 31
18.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . 31
18.7. Integration . . . . . . . . . . . . . . . . . . . . . . . . . 31
18.8. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 31
18.9. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . 31
18.10. No Light, Air or View Easements . . . . . . . . . . . . . . 31
18.11. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . 31
18.12. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 32
18.13. No Partnership . . . . . . . . . . . . . . . . . . . . . . . 32
18.14. Corporation or Partnership as Tenant . . . . . . . . . . . . 32
18.15. Memorandum of Lease . . . . . . . . . . . . . . . . . . . . . 32
18.16. Joint and Several Liability . . . . . . . . . . . . . . . . 32
18.17. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 32
18.18. Liability . . . . . . . . . . . . . . . . . . . . . . . . . 32
18.19. Guarantee of Lease . . . . . . . . . . . . . . . . . . . . . 32
18.20. No Option or Offer . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
<PAGE> 5
LIST OF EXHIBITS
EXHIBIT "A" - LEGAL DESCRIPTION FOR OFFICE BUILDING
EXHIBIT "B" - PREMISES
EXHIBIT "D" - RENTABLE AREA & USABLE AREA
EXHIBIT "E" - RULES AND REGULATIONS
EXHIBIT "F" - SUPPLEMENTAL PROVISIONS
EXHIBIT "I" - BALCONY DRAWING
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LEASE AGREEMENT
This Lease Agreement (the "Lease") is entered into as of February 1,
1996, by and between Carmel Valley Partners I, a California general partnership
("Landlord"), and First Virtual Holdings, Inc., a Wyoming corporation
("Tenant").
BASIC LEASE PROVISIONS
1. BUILDING NAME AND ADDRESS:
Carmel Valley Centre One
11975 El Camino Real
San Diego, CA 92130
(The parcel of land on which the Building is located is more
particularly described in Exhibit "A", Legal Description, attached
hereto.)
2. PREMISES:
Floor Number(s): Third
Suite Number(s): 304
Rentable Area of the Premises: 2,549 square feet
Usable Area of the Premises: 2,236 square feet
(Exhibit "B")
3. LEASE TERM: 1 year and 5 months, plus any portion of a month at
the commencement of the Lease Term. (Section 2.2)
4. COMMENCEMENT DATE: February 1, 1996
5. MONTHLY RENT: $4,200.00 (1.6477 per rentable square foot)
(Section 3.1 &
Exhibit C)
6. SECURITY DEPOSIT: $ 4,200.00 (Section 3.4)
7. ADVANCE RENT: $ 4,200.00 (Section 3.5)
8. TENANT'S PERCENTAGE SHARE: 4.76%
Based on the Total Rentable Area of the Building: 53,500 rentable
square feet
(Section 3.2.1.)
9. LANDLORD'S EXPENSE STOP: $ N/A per square foot of Rentable
Area of the Premises. (Section 3.2-1.)
10. ADDRESSES FOR NOTICES:
Landlord: Carmel Valley Partners I
11975 El Camino Real, Suite 200
San Diego, CA 92130
Tenant: Premises
(Section 18.8)
11. PARKING SPACES: Tenant is entitled to 4 unassigned parking spaces per
1,000 feet of Usable Area of the Premises. (Exhibit "E")
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12. PERMITTED USE: General office purposes for the business of computer
software services.
(Section 4.1)
13. TENANT'S GUARANTOR: (If none, so state)
None
(Exhibit "H")
14. TENANT IMPROVEMENT ALLOWANCE: None
INITIAL
15. CONTENTS: This Lease consists of Pages 1 through 33;
Sections 1 through 18; Addenda: None; and Exhibits:
"A" - Legal Description
"B" - Premises
"C" - Rent Adjustment
"D" - Rentable Area & Usable Area
"E" - Rules & Regulations INITIAL
"F" - Supplemental Provisions
"G" - Tenant Improvements Agreement
"H" - Guaranty of Lease
"I" - Balcony Drawing INITIAL
16. BROKER: None
(Section 18.11)
17. BALCONY USE: (If none, so state) _________. The balcony which adjoins
the Premises as shown on Exhibit "I" at the northwest portion of
the building.
(Exhibit "I" &
Section 4.7)
The Basic Lease Provisions set forth above are intended only to summarize
matters which are addressed more completely in the General Lease Provisions
which follow. The references in parenthesis to Sections and Exhibits are
intended to indicate the major source for the Basic Lease Provisions, but other
sources not so indicated may also apply. If there is any conflict between any
Basic Lease Provision set forth above and any other provision of the Lease, the
latter shall control.
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GENERAL LEASE PROVISIONS
ARTICLE 1
DEFINITIONS
For purposes of this Lease, amendments hereto and other supplemental
agreements hereto, the following terms shall have the meanings set forth below,
unless expressly stated otherwise.
1.1. Additional Rent. The term "Additional Rent" as used in this
Lease shall mean the sums, if any, required to be paid by Tenant pursuant to
Section 3.2. and all other sums and charges required to be paid by Tenant
under the Lease except for Monthly Rent, regardless of whether such sums are
periodic or one-of-a-kind.
1.2. Building; Office Building. The term "Building" or "Office
Building" shall mean the building in which the Premises is located as described
in Item 1 of the Basic Lease Provisions and additionally shall include all
landscaping, parking facilities and other improvements and appurtenances
situated on the parcel of land underlying the Building.
1.3.
1.4. Common Areas. The term "Common Areas" shall refer to all
areas of the Building which are not now or hereafter occupied or occupyable on
an exclusive basis by tenants as premises, including parking areas, driveways,
delivery passages, sidewalks, ramps, landscaped and planted areas, exterior
balconies, stairways, hallways, interior stairwells, lobbies, elevators,
restrooms, electrical rooms, janitorial rooms, retaining walls, fountains,
statues and all other areas and improvements designated by Landlord for the
common use of Landlord and tenants of the Building and their respective
employees and invitees. The exterior balconies are included in Common Areas
for the purpose of assuring their proper maintenance, repair and use. Only
those tenants whose premises are located immediately adjacent to the exterior
balconies and whose leases specifically authorize exterior balcony use shall
have the right to their use.
1.5 Lease. The term "Lease" shall mean the Basic Lease
Provisions, the General Lease Provisions, all Exhibits to the Lease, and all
Addenda, Riders and Amendments, if any, which may be made to supplement, amend
or modify it.
1.6. Lease Term. As used in this Lease, the term, "Lease Term"
shall mean the entire period during which this Lease is in effect, commencing
with the Commencement Date and continuing for the period of time specified as
the Lease Term in Item 3 of the Basic Lease Provisions plus any extensions,
renewals, or holding over periods of time.
1.7. Legal Holidays. The term "Legal Holidays" shall include only
New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day; provided that Landlord may make additions to the definition of
Legal Holidays.
1.8. Monthly Rent. The term "Monthly Rent" shall mean the Monthly
Rent stated in Item 5 of the Basic Lease Provisions.
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1.9. Operating Expenses. The term "Operating Expenses" shall mean
any and all costs and expenses in connection with the ownership, operation,
maintenance and repair of the Office Building, as determined by generally
accepted accounting principles, and may include, but not be limited to, the
following items:
1.9.1. Wages, salaries, payroll taxes and fringe benefits of
all employees engaged in the operation and maintenance of the Office Building;
1.9.2. The cost of supplies, materials and tools used in the
operation and maintenance of the Office Building;
1.9.3. The cost of gas, electricity, water, sewer usage,
power, heating, lighting, air conditioning and ventilation associated with the
Office Building and all other services furnished by Landlord pursuant to Article
5 of this lease, excepting only those services which are metered or charged
separately to a particular premises or tenant, as described in Section 5.5.;
1.9.4. The cost of replacement of any equipment which is a
part of, or is used in connection with the operation of, the Office Building and
all maintenance and service charges on all such equipment;
1.9.5. The cost of insurance applicable to the Building and to
Landlord's personal property used in connection therewith;
1.9.6. The cost of regular and recurring services connected
with the day-to-day operation, maintenance and repair of the Office Building;
1.9.7. Capital improvement costs for expenditures made to the
Building by Landlord which (a) have the intent or effect of reducing applicable
operating costs, or (b) are required under any governmental law or regulation
not applicable to the Building at the time it was originally constructed. The
portion of such costs to be included each year in Operating Costs shall be that
fraction allocable to the year in question calculated by amortizing the cost
over the reasonable useful life of such improvement, as determined by Landlord,
with interest on the unamortized balance at the higher of (i) two percent (2%)
over the Prime Rate (as defined below) per annum; or (ii) the interest rate as
may have been paid by Landlord for funds borrowed for the purpose of
constructing such improvements, but in no event to exceed the highest rate
permissible by law;
1.9.8. The cost of maintaining and operating all Common Areas
(including parking facilities) operated by Landlord for use by tenants of the
Building;
1.9.9. The cost of all accounting, legal and other
professional fees incurred in connection with the operation of the Office
Building;
1.9.10. A management fee, which may be payable to Landlord or a
management agent employed by Landlord, not to exceed five percent (5%) of the
gross rents from the Office Building;
1.9.11. The cost of insured repairs to the Premises or the
Office Building, up to the amount of the deductible under the applicable policy
of insurance; and
1.9.12. The cost of all Property Taxes (as defined in Section
1.12) and any costs and expenses incurred in contesting the amount or validity
of any Property Taxes by Landlord.
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1.10. Premises. The term "Premises" shall refer to the area
described in Item 2 of the Basic Lease Provisions and delineated on Exhibit "B"
attached hereto.
1.11. Prime Rate. The term "Prime Rate" shall mean the rate
publicly announced from time to time by Bank of America N.T.&S.A.as its
reference rate.
1.12. Property Taxes. The term "Property Taxes" or "Taxes" shall mean
and include all general and special taxes, assessments, bonds, fees of every
kind and nature, duties and levies, charged and levied upon or assessed by any
governmental authority against the Building including the land, any other
improvements situated on the land other than the Building, the various estates
in land and the Building, any Tenants Improvements, fixtures, installations,
additions and equipment, whether owned by Landlord or Tenant; except that it
shall exclude any taxes of the kind covered by Section 3.2.6 of this Lease to
the extent Landlord is reimbursed therefor by any tenant in the Building.
Property Taxes shall also include the reasonable cost to Landlord of contesting
the amount, validity, or the applicability of any Taxes mentioned in this
Section. Further included in the definition of Taxes herein shall be general
and special assessments, license fees, commercial rental tax, levy, penalty or
tax (other than inheritance or estate taxes) imposed by any authority having the
direct or indirect power to tax, as against any legal or equitable interest of
Landlord in the Premises or in the Building or on the act of entering into this
Lease or, as against Landlord's right to rent or other income therefrom, or as
against Landlord's business of leasing the Premises or the Building, any tax,
fee, or charge with respect to the possession, leasing, transfer of interest,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant, of the Premises or any portion thereof or the Building, or any tax
imposed in substitution, partially or totally, for any tax previously included
within the definition of Taxes herein, or any additional tax, the nature of
which may or may not have been previously included within the definition of
Taxes including but not limited to any tax imposed upon a change of ownership of
the Building or a transfer of all or a part of Landlord's interest in the
Premises or otherwise resulting from a reassessment of the Building or the
Premises. Further, if at any time during the term of this Lease the method of
taxation or assessment of real estate or the income therefrom prevailing at the
time of execution hereof shall be, or has been altered so as to cause the whole
or any part of the Taxes now or hereafter levied, assessed or imposed on real
estate to be levied, assessed or imposed upon Landlord, wholly or partially, as
a capital levy, business tax, fee, permit or other charge, or on or measured by
the Rents received therefrom, then such new or altered taxes, regardless of
their nature, which are attributable to the land, the Building or to other
improvements on the land shall be deemed to be included within the term
"Property Taxes" for purposes of this Section, whether in substitution for, or
in addition to any other Property Taxes, save and except that such shall not be
deemed to include any enhancement of said tax attributable to other income of
Landlord. With respect to any general or special assessments, including any
Rent imposed as a result of the formation of a Mello-Roos district or any other
facilities financing district, which may be levied upon or against the Premises,
the Building, or the underlying land, or which may be evidenced by improvement
or other bonds, and may be paid in annual or semi-annual installments, only the
amount of such installment, prorated for any partial year, and statutory
interest shall be included within the computation of Taxes for which Tenant is
responsible hereunder.
1.13. Rent. The term "Rent" shall mean Monthly Rent and Additional
Rent and, therefore, all sums required to be paid by Tenant under the Lease for
whatever purpose and at whatever time.
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1.14.
1.15. Rentable Area. The Term "Rentable Area" as used in this Lease
shall mean the Rentable Area of the Premises calculated in accordance with the
procedures and specifications set forth in Exhibit "D" attached hereto.
1.16. Rules and Regulations. The term "Rules and Regulations" shall
mean the Rules and Regulations set forth in Exhibit "E" as amended from time to
time.
1.17. Supplemental Provisions. The term "Supplemental Provisions,"
attached hereto as Exhibit "F," shall mean any additional provisions which
Tenant and Landlord may agree upon which are not contained in the Basic Lease
Provisions, General Lease Provisions, or any other Exhibit to the Lease.
1.18.
1.19. Tenant Improvements. The term "Tenant Improvements" refers to
all improvements to the Premises
1.20.
1.21. Usable Area. The term "Usable Area" shall mean the usable
area of the Premises calculated in accordance with the procedures and
specifications set forth in Exhibit "D" attached hereto.
ARTICLE 2
LEASE OF PREMISES AND TERM OF LEASE
2.1. Lease of Premises. Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord those certain Premises described in Item 2
of the Basic Lease Provisions and outlined on the floor plan attached hereto as
Exhibit "B". Tenant hereby accepts this Lease and the Premises upon the
covenants and conditions set forth herein and subject to any encumbrances and
other matters of record and to all applicable zoning, municipal, county, state
and federal laws, ordinances and regulations governing and regulating the use
of the Premises.
2.2. Lease Term. The Lease Term is for the time period stated in
Item 3 of the Basic Lease Provisions; provided that such term shall be
increased by any portion of a month following the Commencement Date if said
Commencement Date is other than the first day of a month. The term of this
Lease shall commence on the Commencement Date.
2.3. Delay in Commencement.
2.3.1 Landlord shall not be liable to Tenant for any loss or
damage incurred by Tenant if Landlord does not deliver possession of the
Premises to Tenant on the Commencement Date. Landlord's non-delivery of the
Premises to Tenant on that date shall not affect this Lease or the obligations
of Tenant under this Lease.
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2.3.2 Landlord and Tenant shall, upon the occurrence of the
Commencement Date, confirm the same in writing promptly by specifying the
Commencement Date in a document which shall be executed by an authorized
representative of the Tenant and Landlord.
2.4. Early Occupancy. If Tenant occupies the Premises prior to the
Commencement Date, Tenant's occupancy of the Premises shall be subject to all of
the provisions of this Lease. Early occupancy of the Premises shall not advance
the date for the expiration of the term of this Lease.
ARTICLE 3
RENT
3.1. Monthly Rent.
3.1.1. Payment of Monthly Rent. Tenant agrees to pay the
Monthly Rent in the amount shown in Item 5 of the Basic Lease Provisions,
subject to adjustment pursuant to Section 3.1.2. below, in equal monthly
installments in advance and without deduction, offset, or prior demand, in
lawful money of the United States at the address of Landlord as shown in Item
10 of the Basic Lease Provisions, or to such other person or at such other
place as Landlord may from time to time designate in writing to Tenant,
commencing on the established Commencement Date and continuing on the first day
of each calendar month of the Lease Term. Monthly Rent for any portion of a
month shall be prorated on a thirty (30) day month basis, based on the number
of days in such a partial month that this Lease is in effect.
3.2. Additional Rent.
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3.2.3.
3.2.4.
3.2.5.
3.2.6. Tenants's Taxes. Tenant shall be responsible for, and
agrees to pay as Additional Rent, prior to delinquency, any and all taxes levied
or assessed upon Tenant's equipment, furniture, trade fixtures, Tenant
Improvements and personal property located within, upon or about the Premises
and on the leasehold interest of Tenant. If any personal property of Tenant
shall be taxed with the Building, then Tenant shall pay Landlord all such taxes,
based upon Landlord's review of the tax assessor worksheets or from such other
information as may be reasonably available to Landlord, which determination
shall be binding on Tenant, within ten (10) business days after delivery to
Tenant of a statement setting forth the amount of such taxes.
3.3. Interest and Late Charges. Tenant hereby acknowledges that the
late payment by Tenant to Landlord of Monthly Rent and/or any other sum due
hereunder will cause Landlord to incur unanticipated costs, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are not
limited to, processing and accounting charges and late charges which may be
imposed on Landlord. Accordingly, if any payment of Monthly Rent and/or any
other sum due hereunder from Tenant is not received by Landlord or Landlord's
designee when due, it shall bear interest at the maximum rate allowed by law
from the due date to the date of payment. In addition, in the event any such
amount is not paid within five (5) days after the date due, Tenant shall pay to
Landlord a late charge equal to ten percent (10%) of the overdue amount. The
parties agree that the amount of such late charge represents a fair and
reasonable estimate of the cost and expenses that would be incurred by Landlord
by reason of late payment by Tenant. Acceptance of such late charge by Landlord
shall in no event constitute a waiver of Tenant's default with respect to such
overdue amount, nor shall such acceptance prevent Landlord from exercising any
of the other rights and remedies granted hereunder or by law.
3.4. Security Deposit. Upon Tenant's execution of this Lease and
delivery to Landlord, Tenant will deposit with Landlord in the form of cash
currency of the United States or cashier's or certified check the sum specified
in Item 6 of the Basic Lease Provisions as security ("Security Deposit") for
the full and faithful performance of Tenant's obligations under this Lease.
Landlord may use, apply, or retain all or any part of the Security Deposit for
payment of any Rent in default,
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or for the payment of any other amount which Landlord may spend or become
obligated to spend by reason of Tenant's default, or to compensate Landlord for
any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of the Security Deposit is so used or applied, Tenant
shall, within five (5) days after written demand therefor, deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to its
original amount, and Tenant's failure to do so shall be a breach of this Lease.
No interest shall be paid on the Security Deposit. Landlord shall not be
required to keep the Security Deposit separate from its general funds, and no
trust relationship is created with respect to the Security Deposit. As a
condition to any assignment of this Lease, Landlord may require an increase in
the Security Deposit. If Tenant shall fully perform every provision of this
Lease, the Security Deposit or any balance thereof shall be returned to Tenant
or, the last assignee of Tenant's interest hereunder, thirty (30) days
following the expiration of the Lease Term and upon Tenant's vacation of the
Premises. In the event of any transfer by Landlord of its interest in the
Premises, Landlord shall have the right to transfer the Security Deposit to the
transferee and thereafter Landlord shall be released by Tenant from all
liability or obligation for the return of the Security Deposit.
3.5. Advance Rent. The amount specified in Item 7 of the Basic Lease
Provisions is paid herewith to Landlord upon execution of this Lease as advance
rent, receipt of which is hereby acknowledged; provided, however, that such
amount shall be held by Landlord as additional security pursuant to Section
3.4. above until it is applied by Landlord to the first Monthly Rent due
hereunder.
3.6. Disputed Sums. Under the terms of this Lease numerous charges are and
way be due from Tenant to Landlord as Monthly Rent and Additional Rent
including, without limitation, Common Area charges, Property Taxes, insurance
reimbursements and advances made by Landlord in respect of Tenant's default at
Landlord's option. In the event that at any time during the lease term there
is a bona fide dispute between the parties as to the amount due for any of such
charges or any other charge claimed by Landlord to be due, the amount demanded
by Landlord shall be paid by Tenant until the resolution of the dispute between
the parties or by litigation. Failure by Tenant to pay the disputed sums until
resolution shall constitute a default under the terms of the Lease.
ARTICLE 4
USE OF PREMISES
4.1. Permitted Use. Tenant shall use and occupy the Premises only
for the purposes described in Item 12 of the Basic Lease Provisions and shall
not use or permit the Premises to be used for any other purpose without the
prior written consent of Landlord, which consent the Tenant agrees may be
withheld by Landlord in its sole and absolute discretion.
4.2. Acceptance of Premises. Tenant acknowledges that neither
Landlord nor any agent of Landlord has made any representation or warranty with
respect to the Premises or the Building or with respect to the suitability or
fitness of either for the conduct of Tenant's business or for any other
purpose. The taking of possession or use of the Premises by Tenant for any
purpose shall conclusively establish that the Premises and the Building were at
such time in satisfactory condition and in conformity with the provisions of
this Lease.
4.3. Conduct of Business.
4.3.1. Nuisances. Tenant shall not do or permit anything to
be done in or about the Premises which will obstruct or interfere with the
rights of other tenants or occupants of the Building or injure or annoy them or
commit or allow to be committed any waste in or upon the
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Premises. Tenant shall not allow the Premises to be used for any improper,
immoral, or unlawful purpose, nor shall Tenant cause, maintain or permit
anything to be done in or about the Premises which would constitute a nuisance.
4.3.2. Noxious Activities. Tenant shall not use, keep or permit to
be used or kept any foul or noxious gas or substance in the Premises, nor shall
any animals or birds be brought in or kept in or about the Premises or the
Building. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or use any
method of heating or air conditioning other than that supplied by Landlord.
4.3.3. Compliance with Laws and Recorded Covenants. Tenant shall, at
its sole cost and expense, promptly comply with all laws, statutes, ordinances
and governmental rules and regulations now in force or which may hereafter be in
force, and with the requirements of any fire insurance underwriters or other
similar body now or hereafter constituted relating to or affecting the
condition, use or occupancy of the Premises. Tenant shall use the Premises and
comply with any recorded covenants, conditions, and restrictions affecting the
Premises and the Building as of the commencement of the Lease or which are
recorded during the Lease Term.
4.3.4. Increase Insurance. 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 existing rate of or affect in any such other way any
fire or other insurance upon the Building, or cause a cancellation of any such
insurance policies. Notwithstanding anything to the contrary, contained herein,
Tenant shall promptly, upon demand, reimburse Landlord for the full amount of
any additional premium charged for such policy due to Tenant's failure to
comply with the provisions of this paragraph, it being understood that such
demand for reimbursement shall not be Landlord's exclusive remedy.
4.4. Rules and Regulations. Tenant and its employees, agents and
visitors shall observe faithfully the Rules and Regulations attached hereto as
Exhibit "E". Tenant agrees to abide by and comply with such Rules and
Regulations and any amendments, modifications, and/or additions thereto as may
hereafter be adopted by Landlord. In the event of any inconsistencies between
the provisions of this Lease and the Rules and Regulations, the provisions of
this Lease shall prevail.
4.5. Signage Requirements. Tenant shall not place, or permit to be
placed or maintained, on any exterior door, wall or window of the Premises any
sign, awning or canopy, or advertising matter or other thing of any kind, and
will not place or maintain any decoration, lettering or advertising matter on
the glass of any window or door, or that can be seen through the glass, of the
Premises, except as specifically approved in writing by the Landlord. Tenant
further agrees to maintain such sign, awning, canopy, decoration, lettering,
advertising matter or thing as may be approved by Landlord, if any, in good
condition and repair at all times. Tenant agrees, at Tenant's sole cost, that
any Tenant sign will be maintained in strict conformance with Landord's sign
criteria.
4.6. Toxic Materials. Tenant, at its sole cost, shall comply with
all laws relating to the storage, use and disposal of hazardous, toxic,
contaminated or radioactive matter, including but not limited to those materials
identified in Sections 66680 through 66685 of Title 22 of the California
Administrative Code, Division 4, Chapter 30 ("Title 22") as the same may be
amended from time to time (collectively, "Toxic Materials"). If Tenant does
store, use or dispose of any Toxic Materials, Tenant shall notify Landlord in
writing at least ten (10) days prior to the first appearance of such materials
on the Premises. Tenant shall be solely responsible for and shall defend,
indemnify, and hold Landlord, its agents and contractors harmless from and
against all
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claims, costs and liabilities, including attorneys' fees and costs arising out
of or in connection with the storage, use and disposal of Toxic Materials. If
the presence of Toxic Materials on the Premises caused or permitted by Tenant
results in contamination or deterioration of water or soil resulting in a level
of contamination greater than the levels established by any governmental agency
having jurisdiction over such contamination, then Tenant shall promptly take any
and all action necessary to clean up such contamination if required by law or as
a condition to the issuance or continuing effectiveness of any governmental
approval which relates to the use of the Premises. At any time prior to the
expiration of the Lease Term, Landlord shall have the right to conduct
appropriate tests of water and soil and to deliver to Tenant the results of such
tests to demonstrate that no contamination in excess of legally permitted levels
has occurred as a result of Tenant's use of the Premises. Tenant shall further
be solely responsible for and shall defend, indemnify and hold Landlord, its
agents and contractors harmless from and against all claim, costs and
liabilities including actual attorney's fees and costs arising out of or in
connection with any removal, cleanup and restoration, work and materials
required hereunder to return the Premises and any other property of whatever
nature to their condition existing prior to the appearance of the Toxic
Materials. Tenant's obligation hereunder shall survive the termination or
expiration of the Lease.
4.7. Exterior Balcony Areas. Tenant shall have the right to the
use of an exterior balcony only as way be indicated in Item 16 of the Basic
Lease Provisions. Tenant shall not place or maintain, nor permit to be placed
or maintained, any fixture, potted plant, awning, canopy, light, equipment,
furniture, sign or decoration or any other object on any exterior balcony areas
of the Building, whether or not such balcony adjoins the Premises and/or is
accessed from the Premises, except as specifically approved in writing by
Landlord. Tenant agrees that if Tenant's lease specifically authorizes use of
an exterior balcony, then Tenant agrees to be responsible for (a) controlling
access to the balcony; (b) assuring that the conduct of its employees, agents,
contractors, licensees, invitees, subtenants and others using such balcony does
not disturb other tenants or the occupants of the Common Areas or the occupants
of neighboring buildings; and (c) reimbursing Landlord for any maintenance or
repair caused by Tenant's misuse.
ARTICLE 5
SERVICES AND UTILITIES
5.1. Landlord's Provision of Services.
5.1.1. HVAC Services. Landlord shall furnish to the
Premises between the hours of 7:00 a.m. and 6:00 p.m., Mondays through Fridays,
except Legal Holidays, such amounts of heating, ventilation, and air
conditioning (HVAC) services via the central plant HVAC system of the Office
Building as may be required for the use and occupation of the Premises, subject
to any governmental requirements or standards relating to, among other things,
energy conservation. During other hours HVAC services ("Extended Services")
shall be made available to Tenant by an "off-hour control panel" system which
enables Tenant to initiate a request for Extended Services. Tenant's request
for Extended Services through such "off-hour control panel" will be billed in
accordance with the prevailing rates as established by Landlord, and Tenant
shall pay landlord for Extended Services within thirty (30) days of
presentation of a bill. Landlord shall have no responsibility or liability for
failure to supply HVAC services when making repairs, alterations or
improvements or when prevented from doing so by strikes or any cause beyond
Landlord's reasonable control. Any use of the Premises not in accordance with
the Final Plans may interfere with the normal operation of such HVAC system and
may require changes or alterations in the HVAC system or ducts through with the
HVAC system
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operates. Any changes or alterations so occasioned, if such changes can be
accommodated by Landlord's HVAC system, shall be made at Tenant's cost and
expense, only with the prior written consent of Landlord, and only in
accordance with drawings and specifications and by a contractor first approved
in writing by Landlord. If installation of partitions, equipment or fixtures
by Tenant necessitates the rebalancing of the HVAC system in the Premises, the
same will be performed by Landlord at Tenant's expense. Tenant acknowledges
that up to one (1) year may be required after Tenant has fully occupied the
Premises in order to adjust and balance the HVAC systems. Any charges to be
paid by Tenant hereunder shall be due within ten (10) days of receipt of an
invoice from Landlord, which invoice may precede Landlord's expenditure for the
benefit of Tenant.
5.1.2. Elevator Service. Landlord shall furnish to the floor
of the Premises elevator service.
5.1.3. Cleaning Service. Landlord shall provide cleaning and
janitorial service for the Premises from time to time on weekdays (Saturdays,
Sundays and Legal Holidays excepted) in accordance with standards in first class
office buildings within a two mile radius of the Building; provided, however,
that Landlord shall have no obligation to provide janitorial, repair or
maintenance services to any area which Tenant may, from time to time, designate
as a restricted area. To the extent that Tenant shall require special or more
frequent cleaning and/or janitorial service Landlord may, upon reasonable
advance notice from Tenant, elect to furnish such service; and Tenant agrees to
pay Landlord, within ten (10) days of being billed therefor, Landlord's charge
for providing such additional service.
5.2. Utility Failure. Landlord shall not be liable for any failure
to furnish any of the services or utilities described in this lease when such
failure is caused by accident, breakage, or repairs, strikes, lockouts, or other
labor troubles, governmental action or inaction, shortages, or other conditions
beyond Landlord's reasonable control. No such failure shall constitute or be
construed as a constructive or other eviction of Tenant. Tenant shall not be
entitled to any damage, on account of any such failure resulting from causes
beyond the reasonable control of Landlord; nor, except as otherwise expressly
provided herein, shall any such failure relieve Tenant of the obligation to pay
the full Rent reserved herein. Landlord shall not be liable under any
circumstances for loss of injury to person or property, however occurring,
through or in connection with, or incidental to, failure to furnish any of the
foregoing.
5.3. Changes by Landlord. Landlord reserves the right, from time
to time, to make reasonable and non-discriminatory modifications to the above
standards for utilities and services.
5.4. Parking. Landlord reserves the right and option to impose
parking charges and restrictions upon Tenant and Tenant's employees and
visitors for any available parking now or hereafter available for the Building.
Tenant shall comply with the parking regulations contained in Exhibit "E"
attached hereto and incorporated herein.
5.5. Tenant's Utilities Services. Tenant shall be solely
responsible for the direct payment of all utilities which are separately metered
or separately charged (electric, natural gas, telephone, cable television and
any other special utility requirements of Tenant) to the Premises or to the
Tenant and shall make such payments to the respective utility companies prior to
delinquency. Such amounts shall not be included as Operating Expenses.
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ARTICLE 6
MAINTENANCE AND REPAIR
6.1. Tenant to Maintain. Tenant shall, at its sole expense, keep
and maintain in first-class appearance and in good order, condition and repair
as determined by Landlord (including replacement of parts and equipment, if
necessary) during the Lease Term the Premises and any and all appurtenances
thereto wherever located, including, but not limited to, the interior surfaces
of the exterior walls, the exterior and interior portions of all doors, door
frames, door checks, other entrances, suite fronts, signs, all plumbing and
sewage facilities within the Premises to the extent that Tenant's use has
caused the blockage thereof (including free flow up to the main sewer lines),
fixtures, walls, floors, ceilings, carpets, drapes, wall coverings, cabinets,
shelves and all other improvements or installations made by or on behalf of
Tenant whether any such work or repair, replacement, renewal or restoration is
foreseen or unforeseen or is ordinary or extraordinary. Tenant shall provide
the Premises, at its own expense, with all pest control, painting, interior
window washing, plumbing and plumbing fixtures. Except for the cleaning and
janitorial services furnished by Landlord pursuant to Subsection 5.1.3, Tenant
shall, at its own expense, keep and maintain the Premises in a clean, sanitary
and safe condition. Tenant shall be responsible for all repairs to the
Building which are made necessary by any misuse or neglect by Tenant or any of
its officers, agents, employees, contractors, licensees, invitees, or
subtenants.
6.2. Landlord's Maintenance. Subject to the provisions of Section
6.1 and Article 11, Landlord shall repair and maintain the Building, the Common
Areas, and the Building systems connecting to and servicing the Premises (but
excluding such systems within the Premises) with heating, ventilating, air
conditioning, plumbing, fire sprinklers, and electrical services. Landlord
shall not be liable for any failure to make any repair or to perform any
maintenance unless such failure shall persist for an unreasonable time after
written notice of the need for such repairs or maintenance is given to Landlord
by Tenant. Except as provided in Article 11, there shall be no abatement of
Rent and no liability of Landlord by reason of any injury to or interference
with Tenant's business arising from the making of any repairs, alterations, or
improvements.
ARTICLE 7
ALTERATIONS AND IMPROVEMENTS
7.1. Consent of Landlord to Alterations. Tenant shall not make any
alterations, additions, installations or improvements (hereinafter collectively
"Alterations") to the Premises without the prior written consent of Landlord.
Any additions to, or alterations of the Premises, except trade fixtures, shall
upon expiration or termination of this Lease become a part of the realty and
belong to Landlord. Except as otherwise provided in this Lease, Tenant shall
have the right to remove its trade fixtures placed upon the Premises provided
that Tenant restores the Premises as indicated below.
7.1.1 Any and all Alterations shall be subject to strict
conformity with the following requirements:
(a) Alterations herein shall be at the sole cost and expense
of Tenant;
(b) Tenant shall not commence any Alterations work to the
Premises without first submitting to Landlord a written request with working
drawings of any such work for Landlord's written consent;
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(c) Landlord may require Tenant to provide demolition,
lien, completion or other bonds in form and amount satisfactory to Landlord;
(d) Tenant shall promptly remove any Alterations
constructed in violation of this Section 7.1 upon Landlord's written request;
(e) All Alterations will be accomplished in good and
workmanlike manner and in conformity with building standards for Tenant
Improvements and all applicable laws and regulations. Upon completion of any
such work, Tenant shall provide Landlord with "as built" plans. Tenant will
notify Landlord in writing thirty (30) days prior to commencing any Alterations
which have been approved by Landlord so that landlord may record and post
notices of non-responsibility on the Premises; and
(f) All Alterations shall be performed in a manner such
that they do not affect the structural integrity of the Building or interfere
with the quiet enjoyment of other tenants in the Building.
7.2.1 Except as may be specifically provided above, Tenant all
not make any Alterations to the Building or Common Areas.
7.2. General Contractor and Bonds. The work necessary to make any
Alterations to the Premises to which Landlord may consent shall be performed by
employees, contractors or space planners employed by Landlord or, with
Landlord's prior written consent, by licensed space planners and contractors
employed by Tenant and acceptable to Landlord, but in the latter case, only
under written contracts approved in writing by Landlord, and subject to all
conditions Landlord may impose. All bonds required to be obtained by Tenant
pursuant to the terms of this Lease shall be California private work bonds
issued by an admitted corporate surety reasonably acceptable to Landlord and
shall name Landlord as a dual obligee. Any bonds obtained by Tenant shall be
recorded in accordance with California Civil Code Section 3235 et. seq., or any
successor statute or law and a copy thereof shall be submitted to Landlord.
7.3. Builder's Insurance. During the period of any construction
work by Tenant on the Premises, Tenant shall procure, at no expense to
Landlord, builder's "all risk" insurance and worker's compensation insurance
with a company satisfying the requirements set forth in Subsections 9.1.1 and
9.1.2 below. Landlord shall be named as an additional insured under such
insurance policies and the insurance shall be kept in full force and effect
during the entire construction period, and copies of such policies or
certificates of the insurance shall be furnished to Landlord.
7.4. Freedom From Liens. Tenant shall promptly pay to Landlord or
to Tenant's contractors and others employed to perform work, as the case may
be, when due, the cost of all such work, and upon completion, deliver to
Landlord, if payment is made directly to Tenant's contractors and others,
evidence of payment and waivers of all liens for labor, services, or materials.
Tenant shall keep the Premises, and the Building free from any liens arising
out of any work performed, material furnished or obligations incurred by
Tenant, and shall indemnify, defend and hold Landlord; Landlord's general
partners, officers, employees and shareholders; and the Building harmless from
any liens and encumbrances arising out of any work performed or materials
furnished by or at the direction of Tenant. In the event that Tenant shall
not, within twenty (20) days following the imposition of any such lien, cause
such lien to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other remedies provided herein and by
law, the right, but not the obligation, to cause the same to be released by
such means as it shall deem proper, including payment of and/or defense against
the claim giving rise to such lien. All such sums paid by Landlord and all
expenses incurred by it in connection therewith, including attorneys'
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fees and costs, shall be payable as Additional Rent to Landlord by Tenant on
demand bearing interest at the maximum rate allowed by law from the date paid
or incurred by Landlord until reimbursed to Landlord by Tenant.
7.5 Restoration. Tenant shall return the Premises to Landlord at
the expiration or earlier termination of this Lease in good and sanitary order,
condition and repair, free of rubble and debris, broom clean, reasonable wear
and tear excepted. However, Tenant shall ascertain from Landlord at least
thirty (30) days prior to the termination of this Lease, whether Landlord
desires the Premises, or any part thereof, restored to its condition prior to
the making of permitted Alterations, installations and improvements, and if
Landlord shall so desire, then Tenant shall forthwith restore said Premises or
the designated portions thereof as the case may be, to its original condition,
entirely at its own expense, excepting normal wear and tear. All damage to the
Premises caused by the removal of such trade fixtures and other personal
property that Tenant is permitted to remove under the terms of this Lease
and/or such restoration shall be repaired by Tenant at its sole cost and
expense prior to termination.
ARTICLE 8
RIGHTS OF LANDLORD
8.1. Entry and Inspection.
8.1.1. Landlord's Inspection and Maintenance. Tenant shall
permit Landlord and its agents at all reasonable times to enter into and upon
the Premises for the purpose of inspecting the same and to take all required
materials and equipment into the Premises and perform all required work
therein, including the erection of scaffolding, props, or other mechanical
devices, for the purpose of making Alterations or repairs, to the Premises or
the Building or providing any service to be provided by Landlord under this
Lease.
8.1.2. Emergency Entry. Landlord and its agents may enter the
Premises at any time in case of emergency and shall have the right to use any
and all means which Landlord may deem appropriate to open such doors during an
emergency in order to obtain entry to the Premises. Any entry to the Premises
obtained by Landlord in the event of an emergency shall not, under any
circumstances, be construed or deemed to be a forcible or unlawful entry into
the Premises or to be an eviction of Tenant from the Premises. Landlord shall,
at all times, have and retain a key with which to unlock all the doors in,
upon, or about the Premises, excluding Tenant's vaults and safes. No locks or
bolts shall be altered, changed, or added without the prior written consent of
Landlord.
8.1.3. Exhibition of Premises. Tenant shall permit Landlord
and its agents, upon notice, to enter and pass through the Premises or any part
thereof at reasonable times to:
(a) Post notices of nonresponsibility;
(b) exhibit the Premises to holders of any
encumbrances and to prospective purchasers, mortgagees or tenants of the
Building; and
(c) during the period of six (6) months prior to
the expiration of the Lease Term, exhibit the Premises to prospective tenants
thereof.
In addition to the foregoing, Landlord may post customary "For Sale" or "For
Lease" signs on the Building or the Premises. If during the last month of the
Lease Term, Tenant shall have removed substantially all of
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Tenant's property and personnel from the Premises, Landlord may enter the
Premises and repair, alter, and redecorate the same, without abatement of Rent
and without liability to Tenant; and such acts shall have no effect on this
Lease.
8.2. Transfer by Landlord. In the event of a transfer of all of
Landlord's ownership interests in the Building, other than a transfer for
security purposes only, Landlord shall be automatically relieved of any and all
obligations and liabilities of Landlord hereunder accruing from and after the
consummation of such transfer. Tenant's right to quiet possession of the
Premises shall not, however, be disturbed on account of any such transfer, so
long as Tenant pays the Monthly Rent and any other charges due under this
Lease and observes and performs all the provisions of this Lease unless this
Lease is otherwise terminated pursuant to specific Lease provisions relating to
termination.
8.3. Common Areas. Landlord shall have the right, in Landlord's
sole discretion, to make changes at any time and from time to time in the
decoration, size, shape, location, number, form and extent of the Common Areas;
establish and enforce reasonable rules and regulations concerning Common Areas;
to close any of the Common Areas to whatever extent required to prevent a
dedication of any of the Common Areas or the accrual of any rights of any
person or of the public to the Common Areas, and to close temporarily any of
the Common Areas for maintenance purposes. Landlord's costs of operation and
maintenance of the Common Areas designated by Landlord, shall be a part of
Operating Expenses.
8.4. Relocation of Premises. Landlord reserves and is hereby
granted the right, upon not less than sixty (60) days' written notice to Tenant,
to relocate Tenant and to substitute as the Premises hereunder other premises
within the Building for the Premises originally leased hereunder for all uses
and purposes as though originally leased to Tenant at the time of the execution
hereof; provided, however, that the substituted premises shall contain an area
not less than the square footage contained in the originally leased Premises,
all without increase in the Rent hereunder. Landlord agrees to pay the expenses
reasonable incurred by Tenant incidental to such substitution of Premises.
Landlord agrees to furnish the substituted premises with decoration and
improvements similar to those in the originally leased Premises.
8.5. Right of Landlord to Perform. If Tenant shall fail to pay any
sum of money, other than Rent due Landlord, required to be paid by it hereunder
or shall fail to perform any other act on its part to be performed hereunder,
Landlord may, but shall not be obligated to do so, and without waiving or
releasing Tenant from any obligations of Tenant, make any such payment or
perform any such other act on Tenant's part to be made or performed. All sums
so paid by Landlord and all necessary incidental costs, together with an
administrative charge in the amount of fifteen percent (15%) of any costs
incurred by Landlord, and interest thereon at the maximum rate allowed by law
shall be payable to Landlord by Tenant as Additional Rent on demand.
8.6. Rights Reversed. Landlord reserves the following rights,
exercisable without notice and without incurring any liability to Tenant
therefor:
8.6.1. To change the Building's name or street address;
8.6.2. To install, affix, and maintain any and all signs on
the exterior and interior of the Building;
8.6.3. To designate and approve in its sole discretion prior
to installation, all types of window shades, blinds, drapes, awnings, window
ventilators, and other similar equipment, any and all furniture,
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plants or other things proposed to be located on any balcony of the Building,
and all internal lighting that may be visible from the exterior of the
Building; and
8.6.4. To decorate or to make repairs, alterations, additions,
or improvements, whether structural or otherwise, in and about the Building, or
any part thereof, and for such purposes to enter upon the Premises, and during
the continuance of said work to temporarily close doors, entryways, public
spaces, corridors and any other Common Areas in and about the Building, and to
interrupt or temporarily suspend Building services and facilities. Landlord
will use reasonable efforts to minimize any interruption or interference with
Tenant's use or occupancy of the Premises when performing such work.
ARTICLE 9
INSURANCE AND INDEMNITY
9.1. TENANT'S INSURANCE
9.1.1. Required Insurance. Tenant shall maintain in full force
and effect at all times during the Lease Term, at its own expense and naming
Landlord as an additional insured, policies of insurance which afford, at a
minimum, the following coverages:
(a) Comprehensive general liability insurance with not
less than Two Million Dollars ($2,000,000) single limit bodily injury and
property damage liability per occurrence;
(b) Fire and extended coverage form property damage
insurance, including coverage against sprinkler leakage, vandalism and
malicious mischief, in an amount sufficient to cover the full cost of
replacement of all Tenant Improvements and Alterations to the Premises and all
of Tenant's fixtures, equipment and personal property, and any other personal
property used or located in the Premises;
(c) Cross liability endorsements which insure performance by
Tenant of the indemnification of Land-lord as contained in Section 9.5 of this
Lease; and
(d) Workers Compensation insurance as required by law,
including an employer's contingent liability endorsement.
Tenant may, with the prior written consent of Landlord, elect to have reasonable
deductibles for the policies of insurance required to be maintained by Tenant.
If Tenant elects to maintain such deductibles, Tenant shall be liable for paying
the full amount of any deductibles in the event of a loss or casualty.
9.1.2. Certificates of Insurance. All policies of insurance
obtained by Tenant shall be in a form satisfactory to Landlord and shall be
maintained with insurance companies, qualified to do business in the State of
California and holding a "General Policyholder's Rating" of A, and a financial
rating of X, or better, as set forth in the most current issue of "Best's
Insurance Guide." Tenant shall deliver to Landlord at least thirty (30) days
prior to the time such insurance is first required to be carried by the Tenant,
and thereafter at least thirty (30) days prior to the expiration of such
insurance policy, certificates of insurance ("Certificates") evidencing the
above coverage. All Certificates shall expressly provide that Landlord is
named as an additional insured and, at Landlord's request, shall carry a
lender's loss payee endorsement in favor of Landlord's lender or lenders for
the Building and such other endorsements Landlord my require from time to time.
No less than thirty (30) days prior written notice shall be given Landlord in
the event of material alteration to or cancellation of the coverages evidenced
by such Certificates. Such Certificate(s) evidencing the policies of insurance
coverage required
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under Subsection 9.1.1 above shall contain an endorsement providing, in
substance, that such insurance as is afforded hereby for the benefit of
Landlord shall be primary and any insurance carried by Landlord shall be excess
and not contributory. Tenant shall, within ten (10) days prior to the
expiration of such policies, furnish Landlord with renewals or "binders"
thereof, or Landlord may order such insurance and charge the cost thereof to
Tenant as Additional Rent.
9.1.3. Adjustments to Insurance. The minimum comprehensive
general liability insurance limits set forth in Subsection 9.1.1(a) may be
adjusted upward after the expiration of the Initial Lease Term if, in the
opinion of Landlord's lender or the insurance broker retained by Landlord, the
amount of such insurance is inadequate. In no event shall the limits of any
coverage maintained by Tenant pursuant to this Article 9 be considered as
limiting Tenant's liability under this Lease.
9.1.4. Use of Premises. No use shall be made or permitted to
be made on the Premises, nor acts done, which will increase the existing rate
of insurance upon the Building in which the Premises are located or cause the
cancellation of any insurance policy covering the Building, or any part
thereof, nor shall Tenant sell, or permit to be kept, used or sold, in or about
the Premises, any article which my be prohibited by the standard form of
"All-Risk" fire insurance policies. Tenant shall, at its sole cost and
expense, comply with any and all requirements pertaining to the Premises, of
any insurance organization or company, necessary for the maintenance of
reasonable property damage and public liability insurance, covering the
Premises or the Building.
9.2. Landlord's Insurance. Landlord shall maintain a policy of
"All Risk" fire and special form property damage insurance and a policy of
comprehensive public liability insurance, insuring Landlord against liability
arising cut of the ownership, use, occupancy or maintenance of the Premises in
an amount deemed necessary by Landlord. Landlord may also obtain such other
insurance as Landlord deems necessary. The cost of any insurance maintained by
Landlord shall be included in Operating Expenses.
9.3. Increase in Premiums. Tenant agrees to pay to Landlord as
Additional Rent, any increase in premiums on insurance policies which may be
carried by Landlord on the Premises or the Building or any blanket policies
which include the Building, covering damage thereto and loss of Rent and any
other charges due under this Lease, caused by fire and other perils above the
rates for the least hazardous type of occupancy for office use. Tenant further
agrees to pay Landlord, as Additional Rent, any increases in such premiums
resulting from the nature of Tenant's occupancy or any act or omission of
Tenant.
9.4. Waiver of Subrogation. Landlord and Tenant each hereby waive
any and all rights of recovery against the other or against the officers,
employees, agents and representatives of the other, on account of loss or
damage occasioned to such waiving party or its property or the property of
others under its control, to the extent that such loss or damage is insured
against under any policy of insurance required to be carried by such waiving
party pursuant to the provisions of this Lease. The foregoing waiver shall be
effective whether or not a waiving party shall actually obtain and maintain the
insurance which such waiving party is required to obtain and maintain pursuant
to this Lease (or any substitute therefor). Landlord and Tenant shall, upon
the policies of insurance required under this Lease, give notice to the
insurance carrier or carriers that the foregoing mutual waiver of subrogation
is contained in this Lease.
9.5. Indemnification of Landlord. Tenant shall indemnify, defend
and hold Landlord and Landlord's general partners, shareholders, officers and
employees and the Building harmless from and against any and all claims,
actions, damages, liabilities and expenses in connection with loss of life,
personal injury and/or damage to property arising from or out of any occurrence
in, upon or about the Premises,
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or the occupancy or use by Tenant of the Premises or any part thereof, or
occasioned wholly or in part by any act or omission of Tenant, its agents,
contractors, employees, servants, tenants or concessionaires. Tenant shall
further indemnify, defend and hold Landlord; Landlord's general partners,
shareholders, officers and employees; and the Building harmless from and
against any and all claims arising from any breach or default in performance of
any obligation on Tenant's part to be performed under the terms of this Lease,
or arising from any act, neglect, fault or omission of Tenant or its agents,
contractors, employees servants, tenants or concessionaires, and from and
against all attorneys' fees, expenses and liabilities incurred in connection
with such claim or any action or proceeding brought thereon. In case any
action or proceeding shall be brought against Landlord and/or the Building by
reason of any such claim, Tenant, upon notice from Landlord, shall defend the
Landlord and/or the Building at Tenant's expense by legal counsel approved in
writing by Landlord. Tenant, as a material part of the consideration to
Landlord, hereby assumes all risk of damage to property or injury to persons
in, upon or about the Premises from any cause whatsoever except any damage or
injury caused by Landlord's gross negligence or intentional misconduct. Tenant
hereby waives all its claims in respect thereof against Landlord.
9.6. Landlord's Nonliability. Landlord shall not be liable for
injury or damage which my be sustained by the person, goods, wares,
merchandise, or other property of Tenant, of Tenant's employees, invitees,
customers, or of any other person in or about the Premises caused by or
resulting from any peril which may affect the Premises, including fire, steam,
electricity, gas, water, or rain which may leak or flow from or into any part
of the Premises, or from the breakage, leakage, obstruction, or other defects
of the pipes, sprinklers, wires, appliances, plumbing, air conditioning, or
lighting fixtures of the Premises, whether such damage or injury results from
conditions arising upon the Premises or upon other portions of the Building or
from other sources except if such injury or damage is caused by the gross
negligence or intentional misconduct of Landlord. Landlord shall not be liable
for any damages arising from any act or neglect of: (a) any other tenant of the
Building; or (b) any officer, employee, agent, representative, customer,
business visitor, or invitee of any such tenant.
ARTICLE 10
ASSIGNMENT AND SUBLETTING
10.1. Lease is Personal. The purpose of this Lease is to transfer
possession of the Premises to Tenant for Tenant's personal use in return for
certain benefits, including Rent, to be transferred to the Landlord. Tenant's
right to assign or sublet as stated in this Article is subsidiary and
incidental to the underlying purpose of this Lease. Tenant acknowledges and
agrees that it has entered into this Lease in order to occupy the Premises for
its own personal use and not for the purpose of obtaining the right to the
leasehold to others.
10.2. Transfer of the Premises" Defined. The terms "Transfer of the
Premises" or "Transfer" as used herein shall include any assignment of all or
any part this Lease (including assignment by operation of law), subletting of
all or any part the Premises or transfer of possession, or right of possession
or contingent right of possession of all or any portion of the Premises
including without limitation, concession, mortgage, devise, hypothecation,
agency, franchise or management agreement, or to suffer any other person (the
agents and servants of Tenant excepted) to occupy or use the Premises or any
portion thereof. If Tenant is a corporation which is not deemed a public
corporation, or is an unincorporated association or partnership, or Tenant
consists of more than one party, the transfer, assignment or
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hypothecation of any stock or interest in such corporation, association,
partnership or ownership interest, in the aggregate in excess of twenty-five
percent (25%), shall be deemed a Transfer of the Premises.
10.3. No Transfer Without Consent. Tenant shall not suffer a
Transfer of the Premises or any interest therein, or any part thereof, or any
right or privilege appurtenant thereto without the prior written consent of
Landlord, and a consent to one Transfer of the Premises shall not be deemed to
be a consent to any subsequent Transfer of the Premises. Any Transfer of the
Premises without such written consent shall be void, and shall, at the option
of Landlord, terminate this Lease.
10.4 When Consent Granted.
(a) The consent of Landlord to a Transfer may not be
unreasonably withheld, provided should Landlord withhold its consent for any of
the following reasons, which list is not exclusive, such withholding shall be
deemed to be reasonable:
(i) Financial strength of the proposed transferee is not
at least equal to that of Tenant at the time of execution of this Lease;
(ii) A proposed transferee whose occupation of the
Premises would cause a diminution in the reputation of the Building or the
other businesses located therein;
(iii) A proposed transferee whose impact on the Common
Areas or the other occupants of the building would be disadvantageous; or
(iv) A proposed transferee whose occupancy will require
any variation in the terms and conditions of this Lease.
(b) Tenant agrees that its personal business skills and
philosophy were an important inducement to Landlord for entering into this Lease
and that Landlord may reasonably object to the Transfer of the Premises to
another whose proposed use, while permitted by this Lease, would involve a
different quality, manner or type of business skills than that of Tenant.
(c) Notwithstanding the foregoing, Tenant shall have the
right, without the consent of Landlord, but upon prior written notice to
Landlord, to assign this Lease to a company incorporated or to be incorporated
by Tenant provided that Tenant owns or beneficially controls all the issued and
outstanding shares of capital stock of the company.
10.5. Procedure for Obtaining Consent.
(a) Landlord need not commence its review of any proposed
Transfer, or respond to any request by Tenant with respect to such, unless and
until it has received from Tenant adequate descriptive information concerning
the business to be conducted by the proposed transferee, the transferee's
financial capacity, and such other information as may reasonably be required in
order to form a prudent judgment as to the acceptability of the proposed
Transfer, including, without limitation, the following:
(i) The past two years' Federal Income Tax returns of the
proposed transferee (or in the alternative the past two years audited annual
Balance Sheets and Profit and Loss statements, certified correct by a Certified
Public Accountant);
(ii) Banking references of the proposed transferee;
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(iii) Written statements concerning the business background
and experience of the proposed transferee;
(iv) At least five (5) business and three (3) personal
references for the proposed transferee;
(v) An executed copy of the instrument by which Tenant
proposes to effectuate the Transfer.
(b) Tenant shall reimburse Landlord as Additional Rent for
Landlord's reasonable costs and attorney's fees incurred in conjunction with
the processing and documentation of any proposed Transfer of the Premises,
whether or not consent is granted.
10.6. Effect of Transfer. If Landlord consents to a Transfer, the
following conditions shall apply:
(a) Each and every covenant, condition or obligation
imposed upon Tenant by this Lease and each and every right, remedy or benefit
afforded Landlord by this Lease shall not be impaired or diminished as a result
of such Transfer.
(b) On a monthly basis, any sums of money, or other
economic consideration received by Tenant from the Transferee in such month
(whether or not for a period longer than one month), including higher rent,
bonuses, key money, or the like which exceed, in the aggregate, the total sums
which Tenant pays Landlord under this Lease in such month, or the prorated
portion thereof if the Premises transferred is less than the entire Premises,
shall be payable one-hundred percent (100%) to Landlord and paid with Tenant's
payment of Monthly Rent.
(c) No Transfer, whether or not consent of Landlord is
required hereunder, shall relieve Tenant of its primary obligation to pay the
Monthly Rent and other charges required by this Lease and to perform all other
obligations to be performed by Tenant hereunder. The acceptance of Monthly
Rent and other charges by Landlord from any person shall not be deemed to be a
waiver by Landlord of any provision of this Lease or to be a consent to any
Transfer of the Premises.
(d) If Landlord consents to a sublease, such sublease
shall not extend beyond the expiration of the term of this Lease.
(e) No Transfer shall be valid and no transferee shall
take possession of the Premises or any part thereof unless, within ten (10)
days after the execution of the documentary evidence thereof, Tenant shall
deliver to Landlord a duly executed duplicate original of the Transfer
instrument in form satisfactory to Landlord which provides that:
(i) the transferee assumes Tenant's obligations for the
payment Monthly Rent and all other charges required by this Lease and for the
full and faithful observance and performance of the covenants, terms and
conditions contained herein;
(ii) such transferee will, at Landlord's election, attorn
directly to Landlord in the event Tenant's Lease is terminated for any reason
on the terms set forth in the instrument of Transfer; and
(iii) such instrument of Transfer contains such other
assurances as Landlord reasonably deems necessary.
10.7. Recapture of the Premises. If Tenant proposes to Transfer the
Premises or any interest therein, or any part thereof, or any right or
privilege appurtenant thereto, Landlord may, at its option, upon written notice
to Tenant within (30) days after Landlord's receipt of the information
specified in Section 10.5, elect to
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recapture the Premises. Within sixty (60) days after notice of such election
has been given to Tenant, this Lease shall terminate as to the entire or
portion of the Premises recaptured. If only a portion of the Premises is
recaptured, Rent and any other charges due under this Lease shall be
proportionately reduced. If Landlord does not elect to recapture, Tenant may
proceed with the Transfer of the Premises, provided that Landlord consents
thereto pursuant to this Article, and provided that Tenant is not in default
under this Lease.
10.8. Liability. Notwithstanding any assignment, sublease or other
Transfer, Tenant shall remain fully liable under this Lease and shall not be
released from performing any of the terms, covenants and conditions of this
Lease. Consent to one Transfer is not a consent to any subsequent Transfer.
If Tenant's transferee defaults under this Lease, Landlord may proceed directly
against Tenant without pursuing remedies against the transferee. Tenant agrees
to defend, indemnify and hold Landlord and Landlord's general partners,
officers, shareholders and employees harmless with respect to all costs
(including attorneys' fees expended by Landlord in connection with) and
liability for compensation claimed by any broker or agent in connection with
any assignment, subletting or other Transfer of Tenant's interest under this
Lease.
ARTICLE 11
DAMAGE OR DESTRUCTION
11.1. Insured Damage. If the Building and/or Premises are damaged
by fire or other casualty of the type insured against by Landlord, the damage
shall be repaired by and at the expense of Landlord, provided such repairs
can, in Landlord's sole opinion, be made within one hundred twenty (120) days
after the commencement of repairs without the payment of overtime or other
premiums ("120 Day Completion Period") and that the insurance proceeds are
sufficient to pay the costs of such repairs. If said repairs cannot be
completed within said 120 Day Completion Period, Landlord shall have the right
to terminate this Lease by delivering written notice ("Landlord's Notice")
thereof to Tenant within thirty (30) days after the date of the damage or
destruction. If Landlord does not elect to terminate this Lease but the damage
or destruction cannot be completed within the 120 Day Completion Period,
Landlord shall deliver written notice thereof to Tenant within thirty (30) days
of the date of the damage or destruction and if, as a result of such damage the
Premises are rendered unsuitable for the purpose for which the Premises were
leased, as mutually by Landlord and Tenant, then Tenant shall also have the
right to terminate this Lease by delivering written notice of its election to
terminate the Lease within fifteen (15) days of the delivery of Landlord's
Notice. The failure of Tenant to deliver written notice of its election to
terminate this Lease within said fifteen (15) day period shall be deemed to be
Tenant's election not to terminate this Lease. Until such repairs are
completed, the Rent may be reduced pursuant to the provisions of Section 11.3
of this Lease.
11.2. Uninsured Casualty. If there is damage or destruction to the
Premises and/or Building and such repairs will cost more than the available
insurance proceeds, or there are no insurance proceeds, Landlord may, at its
option, terminate this Lease within thirty (30) days of the date of the damage
or destruction. If Landlord does not elect to terminate this Lease but the
restoration of the Building and/or Premises cannot, in Landlord's reasonable
determination, be completed during the 120 Day Completion Period and, as a
result of such damage, the Premises are rendered unsuitable for the purpose for
which the Premises were leased, as mutually determined by Landlord and Tenant,
Landlord shall notify Tenant accordingly and Tenant shall have fifteen (15)
days from the date of delivery of Landlord's notice to elect to terminate the
Lease and deliver notice thereof to landlord. The failure of Tenant to deliver
said notice shall be deemed to be
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Tenant's election to not terminate the Lease and thereafter this Lease shall
continue in effect and the Rent my be reduced pursuant to the provisions of
Section 11.3 below.
11.3. Temporary Reduction of Rent. If the Premises are destroyed or
damaged and Landlord repairs or restores the Premises pursuant to the
provisions of this Article, any Rent payable during the period of such repair
shall be reduced by the amount paid to Landlord under any business interruption
insurance and/or rental interruption insurance. Except for such possible
reduction in payments required from the Tenant, Tenant shall not be entitled to
any compensation, reduction or reimbursement from Landlord as a result of any
damage, destruction, repair or restoration of or to the Premises.
11.4. Insurance Proceeds. All proceeds of any insurance maintained
by Tenant or Landlord upon the Premises (including insurance for the Tenant
Improvements) shall be used to pay for the repairs made, to the extent that
repairs are made pursuant to this Article 11. If pursuant to this Article 11
repairs are not made, the insurance proceeds shall be payable to the parties as
their interests may appear. As to any insurance maintained by Tenant on
Tenant's own personal property, the proceeds of such insurance shall be the
property of Tenant.
11.5. Tenant's Property. Landlord shall not be required to carry
insurance of any kind on Tenant's own property and, except as may otherwise be
specifically provided in this Lease, Landlord shall not be obligated to repair
any damage thereto or to replace the same. If Landlord is obligated to or
elects to make any repairs to the Premises pursuant to Section 11.1, upon
completion of such repairs, Tenant shall restore and repair any damage to the
Tenant's own property. Such restoration and repair by Tenant shall be at the
sole expense of Tenant and shall be completed as promptly as practical in a
lawful and workmanlike manner.
11.6. Waiver. Tenant waives the protection of any statute, code or
judicial decision which grants a tenant the right to terminate a lease in the
event of damage or destruction of the premises, including, but not limited to,
the provisions of Sections 1932(2) and 1933(3) of the Civil Code or any
successor statute or law. Tenant agrees that the provisions of this Article
shall govern the rights and obligations of Landlord and Tenant in the event of
any damage or destruction of the Premises. Further, in event of a casualty
occurring during the last two (2) years of the Initial Lease Term hereof or of
any extension, Landlord need not undertake any repairs and may cancel this
Lease unless Tenant has the right under the terms of this Lease to extend the
Lease Term for an additional period of at least five (5) years and does so
within thirty (30) days of the date of the casualty.
11.7. Landlord's Election. In the event that the Building in which
the Premises is situated is destroyed to the extent of not less than
thirty-three and one-third percent (33-1/3%) of the replacement cost thereof,
Landlord may elect to terminate this Lease, whether the Premises be injured or
not, in the same manner as in Section 11.1 above. A total destruction of the
Building of which the Premises forms a part, or the Premises itself, shall
terminate this Lease.
ARTICLE 12
CONDEMNATION
12.1. Substantial or Total Taking. In case the whole of the
Premises, or such part thereof as shall substantially interfere with Tenant's
use and occupancy thereof, as determined by Landlord and Tenant, shall be taken
by any lawful power or authority by exercise of the right of eminent domain, or
sold to prevent such taking, either Tenant or Landlord may terminate this Lease
effective as of the date
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possession is required to be surrendered to said authority or the date the
condemning authority takes title to the Premises, whichever is earlier, except
as provided herein. In the event the amount of property or the type of estate
taken shall not substantially interfere with Tenant's use of the Premises,
Landlord shall be entitled to the entire amount of the award and shall promptly
proceed to restore the affected premises to as near its former condition as
reasonably possible using that portion of the condemnation award attributable to
such restoration costs, and a proportionate allowance shall be made to Tenant
for the Rent corresponding to the time during which, and to the part of the
Premises of which, Tenant shall be so deprived on account of such taking and
restoration. If the severance damages received by Landlord are not sufficient
to pay for such repair, Landlord shall have the right to either terminate this
Lease or make such repair at Landlord's expenses. Nothing contained in this
Section 12.1 shall be deemed to give Landlord any interest in, or prevent Tenant
from seeking any award against the taking authority for, the taking of personal
property and fixtures belonging to Tenant or for relocation or business
interruption expenses recoverable from the taking authority.
12.2. Temporary Taking. No temporary taking of the Premises and/or
of Tenant's rights therein or under this Lease shall terminate this Lease or
give Tenant any right to any abatement of Rent hereunder.
ARTICLE 13
DEFAULT AND REMEDIES
13.1. Events of Default. The occurrence of any of the following
shall constitute a material event of default ("Event of Default") and breach
of this Lease by Tenant:
13.1.1. Vacation or Abandonment. If Tenant abandons or
vacates the Premises for more than ten (10) consecutive days;
13.1.2. Failure to Pay. If Tenant fails to pay Rent or any
other charge required to be paid by Tenant, as and when due;
13.1.3. Failure to Perform. If Tenant fails to perform
any of Tenant's nonmonetary obligations under this Lease for a period of ten
(10) days after written notice from Landlord; provided that if more than ten
(10) days is required to complete such performance, Tenant shall not be in
default if Tenant commences such performance within the ten (10) day period and
thereafter diligently pursues its completion. However, Landlord shall not be
required to give such written notice if Tenant's failure to perform constitutes
a non-curable breach of this Lease.
13.1.4. Other Defaults.
(a) If Tenant makes a general assignment or
general arrangement for the benefit of creditors;
(b) if a petition for adjudication of bankruptcy
or for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days;
(c) if a trustee or receiver is appointed to take
possession of substantially all of Tenant's assets located at the Premises or
of Tenant's interest in this Lease and possession is not restored to Tenant
within thirty (30) days; or
(d) if substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days.
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If a court of competent jurisdiction determines that any of the acts described
in this Subsection is not a default under this Lease, and a trustee is
appointed to take possession (or if Tenant remains a debtor in possession) and
such trustee or Tenant transfers Tenant's interest hereunder, then Landlord
shall receive, as Additional Rent, the difference between the Rent (or any
other consideration) paid in connection with such assignment or sublease and
the Rent payable by Tenant hereunder.
13.2. Landlord's Remedies. On the occurrence of any Event of Default
by Tenant and at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have, Landlord shall be entitled to the rights and remedies set forth below:
13.2.1. Termination of Possession. Landlord may terminate
Tenant's right to possession of the Premises by any lawful means, in which case
this Lease shall terminate and Tenant shall immediately surrender possession of
the Premises to Landlord.
13.2.2. Reentry and Removal. In such event Landlord shall
have the immediate right, with or without terminating this Lease, to re-enter
and remove all persons and property; and such property may be removed and
stored in a public warehouse or elsewhere at the cost of, and for the account
of Tenant, all without service of notice or resort to legal process and without
being deemed guilty of trespass, or becoming liable for any loss or damage
which may be occasioned thereby.
13.2.3. Damages. In the event that Landlord shall elect to so
terminate this Lease, then Landlord shall be entitled to recover from Tenant
all damages incurred by Landlord by reason of Tenant's default, including:
(a) The worth at the time of award of any unpaid Rent and
any other charges due under this Lease which had been earned at the time of
such termination; plus
(b) The worth at the time of award of the amount by which
the unpaid Rent and any other charges due under this Lease which would have
been earned after termination until the time of award exceeds that portion of
such rental loss which Tenant proves could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by which
the unpaid Rent and any other charges due under this Lease for the balance of
the Lease Term after the time of award exceeds the amount of such rental loss
which Tenant proves could have been reasonably avoided; plus
(d) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligation under this Lease or which in the ordinary course of events would be
likely to result therefrom, including, but not limited to, the cost of
restoring the Premises to the condition required in Article 6 of this Lease;
plus
(e) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time
by applicable law.
As used in Subsections 13.2.3.(a) and (b) above, "worth at the time of award"
shall be computed by applying interest at the maximum rate allowed by law. As
used in Subsection 13.2.3.(c) above, the "worth at the time of award" shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one (1) percentage point.
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13.2.4. No Termination; Recovery of Rent. If Landlord does not
elect to terminate this Lease as provided in this Section, then Landlord may,
from time to time, recover all unpaid Rent and all Rent and any other charges as
they become due under this Lease. At any time thereafter, Landlord may elect to
terminate this Lease and recover damages to which Landlord is entitled.
13.2.5. Reletting the Premises. In the event that Landlord
should elect to reenter as provided in Subsection 13.2.2. above and to relet the
Premises, it may execute any new lease in its own name. Tenant hereunder shall
have no right or authority whatsoever to collect any proceeds from such lease.
The proceeds of any such reletting shall be applied as follows:
(a) First, to the payment of any indebtedness other
than Rent due hereunder from Tenant to Landlord, including but not limited to
storage charges or brokerage commissions owing from Tenant to Landlord as the
result of such reletting;
(b) Second, to the payment of the costs and expenses of
reletting the Premises, including alterations and repairs which Landlord, in its
reasonable discretion, deems necessary and advisable and reasonable attorneys'
fees incurred by Landlord in connection with the retaking of the Premises and
such reletting;
(c) Third, to the payment of Rent and other charges due
and unpaid hereunder; and
(d) Fourth, to the payment of future Rent and other
charges payable by Tenant under this Lease.
Should that portion of such proceeds received from such reletting during any
month, which is applied by the payment of Rent hereunder, be less than the Rent
payable during that month by Tenant hereunder, then Tenant shall pay such
deficiency to Landlord immediately upon demand therefor by Landlord. Such
deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord as soon as ascertained, any costs and expenses incurred by Tenant in
such reletting or in making such alterations and repairs not covered by the
proceeds received from such reletting.
No reentry or taking possession of the Premises or any other action under this
Section shall be construed as an election to terminate this Lease unless a
written notice of such intention be given to Tenant or unless the termination
thereof be decreed by a Court of competent jurisdiction. Notwithstanding any
reletting without termination by Landlord because of any default by Tenant,
Landlord may at any time after such reletting elect to terminate this Lease for
any such default.
13.2.6. No Waiver; Remedies Cumulative. Efforts by Landlord to
mitigate the damages caused by Tenant's default under this Lease shall not
constitute a waiver of Landlord's right to recover damages hereunder, nor shall
Landlord have any obligation to mitigate damages hereunder. All rights, options
and remedies of Landlord contained in this Lease shall be construed and held to
be cumulative, and no one of them shall be exclusive of the other, and Landlord
shall have the right to pursue any one or all of such remedies or any other
remedy or relief which may be provided by law whether or not stated in this
Lease.
13.2.7. Landlord's Right to Cure Defaults. Should Tenant fail
to repair, maintain, and/or service the Premises, or any part or contents
thereof at any time or times, or perform any other obligations imposed by this
Lease or otherwise, then after having given Tenant reasonable notice of the
failure or failures and a reasonable opportunity which in no case shall exceed
ten (10) days, to remedy the failure, Landlord may perform or contract for the
performance of the
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repair, maintenance, or other Tenant obligation, and Tenant shall pay Landlord
for all direct and indirect costs incurred in connection therewith within ten
(10) days of receiving a bill therefor from Landlord.
13.3. Legal Costs.
13.3.1. Legal Proceedings. Tenant shall reimburse Landlord,
upon demand, for any costs or expenses incurred by Landlord in connection with
any breach or default of Tenant under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the court in such action shall award to
the party in whose favor a judgment is entered, a reasonable sum as attorneys'
fees and costs. Such attorneys' fees and costs shall be paid by the losing
party in such action. Tenant shall also indemnify and defend Landlord against
and hold Landlord harmless from all costs, expenses, demands and liability
incurred by Landlord if Landlord becomes or is made a party to any claim or
action (a) instituted by Tenant, or by any third party against Tenant, or by or
against any person holding any interest under or using the Premises by license
of or agrement with Tenant; (b) for foreclosure of any lien for labor or
material furnished to or for Tenant or such other person; (c) otherwise arising
out of or resulting from any act or transaction of Tenant or such other person;
or (d) necessary to protect Landlord's interest under this Lease in a
bankruptcy proceeding, or other proceeding under Title 11 of the United States
Code, as amended. Tenant shall defend Landlord against any such claim or
action at Tenant's expense with counsel reasonably acceptable to Landlord or,
at Landlord's election, Tenant shall reimburse Landlord for any legal fees or
costs incurred by Landlord in any such claim or action.
13.4. Landlord's Consent. Tenant shall pay Landlord's reasonable
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent in connection with any act which Tenant proposes to do and which
requires Landlord's consent.
ARTICLE 14
ESTOPPEL CERTIFICATES
14.1. Estoppel Certificates.
14.1.1. Landlord's Request. Upon Landlord's written request,
Tenant shall execute, acknowledge and deliver to Landlord a written statement
certifying:
(a) that none of the terms or provision of this Lease
have been changed (or if they have been changed, stating how they have been
changed);
(b) that this Lease has not been canceled or terminated
and is in full force and effect;
(c) the amount of the current Monthly Rent;
(d) the last date of payment of the Monthly Rent and
other charges;
(e) the amount of any Security Deposit paid and the
validity of any charges made thereto by Landlord (or, if Tenant contests the
validity of any such changes stating why);
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(f) that the Lease has not been subleased or assigned,
or if it has been so subleased or assigned, the identity of the sublessee or
assignee; and
(g) that Landlord is not in default under this Lease
(or, if Landlord is claimed to be in default, stating why). Tenant shall
deliver such statement to Landlord within ten (10) days after Landlord's
request and receipt of the Estoppel Certificates by Tenant. Any such
statement by Tenant may be given by Landlord to any prospective purchaser or
encumbrancer of the Premises or the Office Building. Such purchaser or
encumbrancer may rely conclusively upon such statement as true and correct.
14.1.2. Failure to Deliver. If Tenant does not deliver such
statement to Landlord within such ten (10) day period, Landlord, and any
prospective purchaser or encumbrancer of the Premises or the Office Building,
may conclusively presume and rely upon the following facts:
(a) that the terms and provisions of this Lease have
not been changed except as otherwise represented by Landlord;
(b) that this Lease has not been canceled or terminated
and is in full force and effect, except as otherwise represented by Landlord;
(c) that the current amounts of the Monthly Rent,
Security Deposit and other changes are as represented by Landlord;
(d) that any changes made against the Security Deposit
are uncontested and valid;
(e) that there have been no subleases or assignments
of the Lease;
(f) that not more than one Monthly Rent payment or
other charges have been paid in advance; and
(g) that Landlord is not in default under the Lease.
In such event, tenant shall be estopped from denying the truth of such facts.
14.1.3. Financing. If Landlord desires to finance or refinance
the Premises, or the building, or any part thereof, Tenant hereby agrees to
deliver to any lender designated by Landlord such financial statements of
Tenant as may be reasonably required by such lender. Such statements shall
include the past three (3) years' financial statements of Tenant. All such
financial statements shall be received by Landlord in confidence and shall be
used only for the purposes herein set forth. Tenant shall deliver such
financial statements to Landlord within ten (10) days after Landlord's written
request.
ARTICLE 15
SURRENDER OF PREMISES; REMOVAL OF PROPERTY
15.1. Holding Over. Tenant shall reimburse Landlord for and
indemnify, defend and hold Landlord harmless against all damages, liabilities
and costs, including, but not limited to, attorneys' fees, incurred by Landlord
from any delay by Tenant in vacating the Premises. If Tenant remains in
possession of any part of the Premises after the expiration of this Lease,
Tenant, at the option of the Landlord, shall be deemed to be occupying the
Premises on a month-to-month basis, and in such case, Monthly Rent then in
effect shall be increased by fifty percent (50%) and such month-to-month
tenancy shall be subject to every other term, covenant and agreement contained
in this Lease.
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15.2. SURRENDER OF PREMISES.
15.2.1. Surrender of Lease not Merger. A surrender of this
Lease by Tenant, a cancellation of this Lease by mutual agreement between
Landlord and Tenant, or a termination of this Lease for any reason shall not
automatically work a merger. After such a surrender, cancellation or
termination Landlord may (a) terminate any or all then existing subleases or
subtenancies and/or (b) treat such surrender, cancellation or termination as
effecting an assignment to Landlord of any or all such subleases or
subtenancies.
15.2.2. Condition of Premises. Upon the expiration or earlier
termination of the Lease Term, Tenant shall surrender possession of the
Premises to Landlord in the same order, condition, and repair as when received
by Tenant or as thereafter improved by Landlord or Tenant excepting only
reasonable wear and tear which Tenant was not otherwise obligated to remedy
under any provision of this Lease. In such event, Tenant shall, at its
expense, promptly remove or cause to be removed from the Premises all debris,
rubbish, furniture, equipment, business and trade fixtures, freestanding
cabinet work, shelving, movable partitions, and other articles of personal
property owned by Tenant or installed or placed by Tenant in the Premises
(exclusive of any items described in Subsection 15.2.4), and all similar
articles of any other persons claiming under Tenant, unless Landlord exercises
its option to have any subleases or subtenancies assigned to it. Tenant shall
also repair, at its expense, all damage which removal from or restoration of
the Premises may cause.
15.2.3. Abandoned Property. Any property of Tenant not removed
by Tenant upon the expiration of the Lease Term (or within two (2) days after
a termination by reason of Tenant's default), shall be considered abandoned,
and Landlord may remove any or all such items and dispose of the same in any
manner or store the same in a public warehouse or elsewhere for the account of
and at the expense and risk of Tenant. If Tenant shall fail to pay the cost of
storing any such property after it has been stored for a period of thirty (30)
days or more, Landlord may sell any or all of such property at public or
private sale, in such manner and at such times and places as Landlord, in its
sole discretion, may deem proper, without notice to or demand upon Tenant.
Landlord shall apply the proceeds of such sale to the amounts due Landlord from
Tenant under this Lease.
15.2.4. Improvements to Premises. Any additions to, or
alterations of, the Premises, except moveable furniture and trade fixtures
which were not provided by Landlord or specified in the Tenant Improvements
Agreement or Tenant Improvements Plans and Specifications for the Premises,
shall become at once a part of the Premises and belong to Landlord without
compensation to Tenant; provided, however, that Landlord shall have the right
to require Tenant to remove such alterations, improvements or additions at
Tenant's cost upon the termination of this Lease, and the repair of any damage
caused to the Premises or the Building as a result of any such removal shall
be paid for by Tenant.
ARTICLE 16
TENANT IMPROVEMENTS AGREEMENT
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ARTICLE 17
SUBORDINATION AND QUIET ENJOYMENT
17.1. Priority of Encumbrances. This Lease at Landlord's option shall
be subordinate to any ground lease, deed of trust or mortgage now or hereafter
encumbering the Premises, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. However, Tenant's right to quiet possession of the
Premises during the Lease Term shall not be disturbed if Tenant pays the Rent
and performs all of Tenant's obligations under this Lease and is not otherwise
in default. If any ground lessor, beneficiary or mortgagee elects to have this
Lease designated as prior to the lien of its ground lease, deed of trust or
mortgage and gives written notice thereof to Tenant, this Lease shall be deemed
prior to such ground lease, deed of trust or mortgage whether this Lease is
dated prior or subsequent to the date of said ground lease, deed of trust or
mortgage or the date of recording thereof.
17.2. Attornment. If Landlord's interest in the Premises is acquired
by any ground lessor, beneficiary under a deed of trust, mortgagee, or purchaser
at a foreclosure sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Premises and recognize such transferee or successor
as Landlord under this Lease. Tenant waives the protection of any statute or
rule of law which gives or purports to give Tenant and Landlord any right to
terminate this Lease or surrender possession of the Premises upon the transfer
of Landlord's interest.
17.3. Signing of Documents. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant fails to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
17.4. Quiet Enjoyment. Landlord covenants and agrees that Tenant, upon
paying the Rent and any and all other charges herein provided for and observing
and performing the covenants, agreements and conditions of this Lease to be
observed and performed by Tenant shall lawfully and quietly hold, occupy and
enjoy the Premises during the Lease Term without hindrance or molestation of
anyone lawfully claiming by, through, or under Landlord; subject, however, to
the matters set forth in this Lease.
ARTICLE 18
MISCELLANEOUS
18.1. Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the State of California.
18.2. Headings and Titles. The captions of the Articles or Sections
of this Lease are only to assist the parties in reading this Lease and shall
have no effect upon the construction or interpretation of any part hereof.
18.3. Interpretation. Whenever required by the context of this Lease,
the singular shall include the plural and the plural shall include the singular.
The masculine, feminine and neuter genders shall each include the other. In any
provision relating to the conduct, acts
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<PAGE> 36
or omissions of Tenant, the term "Tenant" shall include Tenant's agents,
employees, contractors, invitees, successors or others using the Premises with
Tenant's expressed or implied permission.
18.4. Successors and Assigns. Subject to the provisions of Article
10, this Lease shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, personal representatives, successors
and assigns.
18.5. Time is of the Essence. Time is of the essence with respect to
the performance of every provision of this Lease in which time of performance
is a factor.
18.6. Severability. If any term or provision of this Lease shall be
held invalid or unenforceable to any extent under any applicable law by a court
of competent jurisdiction, the remainder of this Lease shall not be affected
and each remaining term and provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
18.7. Integration. This Lease constitutes the entire agreement
between Landlord and Tenant relative to the leasing of the Premises. This
Lease may be amended or revoked only by an instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant hereby agree that no prior agreement,
understanding or representation oral or written pertaining to any matter
covered or mentioned in this Lease shall be effective for any purpose.
18.8. Notices. All notices required or permitted under this Lease
shall be in writing and shall be personally delivered or sent by certified
mail, return receipt requested, postage prepaid or Federal Express or other
similar over-night delivery system ("Express Mail System"). Notices to Tenant
shall be delivered to the address specified in Item 10 of the Basic Lease
Provisions, except that upon Tenant's taking possession of the Premises, the
Premises shall be Tenant's address for notice purposes. Notices to Landlord
shall be delivered to the address specified in Item 10 of the Basic Lease
Provisions. All notices shall be effective upon personal delivery or three (3)
days after deposit in the U.S. Mail or the immediately succeeding Business Day
after deposit with an Express Mail System. Either party may change its notice
address upon written notice to the other party.
18.9. Force Majeure. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, such failure to perform
shall not constitute a breach of this Lease and the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are
not limited to, acts of God, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
18.10. No Light, Air or View Easements. Any diminution or shutting off
of light, air or view by any structure which may be erected on lands adjacent
to the Building or Premises shall in no way affect this Lease or impose any
liability on Landlord.
18.11. Brokers. Landlord and Tenant acknowledge that the broker who
procured this Lease is the person specified in Item 16 of the Basic Lease
Provisions. Landlord shall be solely responsible for the payment of brokerage
commissions to Broker, and Tenant shall have no responsibility therefor unless
written provision to the contrary has been made a part of this Lease. If
Tenant has dealt with any other real estate broker or agent or any other person
in connection with the leasing or renting of the Premises, Tenant shall be
solely responsible for the payment of any fee due such person, and Tenant shall
indemnify, defend and hold Landlord harmless from and against any liability in
respect thereto.
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<PAGE> 37
18.12. Waiver. No waiver by Landlord of the breach of any covenant,
condition or term of this Lease shall be construed as a waiver of any preceding
or succeeding breach nor shall the acceptance of Rent during any period in
which Tenant is in default be deemed to be a waiver of such default.
18.13. No Partnership. This Lease shall not be construed to
constitute any form of partnership or joint venture between Landlord and
Tenant. Landlord and Tenant mutually acknowledge that no business or financial
relationship exists between them other than as Landlord and Tenant, and that
Landlord is not responsible in any way for the debts of Tenant or any other
party.
18.14. Corporation or Partnership as Tenant. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within five (5) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person signing this Lease for Tenant represents and warrants that he is a
general partner of the partnership, that he has full authority to sign for the
partnership and that this Lease binds the partnership and all general partners
of the partnership. Tenant shall give written notice to Landlord of any
general partner's withdrawal or addition. Within five (5) days after this
Lease is signed, Tenant shall deliver to Landlord a copy of Tenant's recorded
statement of partnership or certificate of limited partnership.
18.15. Memorandum of Lease. No Memorandum of this Lease may be
recorded by Tenant without the prior written consent of Landlord.
18.16. Joint and Several Liability. All parties signing this Lease as
Tenant shall be jointly and severally liable for all obligations of Tenant.
18.17. Exhibits. All exhibits, schedules and addenda attached to this
Lease are incorporated herein by references as though fully set forth herein.
18.18. Liability. The obligations of Landlord under this Lease do not
constitute personal obligations of the individual partners, joint ventures,
directors, officers, shareholders or beneficial owners of Landlord, and Tenant
shall look solely to the real estate that is the subject of this Lease and to
no other assets of the Landlord for satisfaction of any liability in respect of
this Lease and will not seek recourse against the individual partners, joint
ventures, directors, officers, shareholders or beneficial owners of Landlord or
any of their personal assets for such satisfaction.
18.19. Guarantee of Lease. If Landlord determines that Tenant's
obligations under this Lease require additional security to assure performance,
Tenant will execute a Lease Guaranty in the form as shown on Exhibit "H"
attached hereto, upon Landlord's written request. If no such request by
Landlord is made and a fully executed copy of this Lease is delivered to Tenant
by Landlord, then Tenant's ability to perform the obligation hereunder shall be
demanded sufficient by Landlord.
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<PAGE> 38
18.20. No Option or Offer. The submission of this Lease by Landlord,
its agent, or its representative for examination or execution by Tenant does not
constitute an option or offer to lease the Premises or a reservation of the
Premises in favor of Tenant. This Lease shall become effective only upon
Landlord's execution and delivery of a fully executed counterpart thereof to
Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day
and year first written above.
LANDLORD:
By: Carmel Valley Partners I, a
California general partnership
By: /s/ FRANK W. RICE, JR.
--------------------------------
Name: Frank W. Rice, Jr.
Its: Attorney-in-Fact
Dated: February 1, 1996
TENANT: First Virtual Holdings, Inc.,
a Wyoming corporation
By: /s/ FIRST VIRTUAL HOLDINGS, INC.
--------------------------------
Its: President
Name: Lee Stein
By: /s/ LEE STEIN
--------------------------------
Its:
------------------------------
Name:
------------------------------
Dated:
------------------------------
<PAGE> 39
EXHIBIT "A"
LEGAL DESCRIPTION FOR OFFICE BUILDING
The parcel of land on which the Office Building described in Item 1 of the
Basic Lease Provisions is located is more particularly described as Parcel 2 of
Parcel Map No. 14590, in the City and County of San Diego, State of California,
filed in the office of the County Recorder of San Diego County, December 18,
1986 as File No. 86-596217 of Official Records.
<PAGE> 40
EXHIBIT "B"
PREMISES
Tenant: First Virtual Holdings, Inc.
Suite No.: 304
[FLOOR PLAN]
<PAGE> 41
EXHIBIT "D"
RENTABLE AREA & USABLE AREA
1. Rentable Area. The term "Rentable Area" shall mean the Rentable Area
as determined by Landlord or Landlord's architect or space planner in
accordance with the procedures set forth below:
(a) As to each floor of the Building on which the entire space
rentable to tenants is or will be leased to only one tenant, Rentable Area shall
be the entire area bounded by the inside surface of the exterior glass walls
(or the inside surface of the permanent exterior wall where there is no glass)
on such floor, including all areas used for elevator lobbies, corridors,
special stairways, restrooms, mechanical rooms, electrical rooms and telephone
closets without deduction for columns and other structural portions of the
Building or vertical penetrations that are included for the special use of
Tenant but excluding the area contained within the exterior walls of the
Building stairs, fire towers, vertical ducts, elevator shafts, flues, vents,
stacks and pipe shafts.
(b) As to each floor of the Building on which space is or will be
leased to more than one tenant, Rentable Area attributable to each such lease
shall be the total of (i) the Usable Area (as defined below); and (ii) a
prorata portion of the area covered by the elevator lobbies, corridors,
restrooms, mechanical rooms, electrical rooms and telephone closets without
deduction for columns and other structural portions of the Building or vertical
penetrations that are included for the special use of Tenant but excluding the
area contained within the exterior walls of the Building stairs, fire towers,
vertical ducts, elevator shafts, flues, vents, stacks and pipe shafts.
2. Usable Area. The term "Usable Area" means the entire area included
within the premises covered by a lease, being the area bounded by the inside
surface of any exterior glass or walls (or the inside surface of the permanent
exterior wall where there is no glass) of the Building bounding such premises
and to the center of all walls separating such premises from other areas leased
or to be leased to other tenants on such floor. The Usable Area of a floor
shall be equal to the sum of all Usable Areas on that floor.
3. Adjustments to Areas. If the Rentable Area is modified during the
construction of the Tenant Improvements, or if at any time there is any dispute
between the parties regarding the computation of the Rentable Area or Usable
Area of the premises covered by a lease, then in any of such events, Landlord's
architect or space planner shall make a determination concerning the correct
Rentable Area and/or Usable Area of such premises which shall be deemed
accurate. If the Rentable Area is thereby modified, the Monthly Rent and
Tenants' Percentage Share shall correspondingly be adjusted, at the same rate
per square foot as set forth in the Basic Lease Provisions. Any modification
or adjustment to the Rentable Area and/or Usable Area must be made and agreed
to in writing by the parties within thirty (30) days of the Commencement Date,
otherwise the said Areas herein will be considered accurate.
<PAGE> 42
EXHIBIT "E"
RULES AND REGULATIONS
Tenant agrees to adhere to the following Rules and Regulations and all other
rules and regulations which Landlord may, from time to time, establish for
tenants of the Building. Landlord shall not be responsible to Tenant for the
violation or non-performance by any other tenant or occupant of the Building
with regard to such Rules and Regulations. The Rules and Regulations shall,
however, be applied to all tenants and tenants' employees in a
non-discriminatory manner.
1. Signs. No sign, placard, picture, advertisement, name or
notice shall be inscribed, displayed or printed or affixed on or to any part of
the Building or Premises without the prior written consent of Landlord which
consent shall be exercised at Landlord's sole discretion, and Landlord shall
have the right to remove any such sign, placard, picture, advertisement, name
or notice without notice to and at the expense of Tenant. All signs shall
conform to Landlord's sign criteria for the Building and the Premises. Tenant
shall not place anything or allow anything to be placed near the glass of any
window, door, partition or wall which may appear unsightly from outside the
Premises or Building.
2. Flooring. Tenant shall not lay linoleum, tile, carpet or any
other similar floor covering to the floor of the Premises in any manner except
as approved by Landlord. The expense of repairing any damage resulting from a
violation of this rule or removal of any floor covering shall be borne by
Tenant, or by the contractors, employees or invitees of Tenant who caused the
damage.
3. Exclusion of Individuals. Landlord reserves the right to
exclude or expel from the Building any person who, in the judgement of
Landlord, is intoxicated or under the influence of liquor or drugs, or who
shall in any manner do any act in violation of any of the Rules and Regulations
of the Building.
4. Use of Building Name. Without the prior written consent of
Landlord, Tenant shall not use the name of the Building or graphic displays of
the Building in connection with or in promotion or advertising the business of
Tenant except as Tenant's address, or as permitted in the Lease. Landlord
shall have the right, exercisable without liability to any tenant, to change
the name and address of the Building.
5. Access. The sidewalks, entrances, passages, courts, elevators,
vestibules, stairways, corridors, halls, and other Common Areas of the Building
shall not be obstructed or used for any purpose other than ingress or egress.
The halls, passages, entrances, elevators, stairways, roofs and other Common
Areas are not for the use of the general public, and Landlord shall in all
cases retain the right to control and prevent access thereto of all persons
whose presence, in the judgment of Landlord, shall be prejudicial to the
safety, character, reputation, or interest of the Building and its tenants,
provided that nothing herein contained shall be construed to prevent such access
to person with whom any tenant normally deals only for the purpose of
conducting its business on its premises unless such persons are engaged in
illegal activities. Neither any tenant nor any employee of any tenant shall go
upon the roof of the Building, without the prior written consent of Landlord.
6. Window Areas; Ceilings. No awnings, decorations, or other
projections shall be attached by any tenant to the outside or inside walls of
the Building or Premises, without the prior written consent of Landlord. All
exterior and interior window coverings, whether curtains, blinds or otherwise,
used by Tenant shall be approved in writing by Landlord prior to installation.
Landlord intends that all window coverings in the Building be uniform and
standard in color,
<PAGE> 43
texture and appearance and Tenant shall have no right to deviate from or change
said window coverings approved by Landlord. Neither the interior nor the
exterior of any windows shall be coated or otherwise sunscreened without the
prior written consent of Landlord. No light fixtures, hanging planters,
television sets, or other objects shall be attached to or suspended from the
ceilings by any tenant, without the prior written consent of Landlord.
7. Interior Signs. Interior signs on doors or walls of any premises
and the building directory tablets shall be inscribed, painted, or affixed for
each tenant by Landlord at such tenant's expense, and shall be of a size, color,
and style established by Landlord's sign criteria for the Building. The
Building directory board will be provided exclusively for display of the name
and location of Building tenants, and Landlord reserves the right to exclude any
other names therefrom. Nothing may be placed on the exterior of corridor walls
or corridor doors of the Building other than Landlord's standard signage,
without the prior written consent of Landlord.
8. Use of Premises. The premises of each tenant shall not be used for
manufacturing or for the storage of merchandise except as such storage may be
incidental to the use of the Premises for general office purposes. No tenant
shall occupy or permit any portion of its premises to be occupied as an office
for a public stenographer or typist, or for the manufacture or sale of liquor,
narcotics, or tobacco in any form, or as a medical office, or as a barber or
manicure shop, or as an employment bureau. No tenant shall engage or pay any
employees on its premises except those actually working for such tenant on its
premises nor advertise for laborers giving an address at its premises. The
premises shall not be used for lodging or sleeping or for any immoral or illegal
purposes.
9. Light and Air Areas; Utilities. The sashes, sash doors, skylights,
windows, and doors that reflect or admit light and air into halls, passageways,
or other public places in the Building shall not be covered or obstructed with
objects of any kind by any tenant. Each tenant shall cooperate with Landlord in
obtaining maximum effectiveness of the heating, ventilating and air conditioning
system of the Building. No tenant shall tamper with or change the setting of
any thermostats or temperature control valves. No tenant shall obstruct, alter,
or in any way impair the efficient operation of Landlord's heating, ventilating,
and air conditioning system.
10. Plumbing. The toilet rooms, water and wash closets, and other
plumbing fixtures shall not be used for any purpose other than those for which
they are constructed, and no foreign substances shall be thrown therein. The
cost of repairing all damages resulting from any misuse of such fixtures by a
tenant, its subtenants or assignees, or any of their servants, agents, visitors,
or licensees shall be borne by such tenant.
11. Alterations. No tenant shall mark, paint, drill into, or in any way
deface any part of its premises or the Building. No boring, cutting, or
stringing of wires shall be permitted, except with the prior written consent of
Landlord and as Landlord may direct.
12. Exclusion of Bikes, Animals, Cooking, Smoking. No bicycles,
vehicles, birds or animals (other than guide dogs for persons with impaired
vision) of any kind shall be brought into or kept in or about any tenant's
premises. No cooking shall be done or permitted by any tenant in its premises;
and except that the preparation of coffee, tea, and similar items for each
tenant, its employees, and its business visitors shall be permitted; provided
power shall not exceed that amount which can be provided by a 30-amp circuit. No
tenant shall cause or permit any unusual or objectionable odors to be produced
in or permeate from its premises. Pursuant to City of San Diego Municipal Code
45.0101 - 45.0111 no smoking is permitted within any tenant's premises or the
Building structure.
<PAGE> 44
13. Flammables. Neither any tenant, its subtenants or assignees, nor
any of their servants, employees, agents, visitors, licensees shall at any time
bring or keep upon such tenant's premises any inflammable, combustible, or
explosive fluid, chemical, or substance. In the event a Tenant requires the use
of any substance described above, tenant shall obtain the prior written approval
of Landlord to store and use such substances. The foregoing shall not preclude
tenants from maintaining a limited supply of copier fluids in their premises.
14. Locks; Keys. No additional locks or bolts of any kind shall be
placed upon any of the doors or windows by any tenant, nor shall any changes be
made in existing locks or the mechanisms thereof, without Landlord's prior
written approval, which approval will not be unreasonably withheld. Each tenant
shall furnish to Landlord a duplicate key to any new lock, except for locks to
the tenant's vault. Landlord shall provide each tenant one (1) door key to the
premises and one (1) security card access key to the main entry door of the
Building per each 500 usable square feet of each premises. Additional copies of
said keys can be purchased by each tenant at Landlord's cost. Each tenant must,
upon the termination of its tenancy, return to Landlord all keys furnished to or
otherwise procured by such tenant. In the event of the loss of such keys, such
tenant shall pay to Landlord the cost of replacing such keys or of changing the
lock or locks opened by such lost keys if Landlord shall deem it necessary to
make such changes.
15. Freight; Floor Loading. All removals or the carrying in or out of
any safes, freight, furniture, or bulky matter of any description must take
place during the hours which Landlord shall establish from time to time and must
take place only with the prior written consent of Landlord. The moving of safes
or other fixtures or bulky matter of any kind must be done upon previous notice
to Landlord's manager of the Building and under his supervision, and the persons
employed by any tenant for such work must be acceptable to Landlord. Landlord
reserves the right to inspect all safes, freights, or other bulky articles to be
brought into the Building and to exclude from the Building all safes, freight,
or other bulky articles which violate any of these Rules and Regulations or any
provision of the lease of the premises intended to house such article. Landlord
reserves the right to prohibit or impose conditions upon the installation in any
premises of heavy objects which exceed 80 pounds live floor load per square
foot.
16. Service Vendors. No tenant shall purchase or otherwise obtain for
use in or around the Premises or Building water, ice, towel, vending machine,
janitorial, maintenance, automobile detailing or other like services, except
from persons approved by Landlord and at hours and under regulations fixed by
Landlord.
17. Building Pass; Riot. Landlord reserves the right to exclude from
the Building between the hours of 7:00 p.m. and 7:00 a.m. and at all hours on
Saturday, Sunday, and legal holidays all persons who are not known to the
Building security personnel and who do not present a pass to the Building
approved by Landlord. Landlord will furnish passes to persons for whom tenant
requests the same in writing. Each tenant shall be responsible for all persons
for whom it requests passes and shall be liable to Landlord for all acts of such
persons. Landlord shall in no case be liable for damages for any error with
regard to the admission to or exclusion from any part of the Building of any
person. In the case of invasion, mob riot, public excitement, or other
circumstances rendering such action advisable in Landlord's opinion, Landlord
reserves the right without any abatement of rent to require all persons to
vacate the Building and to prevent access to the Building during the continuance
of the same for the safety of the tenants of, and for the protection of, the
Building and property in the Building.
<PAGE> 45
18. Tenant's Janitorial Firm. Any persons employed by any tenant to
do janitorial work shall, while in the Building and outside of such tenant's
premises, be subject to and under the control and direction of Landlord's
manager of the Building (but not as an agent or servant of such Landlord's
manager), and each tenant shall be responsible for all acts of such persons
serving its premises.
19. Public Doors. All doors opening onto public corridors shall be
kept closed, except when in use for ingress and egress.
20. Soliciting. Canvassing, soliciting, and peddling in the Building
or on any other portion of the Building are prohibited, and each tenant shall
report the same to Landlord's manager of the Building and otherwise cooperate
to prevent the same. Nothing contained herein shall be construed to limit
tenant's business development efforts among other tenants in the Building.
21. Equipment. All office equipment of any electrical or mechanical
nature shall be placed by each tenant in its premises in settings to absorb or
prevent any vibration, noise, and annoyance. Any such settings must be
approved in writing by Landlord.
22. Supplemental Air Conditioning Equipment. No air conditioning unit
or other similar apparatus shall be installed or used by any tenant without the
prior written consent of Landlord.
23. Parking. Each tenant and its employees shall have the right to
use parking areas for the Building in common with others at the number of
parking spaces, specified in Item 11 of the Basic Lease Provisions subject to
the Rules and Regulations which from time to time are established or changed by
Landlord. Passenger vehicles and light trucks are the only vehicles permitted
in parking areas; no buses, recreational vehicles, heavy trucks, trailers or
other transportation equipment will be permitted in parking areas without the
prior written consent of Landlord.
24. Control of Parking Areas. Landlord shall have the right to
designate the particular parking area to be used by each tenant and any or all
of its employees and any such designation may be changed from time to time by
Landlord. Tenants and their employees shall park their cars only in those
portions of the parking facilities designated for that purpose by Landlord.
Parking or standing vehicles of any kind is not permitted in front of the
Building or drive aisles in the parking areas. If any tenant or its employees
fail to park their cars in designated parking areas, Landlord may charge Tenant
$50.00 per day for each day or partial day per car parked in any areas other
than those designated; provided, however, Landlord shall give such tenant
notice of the first violation of this provision and Tenant shall have two (2)
days thereafter within which to cause the violation to be discontinued, before
the $50.00 per day fine shall commence. After notice of such first violation,
no prior notice of any subsequent violation shall be required. All amounts
due under the provisions of this Paragraph shall be payable by tenant within
ten (10) days after demand therefor as Additional Rent hereunder. Landlord
shall have the right, but not the obligation, to remove or cause to be removed
any improperly parked cars.
25. Patron Parking. Patrons and invitees of each tenant shall have
the right to use in common with the patrons and invitees of other occupants of
the building the parking facilities designated from time to time by Landlord
for such purpose.
26. On Street Parking. Any on-street vehicle parking on streets and
public right-of-way adjacent or near the Building of any nature whatsoever by
any tenant, employee or business invitee is absolutely prohibited. If this
prohibition is violated, Landlord may charge Tenant $50.00 per day for each day
or partial day per vehicle parked in
<PAGE> 46
any street or public right-of-way adjacent or near the Building; provided,
however, Landlord shall give such tenant notice of the first violation of this
provision and Tenant shall immediately cause the violation to be discontinued,
before the $50.00 per day fine shall commence. After notice of such first
violation, no prior notice of any subsequent violation shall be required. All
amounts due under the provisions of this Paragraph shall be payable by Tenant
within ten (10) days after demand as Additional Rent here under. Landlord
shall have the right, but not the obligation, to remove or cause to be removed
any improperly parked cars.
27. Mail Service. Landlord shall designate and provide a mail box for
each tenant in a facility, location and size which is acceptable to the U.S.
Postal Service and Landlord. Landlord shall provide two (2) keys to Tenant's
designated mail box which shall be in a location readily accessible by each
tenant.
28. Disturbances. No tenant shall make, or permit to be made, any
unseemly or disturbing noises or disturb or interfere with occupants of this or
neighboring buildings or premises or those having business with them, whether
by the use of any musical instrument, radio, television, phonograph, office
equipment, unusual noise, or any other way. No tenant shall throw anything out
of doors, windows or down the passageways.
29. Hazardous Substances. No tenant nor any of tenant's servants,
employees, agents, visitors or licensees shall at any time store, bring or
keep upon the Building or any premises any hazardous, toxic chemical or other
similar substance, as further described in Section 4.6 of the Lease.
30. Moving & Deliveries. The scheduling of moves of any tenant's
furniture, equipment or deliveries of every kind into or out of the Building or
its premises is subject to the reasonable discretion of Landlord. There
shall not be used in any space, or in the Common Areas of the Building, either
by any tenant or others, any hand trucks except those equipped with rubber
tires and rubber side and bottom guards.
<PAGE> 47
EXHIBIT "F"
SUPPLEMENTAL PROVISIONS
In the event of any conflict or inconsistency between the terms and conditions
of any other portion of this Lease and these Supplemental Provisions, the terms
and conditions of these Supplemental Provisions shall control.
1. Tenant's Option to Lease Additional Space.
Upon Landlord's receipt of an acceptable third party offer to lease, or
group of offers to lease, Suite 300 of the Building, Landlord shall so
notify Tenant in writing ("Suite 300 Notice"). Within seven (7)
business days of receipt of Landlord's Suite 300 Notice, Tenant shall
notify Landlord in writing ("Tenant's Response") of its intention to
lease Suite 300 under terms which are at least equal those offered by
the prospective tenant(s) by signing an amendment to the Lease for Suite
300 within seven (7) additional business days. The failure of Tenant to
deliver Tenant's Response or to execute the Lease amendment within the
seven (7) day periods provided in the preceding sentence shall
constitute Tenant's rejection of its rights hereunder, and Landlord
shall be free to lease Suite 300 to any third party or parties.
2. Landlord shall, at its sole cost, install a door on the east wall of the
Premises to allow access to the adjacent Suite 300 in which Tenant is a
subtenant.
<PAGE> 48
EXHIBIT "I"
BALCONY DRAWING
<PAGE> 49
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is made this 10th day of May 1996 between Spieker
Properties, L.P., a California limited partnership (the "Landlord"), successor
in interest to Carmel Valley Partners I, and First Virtual Holdings, Inc., a
Wyoming corporation (the "Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement date
February 1, 1996 (the "Lease"), for certain premises located in the Carmel
Valley Centre I Suite 304 (the "Premises"), as more fully described in the
Lease; and
WHEREAS, Landlord and Tenant desire to modify the Lease accordingly;
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein the parties hereby mutually agree as follows:
1. The Lease shall be extended for an additional twenty two (22) months
commencing on August 1, 1997 and terminating May 31, 1999.
2. Effective May 10, 1996 Suite 301 of the Building, consisting of 3,117
rentable square feet, is hereby added to the Premises increasing the total
rentable square feet to 5,666. The Premises, as reconfigured by the addition
described in the preceding sentence, is shown on Exhibit "B" attached to this
First Amendment with diagonal "cross-hatches". This new Exhibit "B" hereby
replaces the previous Exhibit "B" which is hereby deleted.
3. Exhibit "C", Rent Adjustment, is hereby added to the Lease and is
attached to this First Amendment.
The following language is hereby added to the end of Article 1.8,
Monthly Rent,: "And, as the context requires, any adjustments to the Monthly
Rent made pursuant to Subsection 3.1.2. of this Lease."
Article 1.14., Rent Adjustment, is hereby reinstated to the Lease as
follows:
"The term "Rent Adjustment" shall refer to periodic increases in
Monthly Rent during the Lease Term as described in Exhibit "C" attached hereto."
Article 3.1.2., Rent Adjustment, is hereby reinstated to the Lease as
follows:
"The Monthly Rent payable under Section 3.1.1. shall be adjusted
pursuant to the Rent Adjustment provisions contained in Exhibit "C" attached
hereto."
4. Effective May 10, 1996 Tenant's percentage share of Operating Expenses
is hereby increased to be 10.59%.
5. Landlord's Expense Stop is hereby modified to be the amount calculated
by dividing Landlord's actual Operating Expenses for the Building for the
calendar year 1996 by 53,500 which is the Rentable Area of the Building.
However, Tenant is not required to pay its pro-rata share of excess Operating
Expenses for Suite 304 (consisting of 2,549 rentable square feet) for the period
of January 1, 1997 through July 31, 1997.
The following Articles which were previously stricken are hereby
reinstated to the Lease:
3.2.1. Tenant's Share of Operating Expenses.
3.2.2. Expense Statements.
3.2.3. Year End Adjustments.
Page 1 of 5
<PAGE> 50
3.2.4. Audit and Adjustment Procedures.
3.2.5. Adjustment Upon Termination of Lease.
6. On or before May 10, 1996 Tenant shall deposit with Landlord a Security
Deposit in the amount of $5,143 for the addition of Suite 301 to the Premises.
7. RIGHT OF FIRST OFFER. Subject to any rights of other tenants under
leases existing as of the date of this First Amendment to Lease, Tenant is
granted a right of first offer to lease other available space located on the
third floor of the Building (except for Suite 305 which Landlord is currently in
negotiations) during the initial Term of the Lease on the following terms:
Before Landlord enters into a lease of any office space on the third floor of
the Building, and provided Tenant is not then in default under the Lease, which
default has been specified in a notice given by Landlord to Tenant, and provided
Tenant has not sublet a portion of its Premises, Landlord will so notify Tenant
in writing and propose a rent and other lease terms and conditions. Tenant
shall have three (3) days after notification to notify Landlord of its intent to
pursue negotiations. Thereafter, Landlord and Tenant shall negotiate in good
faith in an attempt to reach agreement on the terms of the lease of additional
space. If Landlord and Tenant are unable to agree in writing within fifteen
(15) days after Landlord's notice to Tenant, Landlord may lease the space to
another tenant. Thereafter, Tenant's right of first offer shall terminate as to
the space so leased.
As of the date of this First Amendment, Tenant is hereby given notice
that Suite 303, consisting of 1,039 rentable square feet, of the Building is
available to lease under the same terms and conditions of the Lease and this
First Amendment.
8. The balcony which adjoins the Premises at the southeast portion of
Suite 301 is hereby added to Paragraph 17 of the Basic Lease Provisions and to
Exhibit "I" attached to this First Amendment. This new Exhibit "I" hereby
replaces the previous Exhibit "I" which is hereby deleted.
9. Tenant warrants that all necessary corporate actions have been duly
taken to permit Tenant to enter into this First Amendment To Lease and that
each undersigned officer has been duly authorized and instructed to execute
this First Amendment To Lease.
10. Except as expressly modified above, all terms and conditions of the
Lease remain in full force and effect and are hereby ratified and confirmed.
LANDLORD: TENANT:
Spieker Properties, L.P., First Virtual Holdings, Inc.,
a California limited partnership a Wyoming corporation
By: Spieker Properties, Inc.,
a Maryland corporation,
its General Partner
By: /s/ RICHARD L. ROMNEY By: /s/ LEE STEIN
------------------------------- -------------------------------
Richard L. Romney Lee Stein
Senior Vice President President
Date: 5/14/96 Date: 10 MAY 96
----------------------------- -----------------------------
Page 2 of 5
<PAGE> 51
EXHIBIT "B"
PREMISES
First Virtual Holdings, Inc.
Suites 301 and 304
Page 3 of 5
<PAGE> 52
EXHIBIT "C"
RENT ADJUSTMENT
Commencing on August 1, 1997 the Monthly Rent shall be Nine Thousand One
Hundred Sixty Seven Dollars ($9,167.00) ($1.65 x 5,556 rentable square feet)
multiplied by a factor calculated by dividing the Consumer Price Index
(hereinafter defined) current at August 1997 by said index current at August
1996. Subsequent Rent Adjustments shall be made on August 1998, and August
1999 ("Rent Adjustment Dates") and shall be calculated by multiplying the
Monthly Rent at each Rent Adjustment Date by a factor arrived at by dividing
the Consumer Price Index current at the said Rent Adjustment Date by the index
current one (1) year prior to the said Rent Adjustment Date. However, in no
event shall the Monthly Rent payable under Section 3.1.1 or the Lease be less
than a three percent (3%) increase per year above the total Monthly Rent
actually paid for the preceding period nor shall each annual increase be
greater than six percent (6%) per year above the total Monthly Rent actually
paid for the preceding period.
For the computation described above, the "Consumer Price Index" shall be in the
United States Department of Labor, bureau of Labor Statistics, for all items in
the Los Angeles/Anaheim/Riverside, California area with the base year 1982-84 =
100, or any other renamed local index covering the Los Angeles/Anaheim
/Riverside area or any other successor or substitute index appropriately
adjusted.
Page 4 of 5
<PAGE> 53
EXHIBIT "I"
BALCONY DRAWING
[BALCONY DRAWING]
Page 5 of 5
<PAGE> 54
EXHIBIT "G-1"
MODIFICATION PLAN
[MODIFICATION PLAN]
<PAGE> 55
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE is made this 24th day of May 1996 between
Spieker Properties, L.P., a California limited partnership (the "Landlord"),
successor in interest to Carmel Valley Partners I, and First Virtual Holdings,
Inc., a Wyoming corporation (the "Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated
February 1, 1996 and a First Amendment To Lease dated May 10, 1996
(collectively the "Lease"), for certain premises located in the Carmel Valley
Centre I Suites 301 and 304 (the "Premises"), as more fully described in the
Lease; and
WHEREAS, Landlord and Tenant desire to modify the Lease accordingly;
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein the parties hereby mutually agree as follows:
1. Effective September 1, 1996 Suite 303 of the Building, consisting of
1,039 rentable square feet, is hereby added to the Premises increasing the
total rentable square feet to 6,705. The Premises, as reconfigured by the
addition described in the preceding sentence is shown on Exhibit "B" attached
to this Second Amendment with diagonal "cross-hatches". This new Exhibit "B"
hereby replaces the previous Exhibit "B" which is hereby deleted.
2. Effective September 1, 1996 Tenant's Monthly Rent is hereby increased
by $1,714.00 for a total Monthly Rent of $11,057.00.
3. Effective September 1, 1996 Tenant's percentage share of Operating
Expenses is hereby increased by 1.94% for a total of 12.53%.
4. On or before September 1, 1996 Tenant shall deposit with Landlord a
Security Deposit in the amount of $1,714.00 for the addition of Suite 303 to
the Premises, increasing the total Security Deposit to $11,057.00.
5. Tenant warrants that all necessary corporate actions have been duly
taken to permit Tenant to enter into this Second Amendment To Lease and that
each undersigned officer has been duly authorized and instructed to execute
this Second Amendment To Lease.
6. Except as expressly modified above, all terms and conditions of the
Lease remain in full force and effect and are hereby ratified and confirmed.
LANDLORD: TENANT:
Spieker Properties, L.P., First Virtual Holdings, Inc.,
a California limited partnership a Wyoming corporation
By: Spieker Properties, Inc.,
a Maryland corporation,
its General Partner
By: [SIG] By: [SIG]
------------------------- -------------------------
Richard L. Romney Lee Stein
Senior Vice President President
Date: 18 June 96 Date: 7 June 96
------------------------- -------------------------
Page 1 of 2
<PAGE> 56
EXHIBIT "B"
PREMISES
FIRST VIRTUAL HOLDINGS, INC.
SUITES 301, 303 AND 304
[PREMISES PLAN]
Page 2 of 2
<PAGE> 57
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE is made this 7th day of June 1996 between
Spieker Properties, L.P., a California limited partnership (the "Landlord"),
successor in interest to Carmel Valley Partners I, and First Virtual Holdings,
Inc., a Wyoming corporation (the "Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated
February 1, 1996 and a Second Amendment To Lease dated May 10, 1996 and May 24,
1996 respectively (collectively the "Lease"), for certain premises located in
the Carmel Valley Centre I Suites 301, 303 and 304 (the "Premises"), as more
fully described in the Lease; and
WHEREAS, Landlord and Tenant desire to modify the Lease accordingly;
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein the parties hereby mutually agree as follows:
1. Effective October 1, 1996 Suite 305 of the Building, consisting of
3,900 rentable square feet, is hereby added to the Premises increasing the
total rentable square feet to 10,605. The Premises, as reconfigured by the
addition described in the preceding sentence is shown on Exhibit "B" attached
to this Third Amendment with diagonal "cross-hatches". This new Exhibit "B"
hereby replaces the previous Exhibit "B" which is hereby deleted.
2. Effective October 1, 1996 Tenant's Monthly Rent is hereby increased
by $6,435.00 for a total Monthly Rent of $17,492.00.
3. Effective October 1, 1996 Tenant's percentage share of Operating
Expenses is hereby increased by 7.29% for a total of 19.82%.
4. On or before October 1, 1996 Tenant shall deposit with Landlord a
Security Deposit in the amount of $6,435.00 for the addition of Suite 305 to
the Premises, increasing the total Security Deposit to $17,492.00.
5. Tenant warrants that all necessary corporate actions have been duly
taken to permit Tenant to enter into this Third Amendment To Lease and that
each undersigned officer has been duly authorized and instructed to execute
this Third Amendment To Lease.
6. Except as expressly modified above, all terms and conditions of the
Lease remain in full force and effect and are hereby ratified and confirmed.
LANDLORD: TENANT:
Spieker Properties, L.P., First Virtual Holdings, Inc.,
a California limited partnership a Wyoming corporation
By: Spieker Properties, Inc.,
a Maryland corporation,
its General Partner
By: By: [SIG]
------------------------- -------------------------
Richard L. Romney Lee Stein
Senior Vice President President
Date: Date: July 9, 1996
------------------------- -------------------------
Page 1 of 2
<PAGE> 58
EXHIBIT "B"
PREMISES
FIRST VIRTUAL HOLDINGS, INC.
SUITES 301, 303, 304 AND 305
[PREMISES PLAN]
Page 2 of 2
<PAGE> 1
EXHIBIT 10.21
SUBLEASE AGREEMENT
This Sublease Agreement is entered into between INTEGRATED MEDICAL
SYSTEMS, INC. ("Sublessor") and FIRST VIRTUAL HOLDINGS INCORPORATED
("Sublessee") is effective June 15, 1995 (or such earlier date upon which
Sublessee takes possession of the subleased premises described below).
1. SUBLEASE. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, the portions of the furnished premises located at
11975 El Camino Real, Suite 300, San Diego, California 92130, consisting of
2,850 square feet and more particularly set forth by the hatched portion on
Exhibit A, plus common usage of a kitchen, mailroom, reception area and
conference room, the proportional rights to use the common areas and parking as
provided in the Master Lease (as described below), and the right to use the
furnishings currently existing on said premises. Said subleased premises is
hereinafter referred to as the "Premises".
2. TERM.
2.1 TERM. The term of this Sublease shall commence on June 15,
1995 and shall end on June 14, 1996, unless sooner terminated or extended
pursuant to any provision hereof.
2.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date,
if for any reason Sublessor cannot deliver possession of the Premises to
Sublessee on said date, Sublessor shall not be subject to any liability
therefore, nor shall such failure affect the validity of this Lease or the
obligations of Sublessee hereunder or extend the term hereof, but in such case
Sublessee shall not be obligated to pay rent until possession of the Premises
is tendered to Sublessee. However, if Sublessor shall not have delivered
possession of the Premises within 60 days from said commencement date,
Sublessee may, at Sublessee's option, by notice in writing to Sublessor within
10 days thereafter, cancel the Sublease, in which event the parties shall be
discharged from all obligations thereunder. If Sublessee occupies the Premises
prior to said commencement date, such occupancy shall be subject to all
provisions hereof, such occupancy shall not advance the termination date, and
Sublessee shall pay rent for such period at the initial monthly rates set forth
below.
3. MASTER LEASE. Sublessor is the lessee of the Premises be virtue of the
lease, hereinafter referred to as the "Master Lease", a copy of which is
attached hereto as Exhibit B, dated July 20, 1992, wherein Carmel Valley
Partners 1 is the lessor, hereinafter referred to as the "Master Lessor". This
Sublease is and shall be at all times subject and subordinate to the Master
Lease. The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions of
the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this
Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word "Lessor" is
used it shall be deemed to mean the Sublessor herein and wherever in the Master
Lease the "Lessee" is used it shall be deemed to mean the Sublessee herein.
During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with,
for the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease to the extent such obligations are applicable
to the Premises subleased pursuant to this Sublease. The obligations that
Sublessee has assumed under this paragraph hereof are hereinafter referred to
as the "Sublessee's Assumed Obligations." Such obligations do not include
payment of rent to Master Lessor or the payment of additional rent under
Sections 1.1 and 3.2 of the Master Lease, the adjustments to rent under
Subsection 3.1.2 and Exhibit C of the Master Lease, or the charges under
Section 5 of the Master Lease. Sublessee shall hold Sublessor free and
harmless of and from all liability, judgments, costs, damages, claims or
demands, including reasonable attorneys' fees, arising out of Sublessee's
failure to comply with or perform Sublessee's Assumed Obligations. Sublessor
agrees to maintain the Master Lease during the entire term of this Sublease,
subject, however, to any earlier termination of the Master Lease without the
fault of the Sublessor. Sublessor represents to Sublessee that the Master
Lease is in full force and effect and that no default exists on the part of any
party to the Master Lease.
<PAGE> 2
4. SECURITY DEPOSIT. Concurrent with the execution of this Sublease,
Sublessee shall pay a security deposit equal to the amount of the rent payment
for the last month of this Sublease ($4,000.00) and the amount of the first
rent payment due hereunder ($4,000.00). The security deposit shall be held by
Sublessor without liability for interest and as security for the performance by
Sublessee of Sublessee's covenants and obligations under this Sublease, it
being expressly understood that the security deposit shall not be considered
an advance payment of rental or a measure of Sublessor's damages in case of a
default by Sublessee. Sublessor may commingle the security deposit with
Sublessor's other funds and may hold same in an interest bearing account, with
such interest to accrue to Sublessor's benefit. Sublessor may, from time to
time, without prejudice to any other remedy, use the security deposit to the
extent necessary to make good any arrearages of rent or to satisfy any other
covenant or obligation of Sublessee hereunder. following any such application
of the security deposit, sublessee shall pay to sublessor on demand the amount
so applied in order to restore the security deposit to its original amount.
If Sublessee is not in default at the termination of this Sublease, the balance
of the security deposit remaining after any such application shall be returned
by Sublessor to Sublessee. If Sublessor transfers its interest in the Premises
during the term of this Sublease, Sublessor may assign the security deposit to
the transferee and thereafter Sublessor shall have no further liability for the
return of such security deposit.
5. RENT. Sublessee shall pay to Sublessor as rent for the Premises
monthly payments or $4,000.00 from August 1, 1995 through June 14, 1996, in
advance on the first day of each month of the term hereof. If Sublessee takes
possession of the Premises before August 1, 1995, no rent will be due until
August 1, 1995. Rent for the first month (August 1, 1995 to August 31, 1995)
shall be due concurrent with Sublessee's execution of this Sublease. Rent
shall include all common area maintenance, utilities, daily janitorial
services, and use of all office furniture, equipment and fixtures, built-ins,
and conference room furniture located on the Premises. Rent for any period
during the term hereof which is for less than one month shall be a prorata
portion of the monthly installment. Rent shall be payable in lawful money of
the United States to Sublessor at the address stated herein or to such other
persons or at such other places as Sublessor may designate in writing.
6. OFFICE FURNITURE AND TELEPHONE LINES.
6.1 OFFICE FURNITURE. So long as (i) Sublessee exercises its
option to renew pursuant to Section 13 hereof, (ii) Sublessee occupies the
Premises through the duration of the renewal term, and (iii) Sublessee is not
then in default of any term of this Sublease upon the expiration of the term of
this Sublease, title to all office furniture currently existing on the Premises
(as set forth on Exhibit C) shall pass to Sublessee.
6.2 TELEPHONE LINES. Sublessee shall have use of existing
telephone switch gear and system on the Premises for the entire term hereof as
part of its monthly rental payments. Sublessee shall be responsible for direct
usage billing for all telephone service used by Sublessee. The number of
telephone lines available to Sublessee shall be mutually agreed upon between
the Sublessee and Sublessor.
7. USE AND CONDITION.
7.1 USE. The Premises shall be used and occupied only for general
office purposes and for no other purpose.
7.2 CONDITION OF PREMISES. Sublessee hereby accepts the Premises in
its condition existing as of the effective date hereof, subject to all
applicable zoning, municipal, county and state laws, ordinances, and
regulations governing and regulating the use of the Premises, and acknowledges
that neither Sublessor nor Sublessor's agents have made any representation or
warranty as to the suitability of the Premises for the conduct of Sublessee's
business.
8. CONTENT OF MASTER LESSOR. In the event that the Master Lease requires
that Sublessor obtain the consent of Master Lessor to any subletting by
Sublessor then this Sublease shall not be effective unless, within 10 days of
2
<PAGE> 3
the date hereof, Master Lessor signs this Sublease thereby giving its consent
to this subletting. The signature of the Master Lessor at the end of this
document shall constitute its consent to the terms of this Sublease. Master
Lessor acknowledges that, to the best of Master Lessor's knowledge, no default
presently exists under the Master Lease of obligations to be performed by
Sublessor and that the Master Lease is in full force and effect. In the event
that Sublessor defaults under its obligations to be performed under the Master
Lease, Master Lessor agrees to deliver to Sublessee a copy of any such notice
of default. Sublessee shall have the right to cure any default of Sublessor
described in any notice of default within 10 days after service of such notice
of default on Sublessee. If such default is cured by Sublessee then Sublessee
shall have the right of reimbursement and offset from and against Sublessor.
9. EVENTS OF DEFAULT/REMEDIES.
9.1 EVENTS OF DEFAULT. The following events shall be deemed to be
events of default by Sublessee under this Sublease: (i) Sublessee shall fail to
pay any rent or any other sums of money due hereunder and such failure shall
continue for a period of five days after the date sum is due; (ii) Sublessee
shall fail to comply with any provision of this Sublease; (iii) the leasehold
created hereunder shall be taken on execution or other process of law in any
action against Sublessee; (iv) Sublessee shall become insolvent or unable to pay
its debts as they become due, or Sublessee notifies Sublessor that it
anticipates either condition; (v) Sublessee takes any action to, or notifies
Sublessor that Sublessee intends to file a petition under any section or chapter
of the Federal Bankruptcy Act, as amended, or under any similar law or statute
of the United States or any State thereof, or a petition shall be filed against
Sublessee under any such statute or Sublessee or any creditor of Sublessee
notifies Sublessor that it expects such a petition to be filed; or (vi) a
receiver or trustee shall be appointed for Sublessee's leasehold interest in the
Premises or for all or a substantial part of the assets of Sublessee.
9.2 REMEDIES. Upon the occurrence of any event or events of
default or other breach of this Sublease by Sublessee hereunder within five
days of the due date, and whether such default or defaults are enumerated in
this paragraph or not, then Sublessor shall have the option to pursue any one
or more of the following remedies: (i) Sublessor shall have the right, at its
election, to cancel and terminate this Sublease and dispossess Sublessee; (ii)
Sublessor shall have the right without terminating or cancelling this Sublease
to declare all amounts and rents due under this Sublease to declare all amounts
and rents due under this Sublease for the remainder of the existing term (or any
applicable extension or renewal thereof) to be immediately due and payable, and
thereupon all rents and other charges due hereunder to the end of the initial
term or any renewal term, if applicable, shall be accelerated; (iii) Sublessor
may elect to enter and repossess the Premises and relet the Premises for
Sublessee's account, holding Sublessee liable for damages for all expenses
incurred in any such reletting and for any difference between the amount of
rent received from such reletting and the rent due and payable under the terms
of this Sublease; or (iv) Sublessor may enter upon the Premises and do whatever
Sublessee is obligated to do under this Sublease.
9.3 REIMBURSEMENT OF EXPENSES. Sublessee agrees to reimburse
Sublessor on demand for any expenses which Sublessor may incur in effecting
compliance with Sublessee's obligations under this Sublease, and Sublessee
further agrees that Sublessor shall not be liable for any such damages resulting
to the Sublessee from such action. All such remedies of Sublessor shall be
cumulative, and in addition, Sublessor may pursue any other remedies that may
be permitted by law or in equity. Forbearance by Sublessor to enforce one or
more of the remedies herein provided upon an event of default shall not be
deemed or construed to constitute a waiver of such default or remedy.
10. ASSIGNMENT AND SUBLETTING. Sublessee shall not assign, sublease,
transfer, pledge, or encumber this Sublease or any interest therein without
Sublessor's and the Master Lessor's prior written consent. Any attempted
assignment, sublease or other transfer or encumbrance by Sublessee in violation
of the terms and covenants of this paragraph shall be void.
11. AGREEMENT WITH DEVELOPERS MARKETING ASSOCIATION. Sublessee shall enter
into an agreement with Developers Marketing Association ("DMA") whereby (i)
Sublessee grants to DMA a right of first refusal on any or all of the Premises
which Sublessee may desire to sublease during the term of this Agreement, (ii)
DMA grants to
3
<PAGE> 4
Sublessee a right of first refusal on any or all of the contiguous space
subleased by DMA, (iii) Sublessee grants to DMA the first right to negotiate
with the Master Lessor, upon the expiration of the term of this Sublease, for
the leasing of all or any portion of the premises which is the subject of the
Master Lease, and (iv) Sublessee and DMA agree to share certain costs in
connection with the Premises. Such agreement shall be in the form of Exhibit D.
12. OPTION ON CONTIGUOUS SPACE. Sublessee shall have the first right of
refusal to sublease any or all of the space currently subleased from Sublessor
by DMA, which space is contiguous to the Premises, if such space first reverts
or is re-taken by Sublessor for any reason. Sublessee shall have the right,
for a period of 30 days after receiving notice from Sublessor of the offer to
sublease such space, to enter into a sublease agreement with Sublessor upon
terms and conditions to be negotiated in good faith between the parties.
13. OPTION TO RENEW. If this Sublease is in full force and effect,
Sublessee shall have the option to renew the Sublease for a renewal term
commencing on June 15, 1996 and ending on July 20, 1997. This option must be
exercised by giving written notice to Sublessor at least 60 days prior to the
expiration of the initial term herein. The renewal rental rate shall be $4,200
per month. Such renewal rent shall include all services and items included in
the initial lease term.
14. ATTORNEY'S FEES. If any party brings an action to enforce the terms
hereof or to declare rights hereunder, the prevailing party in any such action,
on trial and appeal, shall be entitled to his reasonable attorneys' fees to be
paid by the losing party as fixed by the Court.
INTEGRATED MEDICAL SYSTEMS, INC.
Executed at San Diego, CA
By: /s/ [SIG]
----------------------------------
Its: DIRECTOR
---------------------------------
FIRST VIRTUAL HOLDINGS INCORPORATED
Executed at San Diego, CA
By: /s/ [SIG]
----------------------------------
Its: PRESIDENT
---------------------------------
CONSENTED TO BY:
CARMEL VALLEY PARTNERS I
Executed at
--------------------------
By:
----------------------------------
Its:
---------------------------------
4
<PAGE> 5
EXHIBIT A
SPACE PLAN
THIRD FLOOR PLAN
<PAGE> 6
EXHIBIT B
MASTER LEASE
OFFICE LEASE
FOR THE
CARMEL VALLEY CENTRE
by and between
Landlord: Carmel Valley Partners I
and
Tenant: Integrated Medical Systems, Inc.
Dated: July 20, 1992
<PAGE> 7
EXHIBIT C
OFFICE FURNITURE INVENTORY
#1 1 white oak executive desk
1 built-in white oak/granite credenza
1 black leather caster chair
2 sled base black leather side chairs
1 fabric covered couch
1 matching fabric chair
1 square white oak end table
1 lucite shelf
3 framed artwork
2 phones
4 pots with plants
#2 1 round white oak table
4 black leather caster chairs
built-in shelves with refrigerator
1 green glass pot
1 phone
1 gold finish ice bucket
#3 1 white oak executive desk
1 white oak credenza
1 operator chair
1 framed artwork
1 phone
#4 1 built-in desk with credenza
built-in overhead shelves
2 sled based black leather side chairs
1 executive chair
2 2-drawer black lateral file cabinets
1 pot with plant
1 framed artwork
1 phone
1 Pot with Plant
#5 1 executive desk
1 executive chair
2 sled base black leather side chairs
2 pots with plants
1 framed artwork
1 phone
#6 1 secretarial desk
1 operator chair
2 2-drawer black lateral file cabinets
1 framed artwork
1 phone
1 Pot with Plant
#7 1 executive desk
2 sled base black leather side chairs
1 executive chair
1 phone
<PAGE> 8
EXHIBIT F-1
#8 1 executive desk
1 credenza
2 sled base black leather side chairs
1 executive chair
1 pot with plant
1 framed artwork
1 phone
#9 1 executive desk
2 sled base black leather side chairs
1 pot/plant, 1 silk plant
1 framed artwork
1 phone
#10 & 11 2 secretarial desks
2 operator chairs
3 3-drawer black lateral file cabinets
2 framed artwork
2 phones
#12 built-in desk with overhead shelves
1 operator chair
1 executive chair
2 2-drawer black lateral file cabinets
2 phones
#13 built-in countertops and cabinets
Xerox 5052 copy machine
Pitney Bowes postage machine
Toshiba Perception phone system
Yamaha CD player with two 10-disc magazines
Dukane 20 watt amplifier with wall mount volume control
(11 Soundolier extended range ceiling speakers)
Nutech security system
1 wall mount phone
Hallway 1 large framed artwork
2 pots with plants
1 large green ceramic pot
2 deer sculptures
large copper plate
#14 1 built-in oak/granite receptionist desk
4 black leather guest chairs
1 Perception telephone/console
2 granite/brass round tables
2 large brass pots with plants
1 lucite shelf
HALLWAY 1 2-Drawer Lateral File Cabinet
Between 1 4-Drawer Lateral File Cabinet
#7 & #12
<PAGE> 9
EXHIBIT F-1
#15 1 built-in oak/granite conference table
built-in oak/granite cabinets
10 black leather conference chairs
4 pots with plants
1 large multi-colored bowl
2 framed artwork
2 phones
#16 built-in countertop and cabinets
Nutech security system keypad
1 Framed Artwork
#17 1 round dining table
3 dining chairs
built-in countertop with stainless steel sink
with filtered water faucet and garbage disposal
built-in cabinets
1 dishwasher
1 refrigerator
1 ice-maker
1 microwave oven
2 framed artwork
1 wall mount phone
#18 1 executive desk and credenza
1 executive chair
2 black leather caster chairs
2 drawer black file cabinets
1 Phone
#19 & #20 2 secretarial desks
2 operator chairs
3 3-drawer black file cabinets
2 Buffett artwork
2 Phones
#21 1 executive desk and 1 computer credenza
2 fabric-covered guest chairs and 1 operator chair
1 Phone
#22 1 executive desk
1 executive chair
1 3-drawer file cabinet
2 black leather caster chairs
1 Buffett artwork
1 Phone
#23 1 executive desk
1 executive chair and 2 black leather side chairs
1 3-drawer black lateral file cabinet
1 brass-granite table
1 Phone
#25 & #26 2 secretarial desks
2 operator chairs
3 3-drawer black lateral file cabinets
2 Buffett artwork
2 Phones
<PAGE> 10
EXHIBIT F-1
#27 1 silk plant
1 Phone
Hallway 4 4-drawer lateral file cabinets
1 artwork
#24 1 Executive Desk and Credenza
1 Executive Chair and 2 Leather side chairs
2 4-drawer file cabinets
1 Pot with Plant
1 Phone
#29 1 Executive Desk and credenza
1 Leather Executive chair
2 Leather side chairs
1 Phone
#30 1 Executive desk and credenza
1 Executive chair and 2 leather side chairs
2 4-drawer lateral file cabinets
1 Phone
Hallway
Between
#29 & #26 2 3-drawer lateral file cabinets
<PAGE> 11
EXHIBIT ??
THIRD FLOOR PLAN
<PAGE> 12
EXHIBIT D
AGREEMENT
This Agreement is between Developer Marketing Associates, Inc. ("DMA")
and First Virtual Holdings Incorporated ("Sublessee") and is effective this
_____ day of June, 1995.
WHEREAS, DMA and First Virtual each sublease contiguous space in the
Carmel Valley Centre, 11975 El Camino Real, San Diego, California, from
Integrated Medical Systems, Inc. ("IMS");
WHEREAS, the DMA and First Virtual sublease agreements are coterminous;
WHEREAS, IMS leases its space under a master lease whereby Carmel
Valley Partners I ("Carmel Valley") is the lessor and IMS is the lessee; and
WHEREAS, DMA and First Virtual desire to grant certain rights with
respect to any future subleasing by either party of the space subleased from
IMS.
Now, therefore, in consideration of the mutual promises, agreements,
and representations herein, the parties agree as follows:
1. MUTUAL GRANTS OF RIGHT OF FIRST REFUSAL. If either DMA or
First Virtual desire to sublease all or a portion of the space which they
sublease from IMS, the party desiring to sublease shall first offer such space
to the other party hereto. The other party shall have the right, for a period
of 30 days after receiving notice from subleasing party of the offer to
sublease the offered space, to enter into a sublease agreement with the
subleasing party upon terms and conditions to be negotiated in good faith
between the parties.
2. NO GRANT OF RIGHT OF FIRST NEGOTIATION. Each party shall have
the right to negotiate with Carmel Valley for a new lease, without any
obligation or liability of any nature whatsoever to the other party.
3. RECEPTIONIST. Sublessee shall make direct payments to DMA of
50% of all monthly salary and benefit costs for the receptionist employed by
DMA to service the Premises. Sublessee's share of such costs shall not exceed
$1,000 per month. Sublessee acknowledges and agrees that such receptionist is
responsible for answering the telephones at the premises, taking messages and
other standard receptionist tasks and that such receptionist shall not perform
any other administrative tasks on behalf of Sublessee.
4. COPIES AND MAIL EXPENSES. In addition, Sublessee shall pay
directly to DMA (i) one half of all lease payments for DMA's leased copy
machine located on or near the Premises (ii) $.01 per copy made by Sublessee on
such copy machine, (iii) one half of all lease and maintenance payments for
DMA's leased postage machine, and (iv) reimbursement for all postage used by
Sublessee on such postage machine. DMA shall be responsible for maintaining
the copy machine during the term of the Sublease.
6/95 Exhibit D CONTINUED
<PAGE> 13
5. SUPPLIES AND REPAIRS. First Virtual shall pay DMA 50% of all
costs of supplies for the kitchen and postage machine. In addition, First
Virtual shall pay DMA 50% of all costs of repairs to the common areas (kitchen,
reception area, supply room, conference room and other common areas). Copy
machine supplies to be reimbursed pro-rata by usage.
DEVELOPERS MARKETING ASSOCIATION, INC. FIRST VIRTUAL HOLDINGS
INCORPORATED
By: ______________________________ By: ____________________________
Its: _____________________________ Its: ___________________________
6/95 Exhibit D
<PAGE> 1
Exhibit 10.22
OFFICE LEASE
THIS LEASE made as of this 19th day of April, 1996, between KMD
FOUNDATION, a Non-Profit, a Massachusetts corporation ("Landlord"), and First
Virtual Holdings, whose address is 11975 El Camino Real, Suite 300, San Diego,
CA 92130-2543, Attention Lewis Silverberg. (Tenant).
WITNESSETH:
ARTICLE 1
PROMISES AND TERM
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord that certain space known as 514 E. Washington Street, Ann Arbor,
Michigan ("Premises") described or shown on Exhibit A attached hereto,
("Property", as further described in Article 25), subject to the provisions
herein contained. The term ("Term") of this Lease shall commence on the 1st day
of May, 1996 ("Commencement Date"), and end on the 30th day of April, 1999
("Expiration Date") unless sooner terminated as provided herein. The
Commencement Date shall be subject to adjustment as provided in Article 4.
Landlord and Tenant agree that for purposes of this Lease, the Rentable Area of
the Premises is 2,391 square feet.
ARTICLE 2
BASE RENT
Tenant shall pay Landlord monthly Base Rent of Two Thousand Eight
Hundred Eighty-Nine and 13/100 Dollars ($2,889.13) in advance on or before the
first day of each calendar month during the Term, except that Base Rent for the
first full calendar month for which Base Rent shall be due, shall be paid when
Tenant executes this Lease. If the Term commences on a day other than the
first day of a calendar month, or ends on a day other than the last day of the
calendar month, then the Base Rent for such month shall be prorated on the
basis of 1/30th of the monthly Base Rent for each day of such month.
ARTICLE 3
ADDITIONAL RENT
(A) Taxes. Tenant shall pay Landlord an amount equal to Tenant's
Prorata Share of Taxes in excess of the amount of Taxes paid by Landlord during
the calendar year 1996 ("Base Tax Year). The terms "Taxes" and "Tenant's
Prorata Share" shall have the meanings specified therefor in Article 25.
(B) Operating Expenses. Tenant shall pay Landlord an amount equal
to Tenant's Prorata Share of Operating Expenses in excess of the Operating
Expenses paid by Landlord during the calendar year 1996 ("Base Expense Year").
The terms "Operating Expenses" and "Tenant's Prorata Share" shall have the
meanings specified therefor in Article 25.
(C) CPI Escalations. If the CPI on any Adjustment Date shall be
greater than the CPI for the Commencement Date, monthly Base Rent commencing on
the Adjustment Date shall be adjusted by adding an amount (the "CPI Escalation
Amount") equal to the product obtained by multiplying: (a) the monthly Base
Rent, by (b) the percentage increase in the CPI from the Commencement Date
through the Adjustment Date and deducting amounts paid under A and B above in
this Article 3. "Adjustment Date" shall mean each January 1, during the Term.
The term "CPI" shall have the meaning specified therefor in Article 25. Capped
at four percent (4%).
(D) Utilities. Tenant shall pay for all electricity, gas,
telephone and other utilities including any deposits on turn-on charges.
(E) Manner of Payment. CPI Escalation Amounts, Taxes, and
Operating Expenses shall be paid in the following manner:
(i) Landlord may reasonably estimate in advance the
amounts Tenant shall owe for Taxes and Operating Expenses for any full or
partial calendar year of the Term. In such event, Tenant shall pay such
estimated amounts, on a monthly basis, on or before the first day
<PAGE> 2
of each calendar month, together with Tenant's payment of Base Rent. Such
estimate may be reasonably adjusted from time to time by Landlord.
(ii) Within 120 days after the end of each calendar year,
or as soon thereafter as practicable, Landlord shall provide a statement (the
"Statement") to Tenant showing: (a) the amount of actual Taxes and Operating
Expenses for such calendar year, with a listing of amounts for major categories
of Operating Expenses, and such amounts for the Base Year, (b) any amount paid
by Tenant towards Taxes and Operating Expenses during such calendar year on an
estimated basis, (c) any revised estimate of Tenant's obligations for Taxes and
Operating Expenses for the current calendar year, and (d) any increased CPI
Escalation Amount.
(iii) If the Statement shows that Tenant's estimated
payments were less than Tenant's actual obligations for Taxes and Operating
Expenses for such year, Tenant shall pay the difference. If the Statement
shows an increase in Tenant's estimated payments for the current calendar year,
Tenant shall pay the difference between the new and former estimates, for the
period from January 1 of the current year through the month in which the
Statement is sent. Tenant shall make such payment within thirty (30) days
after Landlord sends the Statement.
(iv) If the Statement shows that Tenant's estimated
payments exceeded Tenant's actual obligations for Taxes and Operating Expenses,
Tenant shall receive a credit for the difference against payments of Rent next
due. If the Term shall have expired and no further Rent shall be due, Tenant
shall receive a refund of such difference, within thirty (30) days after
Landlord sends the Statement.
(v) If the Statement shows an increased net CPI
Escalation Amount, Tenant shall pay the difference between the former CPI
Escalation Amount and the increased CPI Escalation Amount for the period from
January 1 of the year in which Landlord sends the Statement, through the month
in which the Statement is sent, within thirty (30) days after Landlord sends
the Statement. Tenant shall thereafter pay Base Rent, as increased by the CPI
Escalation Amount set forth in the Statement.
(vi) So long as Tenant's obligations hereunder are not
materially adversely affected thereby, Landlord reserves the right to change,
from time to time, the manner or timing of the foregoing payments. In lieu of
providing one Statement covering Taxes, Operating Expenses, and CPI Escalation
Amounts, Landlord may provide separate statements at the same or different
times. No delay by Landlord in providing the Statement (or separate
statements) shall be deemed a default by Landlord or a waiver of Landlord's
right to require payment of Tenant's obligations for actual or estimated Taxes
or Operating Expenses, or CPI Escalation Amounts. In no event shall a decrease
in Taxes or Operating Expenses below the Base Year amounts give rise to a
credit in favor of Tenant, or a decrease in the CPI ever decrease the monthly
Base Rent.
(F) Proration. If the Term commences other than on January 1, or
ends other than on December 31, Tenant's obligations to pay estimated and
actual amounts towards Taxes and Operating Expenses for such first or final
calendar years shall be prorated to reflect the portion of such years included
in the Term. Such proration shall be made by multiplying the total estimated
or actual (as the case may be) Taxes and Operating Expenses, for such calendar
years, as well as the Base Year amounts, by a fraction, the numerator of which
shall be the number of days of the Term during such calendar year, and the
denominator of which shall be 365.
(G) Landlord's Records. Landlord shall maintain records
respecting Taxes and Operating Expenses and determine the same in accordance
with sound accounting and management practices, consistently applied. Although
this Lease contemplates the computation of Taxes and Operating Expenses on a
cash basis, Landlord shall make reasonable and appropriate accrual adjustments
to ensure that each calendar year, including the Base Years, includes
substantially the same recurring items. Landlord reserves the right to change
to a full accrual system of accounting so long as the same is consistently
applied and Tenant's obligations are not materially adversely affected. Tenant
or its representatives shall have the right to examine such records upon
reasonable prior notice specifying such records Tenant desires to examine,
during normal business hours at the place or places where such records are
normally kept by sending such notice no later than forty-five (45) days
following the furnishing of the Statement. Tenant may take exception to
matters included in Taxes or Operating Expenses, or Landlord's computation of
Tenant's Prorata Share of either, by sending notice specifying such exception
and the reasons therefor to Landlord no later than thirty (30) days after
Landlord makes such records available for examination. Such Statement shall be
considered final, except as to matters to which exception is taken after
examination of Landlord's records in the foregoing manner and within the
foregoing times. Tenant acknowledges that Landlord's ability to budget and
incur expenses depends on the finality of
2
<PAGE> 3
such Statement, and accordingly agrees that time is of the essence of this
Paragraph. If Tenant takes exception to any matter contained in the Statement as
provided herein, Landlord shall refer the matter to an independent Certified
Public Accountant, whose certification as to the proper amount shall be final
and conclusive as between Landlord and Tenant. Tenant shall promptly pay the
cost of such certification unless such certification determines that Tenant was
over-billed by more than five percent (5%). Pending resolution of any such
exceptions in the foregoing manner, Tenant shall continue paying Tenant's
Prorata Share of Taxes and Operating Expenses in the amounts determined by
Landlord, subject to adjustment after any such exceptions are so resolved.
(H) Rent and Other Charges. Base Rent, Taxes, Operating Expenses,
CPI Escalation Amounts, Late Charges, Default Interest, and any other amounts
which Tenant is or becomes obligated to pay Landlord under this Lease or other
agreement entered in connection herewith, are sometimes herein referred to
collectively as "Rent", and all remedies applicable to the nonpayment of Rent
shall be applicable thereto. Rent shall be paid at any office maintained by
Landlord or its agent at the Property, or at such place as Landlord may
designate.
ARTICLE 4
COMMENCEMENT OF TERM
The Commencement Date set forth in Article I shall be delayed and Rent
shall be abated to the extent that Landlord fails: (i) to substantially
complete any improvements to the Premises required to be performed by Landlord
under any separate agreement signed by both parties, or (ii) to deliver
possession of the Premises for any other reason, including but not limited to
holding over by prior occupants, except to the extent that Tenant, its
contractors, agents, or employees in any way contribute to either such
failures. If Landlord so fails for a ninety (90) day initial grace period, or
such additional time as may be necessary due to fire or other casualty,
strikes, lock-outs or other labor troubles, shortages of equipment or
materials, governmental requirements, power shortages or outages, acts or
omissions of Tenant or other Persons, or other causes beyond Landlord's
control, Tenant shall have the right to terminate this Lease by written notice
to Landlord at any time thereafter up until Landlord substantially completes
any such improvements and delivers the Premises to Tenant. Any such delay in
the Commencement Date shall not subject Landlord to liability for loss or
damage resulting therefrom, and Tenant's sole recourse with respect thereto
shall be the abatement of Rent and right to terminate this Lease described
above. Upon any such termination, Landlord and Tenant shall be entirely
relieved of their obligations hereunder, and any Security Deposit and Rent
payments shall be returned to Tenant. If the Commencement Date is delayed, the
Expiration Date shall be similarly extended. During any period that Tenant
shall be permitted to enter the Promises prior to the Commencement Date other
than to occupy the same (e.g., to perform alterations or improvements), Tenant
shall comply with all terms and provisions of this Lease, except those
provisions requiring the payment of Rent. If Tenant shall be permitted to
enter the Premises prior to the Commencement Date for the purpose of occupying
the same, Rent shall commence on such date, and if Tenant shall commence
occupying only a portion of the Premises prior to the Commencement Date, Rent
shall be prorated based on the number of rentable square feet occupied by
Tenant. Landlord shall permit early entry, provided the Premises are legally
available and Landlord has completed any work required under this Lease or any
separate agreement entered in connection herewith.
ARTICLE 5
CONDITION OF PREMISES
This section intentionally left blank.
ARTICLE 6
USE AND RULES
Tenant shall use the Premises for offices and no other purpose
whatsoever, in compliance with all applicable Laws and without disturbing or
interfering with any other tenant or occupant of the Property. Tenant shall
not use the Premises in any manner so as to cause a cancellation of Landlord's
insurance policies or an increase in the premiums thereunder. Tenant shall
comply with all rules set forth in Rider One attached hereto (the "Rules").
Landlord shall have the right to reasonably amend such Rules and supplement the
same with other reasonable Rules (not expressly inconsistent with this Lease)
relating to the Property, or
3
<PAGE> 4
the promotion of safety, care, cleanliness or good order therein, and all such
amendments or new Rules shall be binding upon Tenant after five (5) days notice
thereof to Tenant. All Rules shall be applied on a non-discriminatory basis,
but nothing herein shall be construed to give Tenant or any other Person (as
defined in Article 25) any claim, demand, or cause of action against Landlord
arising out of the violation of such Rules by any other tenant, occupant, or
visitor of the Property, or out of the enforcement or waiver of the Rules by
Landlord in any particular instance.
ARTICLE 7
SERVICES AND UTILITIES
Landlord shall provide the following services and utilities (the cost
of which shall be included in Operating Expenses unless otherwise stated herein
or in any separate rider hereto):
(A) Electricity for standard office lighting fixtures and
equipment and accessories customary for offices (up to 260 hours per month)
where: (1) the connected electrical load of all of the same does not exceed an
average of 3.25 watts per square foot of the Rentable Area of the Premises (or
such lesser amount as may be available, based on the safe and lawful capacity
of the existing electrical circuit(s) (and facilities serving the Premises),
(2) the electricity will be at nominal 120 volts, single phase (or 110 volts,
depending on available service in the Building), and (3) the safe and lawful
capacity of the existing electrical circuit(s) serving the Premises is not
exceeded.
(B) Heat and air conditioning to provide a temperature required,
in Landlord's reasonable opinion and in accordance with applicable Law, for
occupancy of the Premises under normal business operations, from 8:00 a.m.
until 6:00 p.m., Monday through Friday, 9:00 a.m. until 1 p.m., Saturdays.
Sundays and Holidays (as defined in Article 25) are excepted. Landlord shall
not be responsible for inadequate air-conditioning or ventilation to the extent
the same occurs because Tenant uses any item of equipment consuming more than
500 wafts at rated capacity without providing adequate air conditioning and
ventilation therefor.
(C) Water for drinking, lavatory, and toilet purposes at those
points of supply provided for non-exclusive general use of other tenants at the
Property.
(D) Customary office cleaning and trash removal service Monday
through Friday or Sunday through Thursday in and about the Premises.
(E) Operatorless passenger elevator service (if the Property has
such equipment serving the Premises) and freight elevator service (if the
Property has such equipment serving the Premises, and subject to scheduling by
Landlord) in common with Landlord and other tenants and their contractors,
agents, and visitors.
(F) Landlord shall seek to provide such extra utilities or
services as Tenant may from time to time request, if the same are reasonable
and feasible for Landlord to provide and do not involve modifications or
additions to the Property or existing Systems and Equipment (as defined in
Article 25), and if Landlord shall receive Tenant's request within a reasonable
period prior to the time such extra utilities or services are required.
Landlord may comply with written or oral requests by any officer or employee of
Tenant, unless Tenant shall notify Landlord of, or Landlord shall request, the
names of authorized individuals (up to 3 for each floor on which the Promises
are located) and procedures for written requests. Tenant shall, for such extra
utilities or services, pay such charges as Landlord shall from time to time
reasonably establish. All charges for such extra utilities or services shall
be due at the same time as the installment of Base Rent with which the same are
billed, or if billed separately, shall be due within twenty (20) days after
such billing.
Landlord shall, with respect to electrical services supplied to the
Premises, elect from time to time during the Lease Term: (1) to install
individual meters, in which event all charges for electricity shall be paid
promptly by Tenant before the same become delinquent; (2) to charge Tenant for
electricity as shown by meter at the applicable General Service Rate as
prescribed by the proper regulating authorities then in effect from time to
time covering such services; or (3) to charge Tenant based upon the then
current kilowatt hours charge for electricity on the basis of the product of
3.25 watts per square foot of the Rentable Area of the Premises as set forth in
Article 1 multiplied by the hours of operation per month, which is agreed to be
sixty (60) hours per week and four and one-third (4 1/3) weeks per month. From
time to time during the Lease Term, Landlord may inspect the Leased Premises in
order to evaluate Tenant's kilowatt-hour electric consumption, and if as a
result of such inspection Landlord determines Tenant's use exceeds 3.25 watts
per square foot of the Rentable Area of the Premises, or if Landlord determines
Tenant's hours of operation are in excess of sixty (60)
4
<PAGE> 5
hours per week, then Landlord shall so notify Tenant in writing and, commencing
with the first day of the next calendar month, Tenant shall pay a revised
electric charge to reflect such excess use.
Landlord may install and operate meters or any other reasonable system
for monitoring or estimating any services or utilities used by Tenant in excess
of those required to be provided by Landlord under this Article (including a
system for Landlord's engineer to reasonably estimate such excess usage). If
such system indicates such excess services or utilities, Tenant shall pay
Landlord's reasonable charges for installing and operating such system and any
supplementary air-conditioning, ventilation, heat, electrical, or other systems
or equipment (or adjustments or modifications to the existing System and
Equipment), and Landlord's reasonable charges for such amount of excess
services or utilities used by Tenant.
Landlord does not warrant that any services or utilities will be free
from shortages, failures, variations, or interruptions caused by repairs,
maintenance, replacements, improvements, alterations, changes of service,
strikes, lockouts, labor controversies, accidents, inability to obtain
services, fuel, steam, water or supplies, governmental requirements or
requests, or other causes beyond Landlord's reasonable control. None of the
same shall be deemed an eviction or disturbance of Tenant's use and possession
of the Premises or any part thereof, or render Landlord liable to Tenant for
abatement of Rent, or relieve Tenant from performance of Tenant's obligations
under this Lease. Landlord in no event shall be liable for damages by reason
of loss of profits, business interruption, or other consequential damages.
ARTICLE 8
ALTERATIONS AND LIENS
Tenant shall make no additions, changes, alterations, or improvements
(the "Work") to the Premises or the Systems and Equipment (as defined in
Article 25) pertaining to the Premises without the prior written consent of
Landlord. Landlord may impose reasonable requirements as a condition of such
consent, including without limitation the submission of plans and
specifications for Landlord's prior written approval; obtaining necessary
permits; posting bonds; obtaining insurance; prior approval of contractors,
subcontractors, and suppliers; prior receipt of copies of all contracts and
subcontracts; contractor and subcontractor lien waivers; affidavits listing all
contractors, subcontractors, and suppliers; use of union labor (if Landlord
uses union labor); affidavits from engineers acceptable to Landlord stating
that the Work will not adversely affect the Systems and Equipment or the
structure of the Property; and requirements as to the manner and times in which
such Work shall be done. All Work shall be performed in a good and workmanlike
manner and all materials used shall be of a quality comparable to or better
than those in the Premises and Property and shall be in accordance with plans
and specifications approved by Landlord, and Landlord may require that all such
Work be performed under Landlord's supervision. In all cases, Tenant shall pay
Landlord a reasonable fee to cover Landlord's overhead in reviewing Tenant's
plans and specifications and performing any supervision of the Work. If
Landlord consents or supervises, the same shall not be deemed a warranty as to
the adequacy of the design, workmanship, or quality of materials, and Landlord
hereby expressly disclaims any responsibility or liability for the same.
Landlord shall under no circumstances have any obligation to repair, maintain,
or replace any portion of the Work.
Tenant shall keep the Property and Premises free from any mechanic's,
materialman's, or similar liens or other such encumbrances in connection with
any Work on or respecting the Premises not performed by or at the request of
Landlord and shall indemnity and hold Landlord harmless from and against any
claims, liabilities, judgments, or costs (including attorneys' fees) arising
out of the same or in connection therewith. Tenant shall give Landlord notice
at least twenty (20) days prior to the commencement of any Work on the Premises
(or such additional time as may be necessary under applicable Laws) to afford
Landlord the opportunity of posting and recording appropriate notices of
non-responsibility. Tenant shall remove any such lien or encumbrance by bond
or otherwise within thirty (30) days after written notice by Landlord, and if
Tenant shall fail to do so, Landlord may pay the amount necessary to remove
such lien or encumbrance, without being responsible for investigating the
validity thereof. The amount so paid shall be deemed additional Rent under
this Lease payable upon demand, without limitation as to other remedies
available to Landlord under this Lease. Nothing contained in this Lease shall
authorize Tenant to do any act which shall subject Landlord's title to the
Property or Premises to any liens or encumbrances whether claimed by operation
of law or express or implied contract. Any claim to a lien or encumbrance upon
the Property or Premises arising in connection with any Work on or respecting
the Premises not performed by or at the request of Landlord shall be null and
void, or at Landlord's option shall attach only against Tenant's interest in
the Premises and shall in all respects be subordinate to Landlord's title to
the Property and Premises.
5
<PAGE> 6
ARTICLE 9
REPAIRS
Except for customary cleaning and trash removal provided by Landlord
under Article 7, and damage covered under Article 10, Tenant shall keep the
Premises in good and sanitary condition, working order, and repair (including
without limitation, carpet, wall covering, doors, plumbing, and other fixtures,
equipment, alterations, and improvements, whether installed by Landlord or
Tenant). In the event that any repairs, maintenance, or replacements are
required, Tenant shall promptly arrange for the same, either through Landlord
for such reasonable charges as Landlord may from time to time establish, or
such contractors as Landlord generally uses at the Property or such other
contractors as Landlord shall first approve in writing, and in a first class,
workmanlike manner approved by Landlord in advance in writing. If Tenant does
not promptly make such arrangements, Landlord may, but need not, make such
repairs, maintenance, and replacements, and the costs paid or incurred by
Landlord therefor shall be reimbursed by Tenant promptly after request by
Landlord. Tenant shall indemnify Landlord and pay for any repairs,
maintenance, and replacements to areas of the Property outside the Premises,
caused, in whole or in part, as a result of moving any furniture, fixtures, or
other property to or from the Premises, or by Tenant or its employees, agents,
contractors, or visitors (notwithstanding anything to the contrary contained in
this Lease). Except as provided in the preceding sentence, or for damage
covered under Article 10, Landlord shall keep the common areas of the Property
in good and sanitary condition, working order, and repair (the cost of which
shall be included in Operating Expenses, as described in Article 25, except as
limited therein).
ARTICLE 10
CASUALTY DAMAGE
If the Premises or any common areas of the Property providing access
thereto shall be damaged by fire or other casualty, Landlord shall use
available insurance proceeds to restore the same. Such restoration shall be to
substantially the condition prior to the casualty, except for modifications
required by zoning and building codes and other Laws or by any Holder (as
defined in Article 25), any other modifications to the common areas deemed
desirable by Landlord (provided access to the Premises is not materially
impaired), and except that Landlord shall not be required to repair or replace
any of Tenant's furniture, furnishings, fixtures, or equipment, or any
alterations or improvements in excess of any work performed or paid for by
Landlord under any separate agreement signed by the parties in connection
herewith. Landlord shall not be liable for any inconvenience or annoyance to
Tenant or its visitors, or injury to Tenant's business resulting in any way
from such damage or the repair thereof. However, Landlord shall allow Tenant a
proportionate abatement of Rent during the time and to the extent the Premises
are unfit for occupancy for the purposes permitted under this Lease and not
occupied by Tenant as a result thereof (unless Tenant or its employees or
agents caused the damage). Notwithstanding the foregoing to the contrary,
Landlord may elect to terminate this Lease by notifying Tenant in writing of
such termination within sixty (60) days after the date of damage (such
termination to include a termination date providing at least ninety (90) days
for Tenant to vacate the Premises) if the Property shall be materially damaged
by Tenant or its employees or agents, or if the Property shall be damaged by
fire or other casualty or cause such that: (a) repairs to the Premises and
access thereto cannot reasonably be completed within 120 days after the
casualty without the payment of overtime or other premiums, (b) more than 25%
of the Premises is affected by the damage, and fewer than 24 months remain in
the Term, or any material damage occurs to the Premises during the last 12
months of the term, (c) any Holder (as defined in Article 25) shall require
that the insurance proceeds or any portion thereof be used to retire the
Mortgage debt (or shall terminate the ground lease, as the case may be), or the
damage is not fully covered by Landlord's insurance policies, or (d) the cost
of the repairs, alterations, restoration, or improvement work would exceed 25%
of the replacement value of the Building, or the nature of such work would make
termination of this Lease necessary or convenient. Tenant agrees that
Landlord's obligation to restore, and the abatement of Rent provided herein,
shall be Tenant's sole recourse in the event of such damage, and waives any
other rights Tenant may have under applicable Law to terminate the Lease by
reason of damage to the Premises or Property. Tenant acknowledges that this
Article represents the entire agreement between the parties respecting damage
to the Premises or Property.
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ARTICLE 11
INSURANCE, SUBROGATION, AND WAIVER OF CLAIMS
Tenant shall maintain during the Term comprehensive (or commercial)
general liability insurance, with limits of not less than $1,000,000 per person
per occurrence for personal injury, bodily injury, or death, or property damage
or destruction (including loss of use thereof) for any one occurrence. Tenant
shall also maintain during the Term worker compensation insurance as required by
statute, and primary, non-contributory, "all-risk" property damage insurance
covering Tenant's personal property, business records, fixtures, and equipment
for damage or other loss caused by fire or other casualty or cause including,
but not limited to, vandalism and malicious mischief, theft, water damage of any
type, including sprinkler leakage, bursting or stoppage of pipes, explosion,
business interruption, and other insurable risks in amounts not less than the
full insurable replacement value of such property and full insurable value of
such other interests of Tenant (subject to reasonable deductible amounts).
Landlord shall, as part of Operating Expenses, maintain during the Term
comprehensive (or commercial) general liability insurance, with limits of not
less than $1,000,000 per person per occurrence for personal injury, bodily
injury, or death, or property damage or destruction (including loss of use
thereof) for any one occurrence. Landlord shall also, as part of Operating
Expenses, maintain during the Term worker compensation insurance as required by
statute, and primary, non-contributory, extended coverage or "all-risk" property
damage insurance, in an amount equal to at least ninety percent (90%) of the
full insurable replacement value of the Property (exclusive of the costs of
excavation, foundations, and footings, and such risks required to be covered by
Tenant's insurance, and subject to reasonable deductible amounts), or such other
amount necessary to prevent Landlord from being a co-insured, and such other
coverage as Landlord shall deem appropriate or that may be required by any
Holder (as defined in Article 25).
Tenant shall provide Landlord with certificates evidencing such
coverage (and, with respect to liability coverage, showing Landlord and the
Management Company, McKinley Commercial, Inc. as additional insureds) prior to
the Commencement Date, which shall state that such insurance coverage may not
be changed or canceled without at least twenty (20) days' prior written notice
to Landlord, and shall provide renewal certificates to Landlord at least twenty
(20) days prior to expiration of such policies. Landlord may periodically, but
not more often than every five years, require that Tenant reasonably increase
the aforementioned coverage. Except as provided to the contrary herein, any
insurance carried by Landlord or Tenant shall be for the sole benefit of the
party carrying such insurance. Any insurance policies hereunder may be
"blanket policies". All insurance required hereunder shall be provided by
responsible insurers and Tenant's insurer shall be reasonably acceptable to
Landlord. By this Article, Landlord and Tenant intend that their respective
property loss risks shall be borne by responsible insurance carriers to the
extent above provided, and Landlord and Tenant hereby agree to look solely to,
and seek recovery only from, their respective insurance carriers in the event
of a property loss to the extent that such coverage is agreed to be provided
hereunder. The parties each hereby waive all rights and claims against each
other for such losses, and waive all rights of subrogation to their respective
insurers, provided such waiver of subrogation shall not affect the right of the
insured to recover thereunder. The parties agree that their respective
insurance policies are now, or shall be, endorsed such that said waiver of
subrogation shall not affect the right of the insured to recover thereunder, so
long as no material additional premium is charged therefor.
ARTICLE 12
CONDEMNATION
If the whole or any material part of the Premises or Property shall be
taken by power of eminent domain or condemned by any competent authority for
any public or quasi-public use or purpose, or if any adjacent property or
street shall be so taken or condemned, or reconfigured or vacated by such
authority in such manner as to require the use, reconstruction, or remodeling
of any part of the Premises or Property, or if Landlord shall grant a deed or
other instrument in lieu of such taking by eminent domain or condemnation,
Landlord shall have the option to terminate this Lease upon ninety (90) days
notice, provided such notice is given no later than 180 days after the date of
such taking, condemnation, reconfiguration, vacation, deed or other instrument.
Tenant shall have reciprocal termination rights if the whole or any material
part of the Promises is permanently taken, or it access to the Premises is
permanently materially impaired. Landlord shall be entitled to receive the
entire award or payment in connection therewith, except that Tenant shall have
the right to file any separate claim available to Tenant for any taking of
Tenant's personal property and fixtures belonging to Tenant and removable by
Tenant upon expiration of the Term, and for moving expenses (so long as such
claim does not diminish the award available to Landlord or any Holder, and such
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claim is payable separately to Tenant). All Rent shall be apportioned as of
the date of such termination, or the date of such taking, whichever shall first
occur. If any part of the Premises shall be taken, and this Lease shall not be
so terminated, the Rent shall be proportionately abated.
ARTICLE 13
RETURN OF POSSESSION
At the expiration or earlier termination of this Lease or Tenant's
right of possession, Tenant shall surrender possession of the Premises in the
condition required under Article 9, ordinary wear and tear excepted, and shall
surrender all keys, any key cards, and any parking stickers or cards, to
Landlord, and advise Landlord as to the combination of any locks or vaults then
remaining in the Premises, and shall remove all trade fixtures and personal
property. All improvements, fixtures, and other items in or upon the Premises
(except trade fixtures and personal property belonging to Tenant), whether
installed by Tenant or Landlord, shall be Landlord's property and shall remain
upon the Premises, all without compensation, allowance or credit to Tenant.
However, if prior to such termination or within ten (10) days thereafter
Landlord so directs by notice, Tenant shall promptly remove such of the
foregoing items as are designated in such notice and restore the Premises to
the condition prior to the installation of such items; provided, Landlord shall
not require removal of customary office improvements installed pursuant to any
separate agreement signed by both parties in connection with entering this
Lease (except as expressly provided to the contrary therein), or installed by
Tenant with Landlord's written approval (except as expressly required by
Landlord in connection with granting such approval). If Tenant shall fail to
perform any repairs or restoration, or fail to remove any items from the
Premises required hereunder, Landlord may do so, and Tenant shall pay Landlord
the cost thereof upon demand. All property removed from the Premises by
Landlord pursuant to any provisions of this Lease or any Law may be handled or
stored by Landlord at Tenant's expense, and Landlord shall in no event be
responsible for the value, preservation, or safekeeping thereof. All property
not removed from the Premises or retaken from storage by Tenant within thirty
(30) days after expiration or earlier termination of this Lease or Tenant's
right to possession shall, at Landlord's option, be conclusively deemed to have
been conveyed by Tenant to Landlord as if by bill of sale without payment by
Landlord. Unless prohibited by applicable Law, Landlord shall have a lien
against such property for the costs incurred in removing and storing the same.
ARTICLE 14
HOLDING OVER
Unless Landlord expressly agrees otherwise in writing, Tenant shall
pay Landlord one hundred fifty percent (150%) of the amount of Rent then
applicable (or the highest amount permitted by Law, whichever shall be less)
prorated on per them basis for each day Tenant shall retain possession of the
Premises or any part thereof after expiration or earlier termination of this
Lease, together with all damages sustained by Landlord on account thereof. The
foregoing provisions shall not serve as permission for Tenant to hold-over, nor
serve to extend the Term (although Tenant shall remain bound to comply with all
provisions of this Lease until Tenant vacates the Premises, and shall be
subject to the provisions of Article 13). Notwithstanding the foregoing to the
contrary, at any time before or after expiration or earlier termination of the
Lease, Landlord may serve notice advising Tenant of the amount of Rent and
other terms required, should Tenant desire to enter a month-to-month tenancy
(and if Tenant shall hold over more than one full calendar month after such
notice, Tenant shall thereafter be deemed a month-to-month tenant, on the terms
and provisions of this Lease then in effect, as modified by Landlord's notice,
and except that Tenant shall not be entitled to any renewal or expansion rights
contained in this Lease or any amendments hereto).
ARTICLE 15
NO WAIVER
No provision of this Lease will be deemed waived by either party
unless expressly waived in writing signed by the waiving party. No waiver
shall be implied by delay or any other act or omission of either party. No
waiver by either party of any provision of this Lease shall be deemed a waiver
of such provision with respect to any subsequent matter relating to such
provision, and Landlord's consent or approval respecting any action by Tenant
shall not constitute a waiver of the requirement for obtaining Landlord's
consent or approval respecting
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any subsequent action. Acceptance of Rent by Landlord shall not constitute a
waiver of any breach by Tenant of any term or provision of this Lease. No
acceptance of a lesser amount than the Rent herein stipulated shall be deemed a
waiver of Landlord's right to receive the full amount due, nor shall any
endorsement or statement on any check or payment or any letter accompanying
such check or payment be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the full amount due. The acceptance of Rent or of the performance of any other
term or provision from any Person other than Tenant, including any Transferee,
shall not constitute a waiver of Landlord's right to approve any transfer.
ARTICLE 16
ATTORNEY'S FEES AND JURY TRIAL
In the event of any litigation between the parties, the prevailing
party shall be entitled to obtain, as part of the judgment, all reasonable
attorneys' fees, costs, and expenses incurred in connection with such
litigation, except as may be limited by applicable Law. In the interest of
obtaining a speedier and less costly hearing of any dispute, the parties hereby
each irrevocably waive the right to trial by jury.
ARTICLE 17
PERSONAL PROPERTY TAXES, RENT TAXES, AND OTHER TAXES
Tenant shall pay prior to delinquency all taxes, charges or other
governmental impositions assessed against or levied upon Tenants fixtures,
furnishings, equipment, and personal property located in the Premises and any
Work to the Premises under Article 8. Whenever possible, Tenant shall cause all
such items to be assessed and billed separately from the property of Landlord.
In the event any such items shall be assessed and billed with the property of
Landlord, Tenant shall pay Landlord its share of such taxes, charges, or other
governmental impositions within thirty (30) days after Landlord delivers a
statement and a copy of the assessment or other documentation showing the
amount of such impositions applicable to Tenant's property. Tenant shall pay
any rent tax or sales tax, service tax, transfer tax, or value added tax or any
other applicable tax on the Rent or services herein or otherwise respecting
this Lease.
ARTICLE 18
REASONABLE APPROVALS
Whenever Landlord's approval or consent is expressly required under
this Lease (including Article 21) or any other agreement between the parties,
Landlord shall not unreasonably withhold or delay such approval or consent
(reasonableness shall be a condition to Landlord's enforcement of such consent
or approval requirement, and not a covenant), except for matters affecting the
structure, safety or security of the Property, or the appearance of the
Property from any common or public areas.
ARTICLE 19
SUBORDINATION, ATTORNMENT, AND MORTGAGEE PROTECTION
This Lease is subject and subordinate to all Mortgages (as defined in
Article 25) now or hereafter placed upon the Property, and all other
encumbrances and matters of public record applicable to the Property. If any
foreclosure proceedings are initiated by any Holder or a deed in lieu is
granted (or if any ground lease is terminated), Tenant agrees, upon written
request of any such Holder or any purchaser at foreclosure sale, to attorn and
pay Rent to such party and to execute and deliver any instruments necessary or
appropriate to evidence or effectuate such attornment (provided such Holder or
purchaser shall agree to accept this Lease and not disturb Tenant's occupancy,
so long as Tenant does not default and fail to cure within the time permitted
hereunder). However, in the event of attornment, no Holder shall be: (i)
liable for any act or omission of Landlord, or subject to any offsets or
defenses which Tenant might have against Landlord (prior to such Holder
becoming Landlord under such attornment), (ii) liable for any security deposit
or bound by any prepaid Rent not actually received by such Holder, or (iii)
bound by any future modification of this Lease not consented to by such Holder.
Any Holder (as defined in Article 25) may elect to make this Lease prior to the
lien of its Mortgage, by written notice to Tenant, and if the Holder of any
prior Mortgage
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shall require, this Lease shall be prior to any subordinate Mortgage. Tenant
agrees to give any Holder, by certified mail, return receipt requested, a copy
of any notice of default served by Tenant upon Landlord, provided that prior to
such notice Tenant has been notified in writing (by way of service on Tenant,
of a copy of an assignment of leases, or otherwise) of the address of such
Holder. Tenant further agrees that if Landlord shall have failed to cure such
default within the times permitted Landlord for cure under this Lease, any such
Holder whose address has been provided to Tenant shall have an additional
period of thirty (30) days in which to cure (or such additional times as may be
required due to causes beyond such Holder's control, including time to obtain
possession of the Property by power of sale or judicial action). Tenant shall
execute such documentation as Landlord may reasonably request from time to
time, in order to confirm the matters set forth in this Article in recordable
form.
ARTICLE 20
ESTOPPEL CERTIFICATE
Tenant shall from time to time, within tan (10) days after written
request from Landlord, execute, acknowledge, and deliver a statement (i)
certifying that this Lease is unmodified and in full force and effect or, if
modified, stating the nature of such modification and certifying that this
Lease as so modified, is in full force and effect (or if this lease is claimed
not to be in force and effect, specifying the ground therefor) and any dates to
which the Rent has been paid in advance, and the amount of any Security
Deposit, (ii) acknowledging that there are not, to Tenants knowledge, any
uncured defaults on the part of Landlord hereunder, or specifying such defaults
if any are claimed, and (iii) certifying such other matters as Landlord may
reasonably request, or as may be requested by Landlord's current or prospective
Holders, insurance carriers, auditors, and prospective purchasers. Any such
statement may be relied upon by any such parties. If Tenant shall fail to
execute and return such statement within the time required herein, Tenant shall
be deemed to have agreed with the matters set forth therein.
ARTICLE 21
ASSIGNMENT AND SUBLETTING
(A) TRANSFERS. Tenant shall not, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld, as
further described below: (i) assign, mortgage, pledge, hypothecate, encumber,
or permit any lien to attach to, or otherwise transfer, this Lease or any
interest hereunder, by operation of law or otherwise, (ii) sublet the Premises
or any part thereof, or (iii) permit the use of the Premises by any Persons (as
defined in Article 25) other than Tenant and its employees (all of the
foregoing are hereinafter sometimes referred to collectively as "Transfers" and
any Person to whom any Transfer is made or sought to be made is hereinafter
sometimes referred to as a "Transferee"). If Tenant shall desire Landlord's
consent to any Transfer, Tenant shall notify Landlord in writing, which notice
shall include: (a) the proposed effective date (which shall not be less than 30
nor more than 180 days after Tenant's notice), (b) the portion of the Premises
to be Transferred (herein called the "Subject Space"), (c) the terms of the
proposed Transfer and the consideration therefor, the name and address of the
proposed Transferee, and a copy of all documentation pertaining to the proposed
Transfer, and (d) current financial statements of the proposed Transferee
certified by an officer, partner, or owner thereof, and any other information
to enable Landlord to determine the financial responsibility, character, and
reputation of the proposed Transferee, nature of such Transferee's business and
proposed use of the Subject Space, and such other information as Landlord may
reasonably require. Any Transfer made without complying with this Article
shall, at Landlord's option, be null, void, and of no effect, or shall
constitute a Default under this Lease. Whether or not Landlord shall grant
consent, Tenant shall pay $300.00 toward Landlord's review and processing
expenses, as well as any reasonable legal fees incurred by Landlord, within
thirty (30) days after written request by Landlord.
(B) APPROVAL. Landlord will not unreasonably withhold its consent
(as provided in Article 18) to any proposed Transfer of the Subject Space to
the Transferee on the terms specified in Tenant's notice. The parties hereby
agree that it shall be reasonable under this Lease and under any applicable Law
for Landlord to withhold consent to any proposed Transfer where one or more of
the following applies (without limitation as to other reasonable grounds for
withholding consent): (i) the Transferee is of a character or reputation or
engaged in a business which is not consistent with the quality of the Property,
or would be a significantly less prestigious occupant of the Property than
Tenant, (ii) the Transferee intends to use the Subject Space for purposes which
are not permitted under this Lease, (iii) the Subject Space is not regular in
shape with appropriate means of ingress and egress suitable for normal renting
purposes, (iv) the Transferee is either a government (or agency or
instrumentality thereof) or an occupant of the Property, (v) the proposed
Transferee does not have a reasonable financial
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condition in relation to the obligations to be assumed in connection with the
Transfer, or (vi) Tenant has committed and failed to cure a Default at the time
Tenant requests consent to the proposed Transfer.
(C) TRANSFER PREMIUM. If Landlord consents to a Transfer, and as
a condition thereto which the parties hereby agree is reasonable, Tenant shall
pay Landlord fifty percent (50%) of any Transfer Premium derived by Tenant from
such Transfer. "Transfer Premium" shall mean all rent, additional rent, or
other consideration paid by such Transferee in excess of the Rent payable by
Tenant under this Lease (on a monthly basis during the Term, and on a per
rentable square foot basis, if less than all of the Promises is transferred),
after deducting the reasonable expenses incurred by Tenant for any changes,
alterations, and improvements to the Premises, any other economic concessions
or services provided to the Transferee, and any customary brokerage commissions
paid in connection with the Transfer. If part of the consideration for such
Transfer shall be payable other than in cash, Landlord's share of such non-cash
consideration shall be in such form as is reasonably satisfactory to Landlord.
The percentage of the Transfer Premium due Landlord hereunder shall be paid
within ten (10) days after Tenant receives any Transfer Premium from the
Transferee.
(D) RECAPTURE. This section intentionally left blank.
(E) TERMS OF CONSENT. If Landlord consents to a Transfer (a) the
terms and conditions of this Lease, including among other things Tenant's
liability for the Subject Space, shall in no way be deemed to have been waived
or modified, (b) such consent shall not be deemed consent to any further
Transfer by either Tenant or a Transferee, (c) no Transferee shall succeed to
any rights provided in this Lease or any amendment hereto to extend the Term of
this Lease, expand the Premises, or lease additional space, any such rights
being deemed personal to Tenant, (d) Tenant shall deliver to Landlord promptly
after execution, an original executed copy of all documentation pertaining to
the Transfer in form reasonably acceptable to Landlord, and (e) Tenant shall
furnish upon Landlord's request a complete statement, certified by an
independent Certified Public Accountant, or Tenant's chief financial officer,
setting forth in detail the computation of any Transfer Premium Tenant has
derived and shall derive from such Transfer. Landlord or its authorized
representatives shall have the right at all reasonable times to audit the
books, records, and papers of Tenant relating to any Transfer, and shall have
the right to make copies thereof. If the Transfer Premium respecting any
Transfer shall be found understated, Tenant shall within thirty (30) days after
demand pay the deficiency, and if understated by more than 2%, Tenant shall pay
Landlord's costs of such audit. Any sublease hereunder shall be subordinate
and subject to the provisions of this Lease, and if this Lease shall be
terminated during the term of any sublease, Landlord shall have the right to:
(i) treat such sublease as canceled and repossess the Subject Space by any
lawful means, or (ii) require that such subtenant attorn to and recognize
Landlord as its landlord under any such sublease. If Tenant shall Default and
fail to cure within the time permitted for cure under Article 23(A), Landlord
is hereby irrevocably authorized, as Tenant's agent and attorney-in-fact, to
direct any Transferee to make all payments under or in connection with the
Transfer directly to Landlord (which Landlord shall apply toward Tenant's
obligations under this Lease) until such Default is cured.
(F) CERTAIN TRANSFERS. For purposes of this Lease, the term
"Transfer" shall also include (a) if Tenant is a partnership, the withdrawal or
change, voluntary, involuntary, or by operation of law, of a majority of the
partners, or a transfer of a majority of partnership interests, within a twelve
month period, or the dissolution of the partnership, and (b) if Tenant is a
closely held corporation (i.e., whose stock is not publicly held and not traded
through an exchange or over the counter), the dissolution, merger,
consolidation, or other reorganization of Tenant, or within a twelve month
period: (i) the sale or other transfer of more than an aggregate of 50% of the
voting shares of Tenant (other than to immediate family members by reason of
gift or death) or (ii) the sale, mortgage, hypothecation, or pledge of more
than an aggregate of 50% of Tenant's net assets.
ARTICLE 22
RIGHTS RESERVED BY LANDLORD
Except to the extent expressly limited herein, Landlord reserves full
rights to control the Property (which rights may be exercised without
subjecting Landlord to claims for constructive eviction, abatement of Rent,
damages, or other claims of any kind), including more particularly, but without
limitation, the following rights:
(A) To change the name or street address of the Property; install
and maintain signs on the exterior and interior of the Property; retain at all
times, and use in appropriate instances, keys to all doors within and into the
Premises; grant to any Person the right to conduct any business or render any
service at the Property, whether or not it is the same or similar to the
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use permitted Tenant by this Lease; and have access for Landlord and other
tenants of the Property to any mail chutes located on the Premises according to
the rules of the United States Postal Service.
(B) To enter the Premises at reasonable hours for reasonable
purposes, including inspection and supplying clearing service or other services
to be provided Tenant hereunder, to show the Premises to current and
prospective mortgage lenders, ground lessors, insurers, and prospective
purchasers, tenants, and brokers, at reasonable hours, and if Tenant shall
abandon the Premises at any time, or "shall vacate the same during the last 3
months of the Term, to decorate, remodel, repair, or alter the Premises.
(C) To limit or prevent access to the Property, shut down elevator
service, activate elevator emergency controls, or otherwise take such action or
preventative measures deemed necessary by Landlord for the safety of tenants or
other occupants of the Property or the protection of the Property and other
property located thereon or therein, in case of fire, invasion, insurrection,
dot, civil disorder, public excitement, or other dangerous condition, or threat
thereof.
(D) To decorate and make alterations, additions, and improvements,
structural or otherwise, in or to the Property or any part thereof, and any
adjacent building, structure, parking facility, land, street, or alley
(including without limitation changes and reductions in corridors, lobbies,
parking facilities, and other public areas and the installation of kiosks,
planters, sculptures, displays, escalators, mezzanines, and other structures,
facilities, amenities and features therein, and changes for the purpose of
connection with or entrance into or use of the Property in conjunction with any
adjoining or adjacent building or buildings, now existing or hereafter
constructed). In connection with such matters, or with any other repairs,
maintenance, improvements, or alterations, in or about the Property, Landlord
may erect scaffolding and other structures reasonably required, and during such
operations may enter upon the Premises and take into and upon or through the
Premises, all materials required to make such repairs, maintenance,
alterations, or improvements, and may close public ways, other public areas,
rest rooms, stairways, or corridors.
(E) This section intentionally left blank.
In connection with entering the Premises to exercise any of the
foregoing rights, Landlord shall: (a) provide reasonable advance written or
oral notice to Tenant's on-site manager or other appropriate person (except in
emergencies, or for routine cleaning or other routine matters), and (b) take
reasonable steps to minimize any interference with Tenant's business.
ARTICLE 23
LANDLORD'S REMEDIES
(A) Default. The occurrence of any one or more of the following
events shall constitute a "Default" by Tenant, which if not cured within any
applicable time permitted for cure below, shall give rise to Landlord's
remedies set forth in Paragraph (B), below: (i) failure by Tenant to make when
due any payment of Rent, unless such failure is cured within ten (10) days
after notice; (ii) failure by Tenant to observe or perform any of the terms or
conditions of this Lease to be observed or performed by Tenant other than the
payment of Rent, or as provided below, unless such failure is cured within
thirty (30) days after such notice, or such shorter period expressly provided
elsewhere in this Lease (provided, if the nature of Tenant's failure is such
that more time is reasonably required in order to cure, Tenant shall not be in
Default if Tenant commences to cure within such period and thereafter
diligently seeks to cure such failure to completion); (iii) failure by Tenant
to comply with the Rules, unless such failure is cured within five (5) days
after notice (provided, if the nature of Tenant's failure is such that more than
five (5) days time is reasonably required in order to cure, Tenant shall not be
in Default if Tenant commences to cure within such period and thereafter
diligently seeks to cure such failure to completion); (iv) vacation of all or a
substantial portion of the Premises for more than thirty (30) consecutive days,
or the failure to take possession of the Premises within sixty (60) days after
the Commencement Date; (v) (a) making by Tenant or any guarantor of this Lease
("Guarantor") of any general assignment for the benefit of creditors, (b)
filing by or against Tenant or any Guarantor of a petition to have Tenant or
such Guarantor adjudged a bankrupt or a petition for reorganization or
arrangement under any Law relating to bankruptcy (unless, in the case of a
petition filed against Tenant or such Guarantor, the same is dismissed within
sixty (60) days), (c) appointment of a trustee or receiver to take possession
of substantially all of Tenant's assets located on the Premises or of Tenant's
interest in this Lease, (e) Tenant's or any Guarantor's convening of a meeting
of its creditors or any class thereof for the purpose of effecting a moratorium
upon or composition of its debts, or (f) Tenant's or any Guarantor's insolvency
or admission of an inability to pay its debts as they mature; (vi) any material
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misrepresentation herein, or material misrepresentation or omission in any
financial statements or other materials provided by Tenant or any Guarantor in
connection with negotiating or entering this Lease or in connection with any
Transfer under Article 21; (vii) cancellation of any guaranty of this Lease by
any Guarantor. Failure by Tenant to comply with the same term or condition of
this Lease on three occasions during any twelve month period shall cause any
failure to comply with such term or condition during the succeeding twelve
month period, at Landlord's option, to constitute an incurable Default, if
Landlord has given Tenant notice of each such failure within ten (10) days
after each such failure occurs. The notice and cure periods provided herein
are in lieu of, and not in addition to, any notice and cure periods provided by
Law.
(B) Remedies. If a Default occurs and is not cured within any
applicable time permitted under Paragraph (A), Landlord shall have the rights
and remedies hereinafter set forth, which shall be distinct, separate, and
cumulative with and in addition to any other right or remedy allowed under any
Law or other provisions of this Lease:
(i) Landlord may terminate this Lease, repossess the
Premises by detainer suit, summary proceedings, or other lawful means, and
recover as damages a sum of money equal to: (a) any unpaid Rent as of the
termination date including interest at the Default Rate (as defined in Article
25), (b) any unpaid Rent which would have accrued after the termination date
through the time of award including interest at the Default Rate, less such
loss of Rent that Tenant proves could have been reasonably avoided, (c) any
unpaid Rent which would have accrued after the time of award during the balance
of the Term, less such loss of Rent that Tenant proves could be reasonably
avoided, and (d) any other amounts necessary to compensate Landlord for all
damages proximately caused by Tenant's failure to perform its obligations under
this Lease, including without limitation all Costs of Reletting (as defined in
Paragraph F). For purposes of computing the amount of Rent herein that would
have accrued after the time of award, Tenant's Prorata Share of Taxes and
Operating Expenses, and CPI Escalation Amounts, shall be projected, based upon
the average rate of increase, if any, in such items from the Commencement Date
through the time of award.
(ii) If applicable Law permits, Landlord may terminate
Tenant's right of possession and repossess the Premises by detainer suit,
summary proceedings, or other lawful means, without terminating this Lease (and
if such Law permits, and Landlord shall not have expressly terminated the Lease
in writing, any termination shall be deemed a termination of Tenant's right of
possession only). In such event, Landlord may recover (a) any unpaid Rent as
of the date possession is terminated, including interest at the Default Rate,
(b) any unpaid Rent which accrues during the Term from the date possession is
terminated through the time of award (or which may have accrued from the time
of any earlier award obtained by Landlord through the time of award), including
interest at the Default Rate, less any Net Re-Letting Proceeds (as defined in
Paragraph F) received by Landlord during such period, and less such loss of
Rent that Tenant proves could have been reasonably avoided, and (c) any other
amounts necessary to compensate Landlord for all damages proximately caused by
Tenant's failure to perform its obligations under this Lease, including without
limitation, all Costs of Re-Letting (as defined in Paragraph F). Landlord may
bring suits for such amounts or portions thereof, at any time or times as the
same accrue or after the same have accrued, and no suit or recovery of any
portion due hereunder shall be deemed a waiver of Landlord's right to collect
all amounts to which Landlord is entitled hereunder, nor shall the same serve
as any defense to any subsequent suit brought for any amount not theretofore
reduced to judgment.
(C) Mitigation of Damages. If Landlord terminates this Lease or
Tenant's right to possession, Landlord shall use reasonable efforts to mitigate
Landlord's damages, and Tenant shall be entitled to submit proof of such
failure to mitigate as a defense to Landlord's claims hereunder, if mitigation
of damages by Landlord is required by applicable Law. If Landlord has not
terminated this Lease or Tenant's right to possession, Landlord shall have no
obligation to mitigate, and may permit the Premises to remain vacant or
abandoned; in such case, Tenant may seek to mitigate damages by attempting to
sublease the Premises or assign this Lease (subject to Article 21).
(D) Specific Performance, Collection of Rent, and Acceleration.
Landlord shall at all times have the rights and remedies (which shall be
cumulative with each other and cumulative and in addition to those rights and
remedies available under Paragraph (B), above or any Law or other provision of
this Lease), without prior demand or notice except as required by applicable
Law: (i) to seek any declaratory, injunctive, or other equitable relief, and
specifically enforce this Lease, or restrain or enjoin a violation or breach of
any provision hereof, and (ii) to sue for and collect any unpaid Rent which has
accrued. Notwithstanding anything to the contrary contained in this Lease, to
the extent not expressly prohibited by applicable Law, in the event of any
Default by Tenant not cured within any applicable time for cure hereunder,
Landlord may terminate this Lease or Tenant's right to possession and
accelerate and declare that all Rent reserved for the remainder of the Term
shall be immediately due and payable (in which event, Tenant's Prorata Share of
Taxes and Operating
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Expenses, and CPI Escalation Amounts for the remainder of the Term shall be
projected based upon the average rate of increase, if any, in such items from
the Commencement Date through the date of such declaration); provided, Landlord
shall, after receiving payment of the same from Tenant, be obligated to turn
over to Tenant any actual Net Re-Letting Proceeds thereafter received during
the remainder of the Term, up to the amount so received from Tenant pursuant to
this provision.
(E) Late Charges and Interest. Tenant shall pay, as additional
Rent, a service charge of One Hundred Forty Dollars ($140.00) for bookkeeping
and administrative expenses, if Rent is not received within five (5) days after
its due date. In addition, any Rent paid more than ten (10) days after due
shall accrue interest from the due date at the Default Rate (as defined in
Article 25), until payment is received by Landlord. Such service charge and
interest payments shall not be deemed consent by Landlord to late payments, nor
a waiver of Landlord's right to insist upon timely payments at any time, nor a
waiver of any remedies to which Landlord is entitled as a result of the late
payment of Rent.
(F) Certain Definitions. "Net Re-Letting Proceeds" shall mean the
total amount of rent and other consideration paid by any Replacement Tenants,
less all Costs of Re-Letting, during a given period of time. "Costs of
Re-Letting" shall include without limitation, all reasonable costs and expenses
incurred by Landlord for any repairs, maintenance, changes, alterations, and
improvements to the Premises; brokerage commissions, advertising costs,
attorneys' fees, any customary free rent periods or credits, tenant improvement
allowances, take-over lease obligations; and other customary, necessary, or
appropriate economic incentives required to enter leases with Replacement
Tenants; and costs of collecting rent from Replacement Tenants. "Replacement
Tenants" shall mean any Person (as defined in Article 25) to whom Landlord re-
lets the Premises or any portion thereof pursuant to this Article.
(G) Other Matters. No re-entry or repossession, repairs, changes,
alterations and additions, re-letting, acceptance of keys from Tenant, or any
other action or omission by Landlord shall be construed as an election by
Landlord to terminate this Lease or Tenant's right to possession, or accept a
surrender of the Premises, nor shall the same operate to release the Tenant in
whole or in part from any of Tenant's obligations hereunder, unless express
written notice of such intention is sent by Landlord or its agent to Tenant.
To the fullest extent permitted by Law, all rent and other consideration paid
by any Replacement Tenants shall be applied: first, to the Costs of Re-Letting,
second, to the payment of any Rent theretofore accrued, and the residue, if
any, shall be held by Landlord and applied to the payment of other obligations
of Tenant to Landlord as the same become due (with any remaining residue to be
retained by Landlord). Rent shall be paid without any prior demand or notice
therefor (except as expressly provided herein) and without any deduction,
set-off, or counterclaim, or relief from any valuation or appraisement laws.
Landlord may apply payments received from Tenant to any obligations of Tenant
then accrued, without regard to such obligations as may be designated by
Tenant. Landlord shall be under no obligation to observe or perform any
provision of this Lease on its part to be observed or performed which accrues
after the date of any Default by Tenant hereunder not cured within the times
permitted hereunder. The times set forth herein for the curing of Defaults by
Tenant are of the essence with this Lease. Tenant hereby irrevocably waives
any right otherwise available under any Law to redeem or reinstate this Lease.
ARTICLE 24
LANDLORD'S RIGHT TO CURE
If Landlord shall fail to perform any term or provision under this
Lease required to be performed by Landlord, Landlord shall not be deemed to be
in default hereunder nor subject to any claims for damages of any kind, unless
such failure shall have continued for a period of thirty (30) days after
written notice thereof by Tenant; provided, if the nature of Landlord's failure
is such that more than thirty (30) days are reasonably required in order to
cure, Landlord shall not be in default if Landlord commences to cure such
failure within such thirty (30) day period, and thereafter reasonably seeks to
cure such failure to completion. The aforementioned periods of time permitted
for Landlord to cure shall be extended for any period of time during which
Landlord is delayed in or prevented from, curing due to fire or other casualty,
strikes, lock-outs, or other labor troubles, shortages of equipment or
materials, governmental requirements, power shortages or outages, acts or
omissions by Tenant or other Persons, and other causes beyond Landlord's
reasonable control. If Landlord shall fail to cure within the times permitted
for cure herein, Landlord shall be subject to such remedies as may be available
to Tenant (subject to the other provisions of this Lease); provided, in
recognition that Landlord must receive timely payments of Rent and operate the
Property, Tenant shall have no right of self-help to perform repairs or any
other obligation of Landlord, and shall have no right to withhold, set-off, or
abate Rent.
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ARTICLE 25
CAPTIONS, DEFINITIONS, AND SEVERABILITY
The captions of the Articles and Paragraphs of this Lease are for
convenience of reference only and shall not be considered or referred to in
resolving questions of interpretation. If any term or provision of this Lease
shall be found invalid, void, illegal, or unenforceable with respect to any
particular Person by a court of competent jurisdiction, it shall not affect,
impair, or invalidate any other terms or provisions hereof, or its
enforceability with respect to any other Person, the parties hereto agreeing
that they would have entered into the remaining portion of this Lease
notwithstanding the omission of the portion or portions adjudged invalid, void,
illegal, or unenforceable with respect to such Person.
(A) "Building" shall mean the structure identified in Article 1 of
this Lease.
(B) "CPI" shall mean the Consumer Price Index for all Urban
Consumers, All Items (Base year 1982-1984 = 100) published by the United States
Department of Labor, Bureau of Labor Statistics (or if a separate index is
published by the Bureau of Labor Statistics for a metropolitan area within 100
miles of the Property, then such metropolitan index). If the Bureau of Labor
Statistics substantially revises the manner in which the CPI is determined, an
adjustment shall be made in the revised index which would produce results
equivalent, as nearly as possible to those which would be obtained hereunder if
the CPI were not so revised. If the 1982-1984 average shall no longer be used
as an index of 100, such change shall constitute a substantial revision. If
the CPI becomes unavailable to the public because publication is discontinued,
or otherwise, Landlord shall substitute therefor a comparable index based upon
changes in the cost of living or purchasing power of the consumer dollar
published by a governmental agency, major bank, other financial institution,
university, or recognized financial publisher. If the CPI is available on a
monthly (or alternating monthly) basis, the CPI for the months in which (or
immediately preceding, as the case may be) the Commencement Date and Adjustment
Date respectively occur shall be used.
(C) "Default Rate" shall mean twelve percent (12%) per annum, or
the highest rate permitted by applicable Law, whichever shall be less.
(D) "Holder" shall mean the holder of any Mortgage at the time in
question, and where such Mortgage is a ground lease, such term shall refer to
the ground lessor.
(E) "Holidays" shall mean all federally observed holidays,
including New Year's Day, Presidents' Day, Memorial Day, Independence Day,
Labor Day, Veterans' Day, Thanksgiving Day, Christmas Day, and to the extent of
utilities or services provided by union members engaged at the Property, such
other holidays observed by such unions.
(F) "Landlord" and "Tenant" shall be applicable to one or more
Persons as the case may be, and the singular shall include the plural, and the
neuter shall include the masculine and feminine; and if there be more than one,
the obligations thereof shall be joint and several. For purposes of any
provisions indemnifying or limiting the liability of Landlord, the term
"Landlord' shall include Landlord's present and future partners, beneficiaries,
trustees, officers, directors, employees, shareholders, principals, agents,
affiliates, successors, and assigns.
(G) "Law" shall mean all federal, state, county, and local
governmental and municipal laws, statutes, ordinances, rules, regulations,
codes, decrees, orders and other such requirements, applicable equitable
remedies and decisions by courts in cases where such decisions are considered
binding precedents in the state in which the Property is located, and decisions
of federal courts applying the Laws of such State.
(H) "Mortgage" shall mean all mortgages, deeds of trust, ground
leases, and other such encumbrances now or hereafter placed upon the Property
or Building, or any part thereof, and all renewals, modifications,
consolidations, replacements, or extensions thereof, and all indebtedness now
or hereafter secured thereby and all interest thereon.
(I) "Operating Expenses" shall mean all expenses, costs, and
amounts (other than Taxes) of every kind and nature which Landlord shall pay
during any calendar year any portion which occurs during the Term, because of
or in connection with the repair, maintenance, and operation of the Property,
including, without limitation, any amounts paid for: (a) utilities for the
Property, including but not limited to electricity, power, gas, steam, oil, or
other fuel; water, sewer, lighting, heating, air conditioning, and ventilating,
(b) permits, licenses, and certificates necessary to operate, manage, and lease
the Property, (c) insurance applicable to the Property, not limited to the
amount of coverage Landlord is required to provide under this Lease, (d)
supplies, tools, equipment, and materials used in the operation, repair, and
maintenance of the Property, (e) wages, salaries, and other compensation and
benefits
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(including the fair value of any parking privileges provided) for all persons
engaged in the operation, maintenance, or security of the Property, and
employer's Social Security taxes, unemployment taxes or insurance, and any other
taxes which may be levied on such wages, salaries, compensation and benefits,
and (f) operation, repair, and maintenance of all Systems and Equipment and
components thereof (including replacement of capital equipment); janitorial
service; alarm and security service; window cleaning; trash removal; elevator
maintenance; cleaning of walks, parking facilities, and building walls; removal
of ice and snow; maintenance of shrubs, trees, grass, sod, and other landscaped
items; irrigation systems; drainage facilities; fences; curbs and walkways. If
the Property is not fully occupied during a portion of any calendar year,
Landlord may, in accordance with sound accounting and management practices,
determine the amount of variable Operating Expenses (i.e. those items which
vary according to occupancy levels) that would have been paid had the Property
been fully occupied, and the amount so determined shall be deemed to have been
the amount of variable Operating Expenses for such year. If Landlord makes
such an adjustment, Landlord shall make a comparable adjustment for the Base
Expense Year. Notwithstanding the foregoing, Operating Expenses shall not,
however, include:
(i) depreciation, interest, and amortization on Mortgages
and other debt costs or ground lease payments, if any; legal fees in connection
with leasing, tenant disputes, or enforcement of leases; real estate brokers'
leasing commissions; improvements or alterations to tenant spaces; the cost of
providing any service directly to and paid directly by, any tenant; any costs
expressly excluded from Operating Expenses elsewhere in this Lease; costs of
any items to the extent Landlord receives reimbursement from insurance proceeds
or from a third party (such proceeds to be deducted from Operating Expenses in
the year in which received); and
(ii) capital expenditures, except for replacements (as
opposed to additions or new improvements) of non-structural items located in
the common areas of the Property required to keep such areas in good condition;
provided, all such permitted capital expenditures (together with reasonable
financing charges) shall be amortized for purposes of this Lease over the
shorter of: (i) their useful lives, (ii) the period during which the reasonably
estimated savings in Operating Expenses equals the expenditures, or (iii) three
(3) years.
(J) "Person" shall mean an individual, trust, partnership, joint
venture, association, corporation, limited liability company, and any other
entity.
(K) "Property" shall mean the Building and any common or public
areas or facilities, easements, corridors, lobbies, sidewalks, loading areas,
driveways, landscaped areas, skywalks, parking garages and lots, and any and
all other structures or facilities operated or maintained in connection with or
for the benefit of the Building; and all parcels or tracts of land on which all
or any portion of the Building or any of the other foregoing items are located;
and any fixtures, machinery, equipment, apparatus, Systems and Equipment,
furniture, and other personal property located thereon or therein and used in
connection therewith, whether title is held by Landlord or its affiliates.
Possession of areas necessary for utilities, services, safety, and operation of
the Property, including the Systems and Equipment (as defined in Article 25),
fire stairways, perimeter walls, space between the finished ceiling of the
Premises and the slab of the floor or roof of the Property there above, and the
use thereof together with the right to install, maintain, operate, repair, and
replace the Systems and Equipment, including any of the same in, through,
under, or above the Premises in locations that will not materially interfere
with Tenant's use of the Premises, are hereby excepted and reserved by
Landlord, and not demised to Tenant.
(L) "Rent" shall have the meaning specified therefor in Article
3(G).
(M) "Systems and Equipment" shall mean any plant, machinery,
transformers, duct work, cable, wires, and other equipment, facilities, and
systems designed to supply heat, ventilation, air conditioning and humidity or
any other services or utilities, or comprising or serving as any component or
portion of the electrical, gas, steam, plumbing, sprinkler, communications,
alarm, security, or fire/life/safety systems or equipment, or any other
mechanical, electrical, electronic, computer, or other systems or equipment for
the Property.
(N) "Taxes" shall mean all federal, state, county, or local
governmental or municipal taxes, fees, charges, or other impositions of every
kind and nature, whether general, special, ordinary or extraordinary (including
without limitation, real estate taxes, general and special assessments, transit
taxes, water and sewer rents, taxes based upon the receipt of rent including
gross receipts or sales taxes applicable to the receipt of rent or service or
value added taxes (unless required to be paid by Tenant under Article 17),
personal property taxes imposed upon the fixtures, machinery, equipment,
apparatus, Systems and Equipment, appurtenances, furniture, and other personal
property used in connection with the Property which Landlord shall pay during
any calendar year, any portion of which occurs during the Term (without regard
to any different fiscal year used by such government or municipal
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authority) because of or in connection with the ownership, leasing, and
operation of the Property. Notwithstanding the foregoing, there shall be
excluded from Taxes all excess profits taxes, franchise taxes, gift taxes,
capital stock taxes, inheritance, and succession taxes, estate taxes, federal
and state income taxes, and other taxes to the extent applicable to Landlord's
general or net income (as opposed to rents, receipts, or income attributable to
operations at the Property). If the method of taxation of real estate
prevailing at the time of execution hereof shall be, or has been altered, so as
to cause the whole or any part of the taxes now, hereafter, or heretofore
levied, assessed, or imposed on real estate to be levied, assessed, or imposed
on Landlord, wholly or partially, as a capital levy or otherwise, or on or
measured by the rents received therefrom, then such new or altered taxes
attributable to the Property shall be included within the term "Taxes", except
that the same shall not include any enhancement of said tax attributable to
other income of Landlord. Any expenses incurred by Landlord in attempting to
protest, reduce, or minimize Taxes shall be included in Taxes in the calendar
year such expenses are paid. Tax refunds shall be deducted from Taxes in the
year they are received by Landlord. If Taxes for the Base Tax Year are reduced
as the result of protest, or by means of agreement, or as the result of legal
proceedings or otherwise, Landlord may adjust Tenant's obligations for Taxes in
all years following the Tax Base Year, and Tenant shall pay Landlord within 30
days after notice any additional amount required by such adjustment for any
such years or portions thereof that have theretofore occurred. If Taxes for
any period during the Term or any extension thereof shall be increased after
payment thereof by Landlord for any reason, including without limitation error
or reassessment by applicable governmental or municipal authorities, Tenant
shall pay Landlord upon demand Tenant's Prorata Share of such increased Taxes.
Tenant shall pay increased Taxes whether Taxes are increased as a result of
increases in the assessments or valuation of the Property (whether based on a
sale, change in ownership, or refinancing of the Property or otherwise),
increases in the tax rates, reduction, or elimination of any rollbacks or other
deductions available under current law, scheduled reductions of any tax
abatement, as a result of the elimination, invalidity, or withdrawal of any tax
abatement, or for any other cause whatsoever. Notwithstanding the foregoing,
if any Taxes shall be paid based on assessments or bills by a governmental or
municipal authority using a fiscal year other than a calendar year, Landlord
may elect to average the assessments or bills for the subject calendar year,
based on the number of months of such calendar year included in each such
assessment or bill.
(O) "Rentable Area of the Premises" under this Lease includes the
usable area, without deduction for columns or projections, multiplied by a load
or conversion factor, to reflect a share of certain areas, which may include
lobbies, corridors, mechanical, utility, janitorial, boiler and service rooms
and closets, rest rooms, and other public, common and service areas. Except as
provided expressly to the contrary herein, the Rentable Area of the Property
shall include all Rentable Area of all space leased or available for lease at
the Property, which Landlord may reasonably re-determine from time to time, to
reflect re-configurations, additions, or modifications to the Property.
(P) "Tenant's Prorata Share" of Taxes and Operating Expenses shall
be the Rentable Area of the Premises divided by the Rentable Area of the
Property on the last day of the calendar year for which Taxes or Operating
Expenses are being determined, excluding any parking facilities.
ARTICLE 26
Conveyance by Landlord and Liability
In case Landlord or any successor owner of the Property or the
Building shall convey or otherwise dispose of any portion thereof in which the
Premises are located, to another Person (and nothing herein shall be construed
to restrict or prevent such conveyance or disposition), such other Person shall
thereupon be and become landlord hereunder and shall be deemed to have fully
assumed and be liable for all obligations of this Lease to be performed by
Landlord which first arise after the date of conveyance, including the return
of any Security Deposit, and Tenant shall attorn to such other Person, and
Landlord or such successor owner shall, from and after the date of conveyance,
be free of all liabilities and obligations hereunder not then incurred. The
liability of Landlord to Tenant for any default by Landlord under this Lease or
arising in connection herewith or with Landlord's operation, management,
leasing, repair, renovation, alteration, or any other matter relating to the
Property or the Premises, shall be limited to the interest of Landlord in the
Property (and the rental proceeds thereof). Tenant agrees to look solely to
Landlord's interest in the Property (and the rental proceeds thereof) for the
recovery of any judgment against Landlord, and Landlord shall not be personally
liable for any such judgment or deficiency after execution thereon. The
limitations of liability contained in this Article shall apply equally and
inure to the benefit of Landlord's present and future partners, beneficiaries,
officers, directors, trustees, shareholders, agents, and employees and their
respective partners, heirs, successors, and assigns. Under no circumstances
shall any present or future general or limited partner of Landlord (if Landlord
is a partnership), or trustee
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or beneficiary (if Landlord or any partner of Landlord is a trust) have any
liability for the performance of Landlord's obligations under this Lease.
ARTICLE 27
Indemnification
Except to the extent arising from the intentional or grossly negligent
acts of Landlord or Landlord's agents or employees, Tenant shall defend,
indemnity, and hold harmless Landlord from and against any and all claims,
demands, liabilities, damages, judgments, orders, decrees, actions,
proceedings, fines, penalties, costs, and expenses, including without
limitation, court costs and attorneys' fees arising from or relating to any
loss of life, damage or injury to person, property, or business occurring in or
from the Premises, or caused by or in connection with any violation of this
Lease or use of the Premises or Property by, or any other act or omission of,
Tenant, any other occupant of the Premises, or any of their respective agents,
employees, contractors, or guests. Without limiting the generality of the
foregoing, Tenant specifically acknowledges that the indemnity undertaking
herein shall apply to claims in connection with or arising out of any "Work" as
described in Article 8, the installation, maintenance, use, or removal of any
"Lines" located in or serving the Premises as described in Article 29, and the
transportation, use, storage, maintenance, generation, manufacturing, handling,
disposal, release or discharge of any "Hazardous Material" as described in
Article 30 (whether or not any of such matters shall have been theretofore
approved by Landlord), except to the extent that any of the same arises from
the intentional or grossly negligent acts of Landlord or Landlord's agents or
employees.
ARTICLE 28
Safety and Security Devices, Services, and Programs
The parties acknowledge that safety and security devices, services,
and programs provided by Landlord, if any, while intended to deter crime and
ensure safety, may not in given instances prevent theft or other criminal acts;
or ensure safety of persons or property. The risk that any safety or security
device, service, or program may not be effective, or may malfunction, or be
circumvented by a criminal, is assumed by Tenant with respect to Tenants
property and interests, and Tenant shall obtain insurance coverage to the
extent Tenant desires protection against such criminal acts and other losses,
as further described in Article 11. Tenant agrees to cooperate in any
reasonable safety or security program developed by Landlord or required by Law.
ARTICLE 29
Communications and Computer Lines
Tenant may install, maintain, replace, remove or use any
communications or computer wires, cables, and related devices (collectively the
"Lines") at the Property in or serving the Premises, provided: (a) Tenant shall
obtain Landlord's prior written consent, use an experienced and qualified
contractor approved in writing by Landlord, and comply with all of the other
provisions of Article 8, (b) any such installation, maintenance, replacement,
removal, or use shall comply with all laws applicable thereto and good work
practices, and shall not interfere with the use of any then existing Lines at
the Property, (c) an acceptable number of spare Lines and space for additional
Lines shall be maintained for existing and future occupants of the Property, as
determined in Landlord's reasonable opinion, (d) if Tenant at any time uses any
equipment that may create an electromagnetic field exceeding the normal
insulation ratings of ordinary twisted pair riser cable or cause radiation
higher than normal background radiation, the Lines therefor (including riser
cables) shall be appropriately insulated to prevent such excessive
electromagnetic fields or radiation (e) as a condition to permitting the
installation of new Lines, Landlord may require that Tenant remove existing
Lines located in or serving the Premises, (f) Tenant's rights shall be subject
to the rights of any regulated telephone company, and (g) Tenant shall pay all
costs in connection therewith. Landlord reserves the right to require that
Tenant remove any Lines located in or serving the Premises which are installed
in violation of these provisions, or which are at any time in violation of any
Laws or represent a dangerous or potentially dangerous condition (whether such
Lines were installed by Tenant or any other party), within three (3) days after
written notice.
Landlord may (but shall not have the obligation to): (i) install new
Lines at the Property, (ii) create additional space for Lines at the Property,
and (iii) reasonably direct, monitor, and/or
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supervise the installation, maintenance, replacement, and removal of, the
allocation and periodic re-allocation of available space (if any) for, and the
allocation of excess capacity (if any) on, any Lines now or hereafter installed
at the Property by Landlord, Tenant, or any other party (but Landlord shall
have no right to monitor or control the information transmitted through such
Lines). Such rights shall not be in limitation of other rights that may be
available to Landlord by Law or otherwise. If Landlord exercises any such
rights, Landlord may charge Tenant for the costs attributable to Tenant, or may
include those costs and all other costs in Operating Expenses under Article 25
(including without limitation, costs for acquiring and installing Lines and
risers to accommodate new Lines and spare Lines, any associated computerized
system and software for maintaining records of Line connections, and the fees
of any consulting engineers and other experts); provided, any capital
expenditures included in Operating Expenses hereunder shall be amortized
(together with reasonable finance charges) over the period of time prescribed
by Article 25.
Notwithstanding anything to the contrary contained in Article 13,
Landlord reserves the right to require that Tenant remove any or all Lines
installed by or for Tenant within or serving the Premises upon termination of
this Lease, provided Landlord notifies Tenant prior to or within thirty (30)
days following such termination. Any Lines not required to be removed pursuant
to this Article shall, at Landlord's option, become the property of Landlord
(without payment by Landlord). If Tenant fails to remove such Lines as
required by Landlord, or violates any other provision of this Article, Landlord
may, after twenty (20) days written notice to Tenant, remove such Lines or
remedy such other violation, at Tenant's expense (without limiting Landlord's
other remedies available under this Lease or applicable Law). Tenant shall
not, without prior written consent of Landlord in each instance, grant to any
third party a security interest or lien in or on the Lines, and any such
security interest or lien granted without Landlord's written consent shall be
null and void. Except to the extent arising from the intentional or negligent
acts of Landlord or Landlord's agents or employees, Landlord shall have no
liability for damages arising from, and Landlord does not warrant that the
Tenants use of any Lines will be free from the following (collectively called
"Line Problems"): (x) any eavesdropping or wire-tapping by unauthorized
parties, (y) any failure of any Lines to satisfy Tenant's requirements, or (z)
any shortages, failures, variations, interruptions, disconnections, loss or
damage caused by the installation, maintenance, replacement, use, or removal of
Lines by or for other tenants or occupants at the Property, by any failure of
the environmental conditions or the power supply for the Property to conform to
any requirements for the Lines or any associated equipment, or any other
problems associated with any Lines by any other cause. Under no circumstances
shall any Line Problems be deemed an actual or constructive eviction of Tenant,
render Landlord liable to Tenant for abatement of Rent, or relieve Tenant from
performance of Tenant's obligations under this Lease. Landlord in no event
shall be liable for damages by reason of loss of profits, business
interruption, or other consequential damage arising from any Line Problems.
ARTICLE 30
Hazardous Materials
Tenant shall not transport, use, store, maintain, generate,
manufacture, handle, dispose, release or discharge any "Hazardous Material" (as
defined below) upon or about the Property, or permit Tenants employees, agents,
contractors, and other occupants of the Premises to engage in such activities
upon or about the Property. However, the foregoing provisions shall not
inhibit the transportation to and from, and use, storage, maintenance, and
handling within, the Premises of substances customarily used in offices (or
such other business or activity expressly permitted to be undertaken in the
Premises under Article 6), provided: (a) such substances shall be used and
maintained only in such quantities as are reasonably necessary for such
permitted use of the Premises, strictly in accordance with applicable Law and
the manufacturer's instructions therefor, (b) such substance shall not be
disposed of, released, or discharged on the Property and shall be transported
to and from the Premises in compliance with all applicable Laws, and as
Landlord shall reasonably require, (c) if any applicable Law or Landlord's
trash removal contractor requires that any such substance be disposed of
separately from ordinary trash, Tenant shall make arrangements at Tenant's
expense for such disposal directly with a qualified and licensed disposal
company at a lawful disposal site (subject to scheduling and approval by
Landlord), and shall ensure that disposal occurs frequently enough to prevent
unnecessary storage of such substance in the Premises, and (d) any remaining
such substance shall be completely, properly, and lawfully removed from the
Property upon expiration or earlier termination of this Lease.
Tenant shall promptly notify Landlord of: (i) any enforcement,
cleanup, or other regulatory action taken or threatened by any governmental or
regulatory authority with respect to the presence of any Hazardous Material on
the Premises or the migration thereof from or to other property, (ii) any
demands or claims made or threatened by any party against Tenant or the
Premises relating to any loss or injury resulting from any Hazardous Material,
(iii) any
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release, discharge, or non-routine, improper, or unlawful disposal or
transportation of any Hazardous Material on or from the Premises, and (iv) any
matters where Tenant is required by Law to give notice to any governmental or
regulatory authority respecting any Hazardous Material on the Premises.
Landlord shall have the right (but not the obligation) to join and participate
as a party in any legal proceedings or actions affecting the Premises initiated
in connection with any environmental, health, or safety Law. At such times as
Landlord may reasonably request, Tenant shall provide Landlord with a written
list identifying any Hazardous Material then used, stored, or maintained upon
the Premises, the use and approximate quantity of each such material, a copy of
any material safety data sheet ("MSDS") issued by the manufacturer therefor,
written information concerning the removal, transportation, and disposal of
same, and such other information as Landlord may reasonably require or as may
be required by Law. The term "Hazardous Material" for purposes hereof shall
mean any chemical, substance, material, or waste or component thereof which is
now or hereafter listed, defined, or regulated as a hazardous or toxic
chemical, substance, material, or waste or component thereof by any federal,
state, or local governing or regulatory body having jurisdiction, or which
would trigger any employee or community "right-to-know" requirements adopted by
any such body, or for which any such body has adopted any requirements for the
preparation or distribution of an MSDS.
If any Hazardous Material is released, discharged, or disposed of by
Tenant or any other occupant of the Premises, or their employees, agents, or
contractors, on or about the Property in violation of the foregoing provisions,
Tenant shall immediately, properly, and in compliance with applicable Laws
clean up and remove the Hazardous Material from the Property and any other
affected property and clean or replace any affected personal property (whether
or not owned by Landlord), at Tenant's expense. Such clean up and removal work
shall be subject to Landlord's prior written approval (except in emergencies),
and shall include, without limitation, any testing, investigation, and the
preparation and implementation of any remedial action plan required by any
governmental body having jurisdiction or reasonably required by Landlord. If
Tenant shall fail to comply with the provisions of this Article within five (5)
days after written notice by Landlord, or such shorter time as may be required
by law or in order to minimize any hazard to Persons or property, Landlord may
(but shall not be obligated to) arrange for such compliance directly or as
Tenants agent through contractors or other parties selected by Landlord, at
Tenant's expense (without limiting Landlord's other remedies under this Lease
or applicable Law). If any Hazardous Material is released, discharged, or
disposed of on or about the Property and such release, discharge, or disposal
is not caused by Tenant or other occupants of the Premises, or their employees,
agents, or contractors, such release, discharge, or disposal shall be deemed
casualty damage under Article 10 to the extent that the Premises or common
areas serving the Premises are affected thereby; in such case, Landlord and
Tenant shall have the obligations and rights respecting such casualty damage
provided under Article 10.
ARTICLE 31
Miscellaneous
(A) Each of the terms and provisions of this Lease shall be
binding upon and inure to the benefit of the parties hereto, their respective
heirs, executors, administrators, guardians, custodians, successors, and
assigns, subject to the provisions of Article 21 respecting Transfers.
(B) Neither this Lease nor any memorandum of lease or short form
lease shall be recorded by Tenant.
(C) This Lease shall be construed in accordance with the Laws of
the state in which the Property is located.
(D) All obligations or rights of either party arising during or
attributable to the period ending upon expiration or earlier termination of
this Lease shall survive such expiration or earlier termination.
(E) Landlord agrees that, if Tenant timely pays the Rent and
performs the terms and provisions hereunder, and subject to all other terms and
provisions of this Lease, Tenant shall hold and enjoy the Premises during the
Term, free of lawful claims by any Person acting by or through Landlord.
(F) This Lease does not grant any legal rights to "light and air"
outside the Premises nor any particular view or cityscape visible from the
Premises.
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ARTICLE 32
OFFER
The submission and negotiation of this Lease shall not be deemed an
offer to enter the same by Landlord, but the solicitation of such an offer by
Tenant. Tenant agrees that its execution of this Lease constitutes a firm
offer to enter the same which may not be withdrawn for a period of 30 days
after delivery to Landlord (or such other period as may be expressly provided
in any other agreement signed by the parties). During such period and in
reliance on the foregoing, Landlord may, at Landlord's option (and shall, if
required by applicable Law), deposit any security deposit and Rent, and proceed
with any plans or specifications, and permit Tenant to enter the Premises, but
such acts shall not be deemed an acceptance of Tenant's offer to enter this
Lease, and such acceptance shall be evidenced only by Landlord signing and
delivering this Lease to Tenant.
ARTICLE 33
NOTICES
Except as expressly provided to the contrary in this Lease, every
notice or other communication to be given by either party to the other with
respect hereto or to the Premises or Property, shall be in writing and shall
not be effective for any purpose unless the same shall be served personally or
by national air courier service, or United States certified mail, return
receipt requested, postage prepaid, addressed, if to Tenant, at the address
first set forth in the Lease, until the Commencement Date, and thereafter to
such address and also to the Tenant at the Premises, and if to Landlord, at the
address at which the last payment of Rent was required to be made, or such
other address or addresses as Tenant and Landlord may from time to time
designate by notice given as above provided. Every notice or other
communication hereunder shall be deemed to have been given as of the third
business day following the date of such mailing (or as of any earlier date
evidenced by a receipt from such national air courier service, or United States
Postal Service) or immediately if personally delivered. Notices not sent in
accordance with the foregoing shall be of no force or effect until received by
the foregoing parties at such addresses required herein.
ARTICLE 34
REAL ESTATE BROKERS
Tenant represents that Tenant has dealt only with James P. Gartin,
McKinley Commercial, Inc. (whose commission, if any, shall be paid by Landlord
pursuant to separate agreement) as broker, agent, or finder in connection with
this Lease and agrees to indemnify and hold Landlord harmless from all damages,
judgments, liabilities, and expenses (including reasonable attorneys' fees)
arising from any claims or demands of any other broker, agent, or finder with
whom Tenant has dealt for any commission or fee alleged to be due in connection
with its participation in the procurement of Tenant or the negotiation with
Tenant of this Lease.
ARTICLE 35
SECURITY DEPOSIT
Tenant shall deposit with Landlord the amount of Two Thousand Eight
Hundred Eighty-Nine and 12/100 Dollars ($2,889.12) ("Security Deposit"), upon
Tenant's execution and submission of this Lease. The Security Deposit shall
serve as security for the prompt, full, and faithful performance by Tenant of
the terms and provisions of this Lease. In the event that Tenant is in Default
hereunder and fails to cure within any applicable time permitted under this
Lease, or in the event that Tenant owes any amounts to Landlord upon the
expiration of this Lease, Landlord may use or apply the whole or any part of
the Security Deposit for the payment of Tenant's obligations hereunder. The
use or application of the Security Deposit or any portion thereof shall not
prevent Landlord from exercising any other right or remedy provided hereunder
or under any Law and shall not be construed as liquidated damages. In the
event the Security Deposit is reduced by such use or application, Tenant shall
deposit with Landlord within ten (10) days after written notice, an amount
sufficient to restore the full amount of the Security Deposit. Landlord shall
not be required to keep the Security Deposit separate from Landlord's general
funds or pay interest on the Security Deposit. Any remaining portion of the
Security Deposit shall be returned to Tenant within sixty (60) days after
Tenant has vacated the Premises in accordance with Article 13. If the Premises
shall be expanded at
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any time, or if the Term shall be extended at an increased rate of Rent, the
Security Deposit shall thereupon be proportionately increased.
ARTICLE 36
AMERICANS WITH DISABILITY ACT ("ADA")
Notwithstanding anything contained in the Lease to the contrary,
Landlord represents that it is currently making good faith efforts to bring the
common areas into compliance with the requirements of Title III of the ADA.
Tenant represents and covenants that it shall conduct its occupancy and use of
the Premises in accordance with the ADA (including, but not limited to,
modifying its policies, practices, and procedures, and providing auxiliary aids
and services to disabled persons). If the Lease provides that the Tenant is to
complete certain alterations and improvements to the Premises in conjunction
with the Tenant taking occupancy of the Promises, Tenant agrees that all such
work shall comply with the ADA. Furthermore, Tenant covenants and agrees that
any and all future alterations or improvements made by Tenant to the Premises
shall comply with the ADA.
ARTICLE 37
ENTIRE AGREEMENT
This Lease, together with Rider One and Exhibit A (WHICH COLLECTIVELY
ARE HEREBY INCORPORATED WHERE REFERRED TO HEREIN AND MADE A PART HEREOF AS
THOUGH FULLY SET FORTH), contains all the terms and provisions between Landlord
and Tenant relating to the matters set forth herein and no prior or
contemporaneous agreement or understanding pertaining to the same shall be of
any force or effect, except any such contemporaneous agreement specifically
referring to and modifying this Lease, signed by both parties. Without
limitation as to the generality of the foregoing, Tenant hereby acknowledges
and agrees that Landlord's leasing agents and field personnel are only
authorized to show the Premises and negotiate terms and conditions for leases
subject to Landlord's final approval, and are not authorized to make any
agreements, representations, understandings, or obligations, binding upon
Landlord, respecting the condition of the Premises or Property, suitability of
the same for Tenant's business, or any other matter, and no such agreements,
representations, understandings, or obligations not expressly contained herein
or in such contemporaneous agreement shall be of any force or effect. Neither
this Lease, nor any Riders or Exhibits referred to above may be modified,
except in writing signed by both parties.
LANDLORD:
KMD FOUNDATION
By:
- -------------------------------- ----------------------------------
Its:
- -------------------------------- ----------------------------------
TENANT:
FIRST VIRTUAL HOLDINGS
BY:
----------------------------------
By:
- -------------------------------- ----------------------------------
Its:
- -------------------------------- ----------------------------------
Name Typed: Lee Stein
Title: President
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<PAGE> 23
any time, or if the Term shall be extended at an increased rate of Rent, the
Security Deposit shall thereupon be proportionately increased.
ARTICLE 36
AMERICANS WITH DISABILITY ACT ("ADA")
Notwithstanding anything contained in the Lease to the contrary,
Landlord represents that it is currently making good faith efforts to bring the
common areas into compliance with the requirements of Title III of the ADA.
Tenant represents and covenants that it shall conduct its occupancy and use of
the Premises in accordance with the ADA (including, but not limited to,
modifying its policies, practices, and procedures, and providing auxiliary aids
and services to disabled persons). If the Lease provides that the Tenant is to
complete certain alterations and improvements to the Premises in conjunction
with the Tenant taking occupancy of the Premises, Tenant agrees that all such
work shall comply with the ADA. Furthermore, Tenant covenants and agrees that
any and all future alterations or improvements made by Tenant to the Premises
shall comply with the ADA.
ARTICLE 37
ENTIRE AGREEMENT
This Lease, together with Rider One and Exhibit A (WHICH COLLECTIVELY
ARE HEREBY INCORPORATED WHERE REFERRED TO HEREIN AND MADE A PART HEREOF AS
THOUGH FULLY SET FORTH), contains all the terms and provisions between Landlord
and Tenant relating to the matters set forth herein and no prior or
contemporaneous agreement or understanding pertaining to the same shall be of
any force or effect, except any such contemporaneous agreement specifically
referring to and modifying this Lease, signed by both parties. Without
limitation as to the generality of the foregoing, Tenant hereby acknowledges and
agrees that Landlord's leasing agents and field personnel are only authorized to
show the Premises and negotiate terms and conditions for leases subject to
Landlord's final approval, and are not authorized to make any agreements,
representations, understandings, or obligations, binding upon Landlord,
respecting the condition of the Premises or Property, suitability of the same
for Tenant's business, or any other matter, and no such agreements,
representations, understandings, or obligations not expressly contained herein
or in such contemporaneous agreement shall be of any force or effect. Neither
this Lease, nor any Riders or Exhibits referred to above may be modified, except
in writing signed by both parties.
LANDLORD:
KMD FOUNDATION
By:
- --------------------------------- -----------------------------------
Its:
- --------------------------------- -----------------------------------
TENANT:
FIRST VIRTUAL HOLDINGS
By: /s/ [SIG]
-----------------------------------
/s/ [SIG] By: LEE STEIN
- --------------------------------- -----------------------------------
/s/ [SIG] Its: PRESIDENT
- --------------------------------- -----------------------------------
Name Typed: Lee Stein
Title: President
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<PAGE> 24
CERTIFICATE
(If Tenant is a Corporation)
I, Richard C. DeGolia, Assistant Secretary of First Virtual Holdings,
Tenant, hereby certify that the officer(s) executing the foregoing Lease on
behalf of Tenant was/were duly authorized to act in his/their capacities as
President and _______________________, and his/their action(s) are the action
of Tenant.
(Corporate Seal) /s/ RICHARD C. DEGOLIA
-------------------------
Secretary
23
<PAGE> 25
EXHIBIT A
(Floor plan(s) showing Premises cross-hatched)
[FLOOR PLAN]
24
<PAGE> 26
GUARANTY
This section intentionally left blank.
25
<PAGE> 27
RIDER ONE
RULES AND REGULATIONS
(1) Any sign, lettering, picture, notice, or advertisement installed
within the Premises that is visible from the public corridors within
the Building shall be installed in such manner and be of such
character and style as Landlord shall approve in writing. No sign,
lettering, picture, notice, or advertisement shall be placed on any
outside window or in a position to be visible from outside the
Building, except as specifically approved by Landlord. No window
treatments visible from the public corridors or the outside of the
Building shall be made without the prior written approval of the
Landlord;
(2) Sidewalks, entrances, passages, courts, corridors, halls, elevators,
and stairways in and about the Premises shall not be obstructed nor
shall objects be placed against glass partitions, doors, or windows
that would be unsightly from the Building's corridors or from the
exterior of the Building;
(3) No animals, pets, bicycles, or other vehicles shall be brought or
permitted to be in the Building or the Premises;
(4) Room-to-room canvasses to solicit business from other tenants of the
Building are not permitted;
(5) Tenant shall not waste electricity, water, or air conditioning and
shall cooperate fully with Landlord to assure the most effective and
efficient operation of the Building's heating and air conditioning
systems;
(6) All corridor doors shall remain closed at all times;
(7) No locks or similar devices shall be attached to any door except by
Landlord, and Landlord shall have the right to retain a key to all
such locks;
(8) Tenant assumes full responsibility of protecting the Premises from
theft, robbery, and pilferage. Except during Tenant's normal business
hours, Tenant shall keep all doors to the Premises locked;
(9) Landlord shall have the right to require Tenant and its employees to
produce Tenant identification cards (if issued by Landlord) as a
condition to entering the Premises or for other purposes affecting the
security of the Building;
(10) All cleaning, repairing, decorating, painting, construction or other
services and work in and about the Premises shall be done only by
personnel hired by Tenant, subject to Landlord's reasonable advance
approval;
(11) Safes, furniture, equipment, machines, and other large or bulky
articles shall be brought to the Building and into and out of the
Premises at such times and in such manner as the Landlord shall direct
(including the designation of elevator and the location of such
articles) and at Tenant's sole risk and cost. Prior to Tenant's
removal of such articles from the Building, Tenant shall obtain
written authorization of the Manager of the Building and shall present
such authorization to a designated employee of Landlord;
(12) Tenant shall not in any manner deface or damage the building;
(13) Inflammables such as gasoline, kerosene, naphtha, and benzene, or
explosives or any other articles of an intrinsically dangerous nature,
are not permitted in the Building or the Premises;
(14) Landlord's consent to the installation of any electrical equipment
shall not relieve Tenant from the obligation not to use more
electricity than the safe capacity available to the Premises as
provided in this Lease;
(15) To the extent permitted by law, Tenant shall prohibit picketing or
other union activity involving its employees in the Building, except
in those locations and subject to time and other limitations as to
which Landlord may give prior written consent;
(16) Tenant shall not enter into or upon the roof or those portions of the
Building containing any storage, heating, ventilation, air-
conditioning, mechanical, or elevator machinery housing areas;
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<PAGE> 28
(17) Tenant shall not distribute literature, flyers, handouts, or pamphlets
of any type in any of the common areas of the Building, without the
prior written consent of Landlord;
(18) Tenant shall not cook, otherwise prepare, or sell any food or
beverages in or from the Premises or sell or serve any alcoholic
beverages in or from the Premises;
(19) Tenant shall not permit the use of any apparatus for sound production
or transmission in such manner that the sound so transmitted or
produced shall be audible or vibrations therefrom shall be detectable
beyond the Premises;
(20) Tenant shall keep all electrical and mechanical apparatus free of
vibration, noise, and air waves that may be transmitted beyond the
Premises;
(21) Tenant shall not permit objectionable odors or vapors to emanate from
the Premises;
(22) Tenant shall not place a load upon any floor of the Premises exceeding
the floor load capacity for which such floor was designed or allowed
by law to carry;
(23) No floor covering shall be affixed to any floor in the Premises by
means of glue or other adhesive without Landlord's prior written
consent;
(24) No marking, painting, drilling, boring, cutting, or defacing of the
Premises or the Building will be permitted without the prior written
consent of Landlord and as it may direct; and
(25) Landlord reserves the right to change, add, or modify these rules and
regulations as Landlord deems necessary or advisable.
27
<PAGE> 1
EXHIBIT 10.23
FACILITIES AGREEMENT
THIS AGREEMENT, dated as of August 14, 1996 (the "Agreement Date"), is by and
between First USA Merchant Services, Inc. (First USA") and First Virtual
Holdings, Inc. ("First Virtual").
WITNESSETH:
WHEREAS, First USA is currently (i) providing First Virtual access to certain
office space, (ii) permitting First Virtual to place a certain cabinet and
certain equipment in such space and (iii) permitting First Virtual to use
certain communication lines, equipment, furniture and services, all as described
in Section 1 of Exhibit A hereto (collectively, the "Existing Facilities") and
WHEREAS, First Virtual desires to continue to have access to and use the
Existing Facilities and to sublease from First USA a particular portion of such
space and place an additional cabinet in such space, as described in Section 2
of Exhibit A hereto (collectively, the "Additional Facilities"); and
WHEREAS, First USA is willing, on the terms and conditions set forth in this
Agreement, (i) to continue to provide and permit First Virtual's use of the
Existing Facilities and (ii) to provide and permit First Virtual's use of the
Additional facilities, (collectively, the "Facilities");
NOW THEREFORE, First USA and First Virtual agree as follows:
1. First USA shall, to the extent permitted by applicable
agreements and laws, provide and permit First Virtual's use of the Facilities,
seven (7) days a week and twenty-four (24) hours a day, all upon and subject to
the terms and conditions of this Agreement. Either party may, from time to time
upon at least (90) ninety days prior written notice to the other discontinue
First USA's provision and First Virtual's use of any or all of the Facilities
as of a date specified in such notice.
2. The Facilities shall be and remain the property of First USA
and First Virtual shall have no rights or interests therein, or in any other
space, communications lines, equipment, furniture, software, products, work,
methods, procedures, data, manuals, writings or other property of First USA,
except as described herein. First USA shall have no obligation, pursuant to
this Agreement or otherwise, to provide any property of First USA to First
Virtual other than the Facilities in accordance with this Agreement. First
Virtual shall cease all use of the Facilities (and return to First USA all
property of First USA in First Virtual's possession) upon discontinuance of
First USA's provision and First Virtual's use of particular Facilities or
termination of this Agreement as hereinafter provided.
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<PAGE> 2
3. In compensation for First USA's provision and First Virtual's
use of the Facilities, First Virtual shall pay amounts as set forth in Section
3 of exhibit A hereto. Any amount payable by First Virtual pursuant to this
Agreement for which a time of payment is not otherwise specified shall be due
and payable within thirty (30) days after receipt by First Virtual of an
invoice therefor from First USA.
4. First Virtual shall use the Facilities for the sole and
exclusive purpose of operating its Internet Payment System for its business
purposes. First Virtual shall comply with all applicable laws with respect to
its use of the Facilities and its business. First Virtual shall take good care
of the Facilities and shall comply with the terms and conditions of any leases,
licenses or other agreements relating to the Facilities. First Virtual shall
comply with all of First USA's policies and procedures regarding access to and
use of the Facilities, including, without limitation, procedures for the
physical security of the Facilities.
5. First USA shall have the exclusive right, in its sole
discretion, to manage the Facilities, including, without limitation, the
establishment of appropriate priorities for use of the Facilities. First
Virtual's use of the Facilities shall be subject to First USA's scheduling of
such Facilities and determination of the availability thereof. Such scheduling
shall include, without liquidation, the scheduling of holidays, maintenance of
Facilities, modification or rearrangement of Facilities and other matters which
may impact the availability of the Facilities for use by First Virtual. First
USA reserves the right, in its sole discretion, to designate the location of
the Facilities and modify or rearrange the Facilities, from time to time, so
long as such modification or rearrangement does not materially adversely affect
First Virtual's use thereof. Except as agreed in writing by the parties
hereto, First USA shall have no obligation, and First Virtual shall have no
right, to make any improvements or changes involving the Facilities. In
providing the Facilities to First Virtual hereunder, First USA shall have no
obligation to pay any amount (other than amounts to be reimbursed by First
Virtual in accordance with this Agreement) or incur any other obligation or
liability in order to permit its provision of the Facilities. First USA
reserves the right to consent to the particular equipment and other items to be
placed in the Space (as defined in Exhibit A hereto) by First Virtual. Upon
First USA's request, First Virtual shall discontinue use of and remove
particular equipment and other items placed in the Space by First Virtual.
6. This Agreement does not restrict in any way First USA's right
to use the Facilities or to permit third parties access to and use of the
Facilities. In using the Facilities, First Virtual shall not interfere with
any such use.
7. First USA and First Virtual shall each designate an employee
as a representative (respectively, the "First USA Representative" and the
"First Virtual Representative") who shall have the authority and power to act
and make decisions on behalf of First USA and First Virtual, respectively, with
respect to this Agreement and all matters pertaining hereto. Either party may
change its designated representative at any time or from time to time by
providing notice thereof to the other. First Virtual shall make use of the
Facilities only through bona fide employees of First Virtual or through
2
<PAGE> 3
employees of third party vendors of First Virtual approved in writing by First
USA. First Virtual shall cause all such employees and third party vendors to
comply fully with the terms and conditions of this Agreement and, upon First
USA's request, to execute confidentiality agreements satisfactory to First USA.
First USA reserves the right to consent to First Virtual's Facilities
Representative and employees of First Virtual or its third party vendors who
shall be making use of the Facilities. Upon First USA's request, First Virtual
shall discontinue an employee's or a third party vendor's use of the
Facilities.
8. In addition to the provision of the Facilities pursuant to
this Agreement, First USA shall provide First Virtual such other space,
communications lines, equipment, furniture, services and other items, as First
Virtual may reasonably request from time to time during First USA's provision
of the Facilities pursuant to this Agreement, under mutually acceptable terms
and conditions. Any such space, communications lines, equipment, furniture,
services and other times shall be deemed part of the Facilities for purposes of
this Agreement and subject to the terms and conditions of this Agreement and
shall be paid for by First Virtual as provided in this Agreement or as
otherwise agreed by the parties.
9. Except as otherwise provided in this Agreement or as otherwise
agreed in writing by First USA and First Virtual, First USA and First Virtual
shall each be responsible for any costs and expenses it incurs in connection
with the performance of this Agreement or operation of its business.
10. First USA and First Virtual each acknowledge that, as a result
of this Agreement, each party may obtain certain confidential and/or
proprietary information of the other or of the other's affiliates or their
respective customers, including, without limitation, the terms of this
Agreement. All such information, whether obtained before or after the
Agreement Date, was and shall be maintained by the recipient party in strict
confidence and shall be used only for purposes of this Agreement and shall not
be disclosed by the recipient party its agents or employees without the other
party's prior written consent, except as may be necessary by reason of legal,
accounting or regulatory requirements beyond the reasonable control of the
recipient party. The provision of this Section 10 shall survive termination of
this Agreement for any reason.
11. Except as otherwise agreed in writing, during First USA's
provision of the Facilities pursuant to this Agreement and for (1) year
thereafter, neither First USA nor First Virtual nor any of their affiliates
shall offer employment to or employ any person employed then or within the
preceding twelve (12) months by the other or any affiliate of the other. The
provisions of this Section 11 shall survive termination of this Agreement for
any reason.
12. If either party defaults in the performance of any of its
obligations pursuant to this Agreement and if such default continues for more
than (30) thirty days after written notice specifying the default is given to
its by the other party, the other party
3
<PAGE> 4
may, by giving the defaulting party written notice thereof, terminate this
Agreement as of a date specified in such notice of termination.
13. First USA and First Virtual each acknowledge that the breach
of this Agreement by it cannot readily or adequately be compensated for in
damages and that the breach of any provisions hereof shall cause irreparable
injury to the other party. First USA and First Virtual each shall therefore be
entitled, in addition to all other rights or remedies it may have, in law or in
equity, to injunctive and other equitable relief to prevent any violation of
the provision of this Agreement. The provisions of this Section (13) shall
survive termination of this Agreement for any reason.
14. During the term of this Agreement, First Virtual shall procure
and maintain, at its expense, insurance as required by First USA and all other
insurance, if any, required by applicable law from time to time. All insurance
procured by First Virtual pursuant to this Agreement must be procured from an
insurer or insurers approved by First USA, which approval shall not be
unreasonably withheld. Such insurance shall name First USA as additional
insured. All liability policies shall be primary without right of contribution
from any insurance carried by First USA. First Virtual shall furnish to First
USA endorsements and certificates evidencing the coverage required above.
15. First Virtual shall defend, indemnify and hold First USA
harmless from any liability, loss, claim, action, damage, cost and expense
(including, without limitation, reasonable attorneys' fees and court costs)
arising out of (i) breach, or any allegation of a breach, by First Virtual
pursuant to this Agreement (ii) fault or negligence, or any allegation of fault
or negligence, of First Virtual, its employees or agents, (iii) First Virtual's
access to or use of the Facilities, (iv) damage to any property or injuries,
sickness or death of any person (x) caused by, or alleged to be caused by, any
work or operations performed by First Virtual or any other entity under or by
reason of this Agreement or (y) which damage, injury, sickness or death occurs
on, in or about, or is claimed to have occurred on, in or about the Facilities
or relate to, or is claimed to relate to, access to or use of the Facilities.
The provisions of this Section 15 shall survive termination of this Agreement
for any reason.
16. First Virtual hereby acknowledges that it is familiar with the
Facilities it has had the opportunity to independently examine and evaluate
the Facilities and shall continue to do so throughout the term of this
Agreement. First Virtual further acknowledges that First USA has made no
attempt to make the Facilities useful for any party other than First USA.
First USA is providing the Facilities to First Virtual hereunder as a
convenience and makes no guarantees with respect to the availability or
performance of the Facilities and shall not be liable to First Virtual or
otherwise in the event of the unavailability or failure thereof for any reason.
THEREFORE, FIRST VIRTUAL ACCEPTS THE FACILITIES "AS IS" AND FIRST USA MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT
TO THE FACILITIES OR RESULTS TO BE DERIVED FROM THE USE OF THE FACILITIES OR
ANY OTHER ITEMS
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<PAGE> 5
PROVIDED OR WORK PERFORMED PURSUANT TO THIS AGREEMENT. The provisions of this
Section 16 shall survive termination of this Agreement for any reason.
17. For all claims relating to this Agreement, First Virtual's
exclusive remedy shall be injunctive and other equitable relief to prevent such
breach. As provided in Section 13 hereof, and without limiting the rights and
remedies set forth therein, in the event First Virtual is denied entry into the
Space (as defined in Exhibit A hereto) in breach of this Agreement, First
Virtual shall be entitled to injunctive and other equitable relief to prevent
any violation of the provisions of this Agreement. In no event shall First USA
have any liability for damages of any nature including, without limitation,
actual, direct, indirect, punitive, special or consequential damages or
liabilities of any kind, such as loss of revenue or loss of business. The
provisions of this Section 17 shall survive termination of this Agreement for
any reason.
18. Each party hereto shall be excused from performance pursuant to
this Agreement for any period it is prevented from performing in whole or in
part, as a result of an act of God, war, civil disturbance, court order, labor
dispute or other cause beyond its reasonable control and such nonperformance
shall not be a ground for termination or default. In the event of any disaster,
First USA shall determine, in its sole discretion, what, if any, disaster
recovery procedures shall be implemented with respect to the Facilities and
shall have no obligations with respect to disaster recovery with respect to
First Virtual's use of the Facilities. First Virtual shall be responsible, at
its expense, for any backup or other disaster recovery procedures it desires to
implement with respect to its use of the Facilities.
19. This Agreement shall be binding on First USA and First Virtual
and their respective successors and assigns, but First Virtual may not assign
this Agreement without the prior written consent of First USA.
20. No delay or omission by either party hereto to exercise any
right or power hereunder shall impair such right or power or be construed to be
a waiver thereof. The provision of this Section 20 shall survive termination
of this Agreement for any reason.
21. Upon the written request of either First USA or First Virtual,
any dispute, controversy or claim in connection with this Agreement shall be
submitted by the parties to a neutral mediator, mutually agreed upon by the
parties, for resolution. No formal proceedings for the resolution of such
dispute, controversy or claim may be commenced until either or both of the
parties conclude that amicable resolution through continued mediation of the
matter is not likely. If any legal action or other proceeding is brought for
the enforcement of this Agreement, or because of such dispute, controversy or
claim, the prevailing party shall be entitled to recover reasonable attorney's
fees and other costs incurred in that action or proceeding, in addition to any
other relief to which it may be entitled. The provisions of this Section 21
shall survive termination of this Agreement for any reason.
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22. This Agreement may be executed in several counterparts, all of
which taken together shall constitute one single agreement between First USA
and First Virtual.
23. First USA, in providing the Facilities hereunder, is acting
only as an independent contractor. First USA does not undertake by this
Agreement or otherwise to perform any obligation of First Virtual, whether
regulatory or contractual, or to assume any responsibility for First Virtual's
business or operations. First USA has the sole right to supervise, manage,
contract, direct and procure the Facilities and to perform or cause to be
performed all services to be performed hereunder.
24. If any provision of this Agreement is declared or found, by a
court of competent jurisdiction, to be illegal, unenforceable or void, then
both parties shall be relieved of all obligations arising under such provision,
but only to the extent that such provision is illegal, unenforceable or void,
and this Agreement shall be deemed amended by modifying such provision to the
extent necessary to make it enforceable while preserving its intent. If the
remainder of this Agreement is capable of substantial performance, then the
remainder of this Agreement shall not be affected by such declaration or
finding and each provision not so affected shall be enforced to the fullest
extent permitted by law.
25. All notices required or permitted to be given under this
Agreement shall he deemed given if given in writing by personal delivery or by
United States mail, registered or certified mail, return receipt requested,
postage prepaid, (i) to First USA at 1601 Elm Street, Suite 600, Dallas, Texas
75201, Attention: Ray McArdle, with a copy to 1601 Elm Street, Suite 4700,
Dallas, Texas 75201, Attention: General Counsel or (ii) to First Virtual at
11975 El Camino Real, Suite 300, San Diego, California 92130, Attention: John
Donegan, Vice President of Operations, with a copy to 11975 El Camino Real,
Suite 300, San Diego, California 92130, Attention: Philip Bane, Legal Counsel,
or, in either case, to such other address as the party to receive the notice
has designated by notice to the other party.
26. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS, OTHER THAN CHOICE OF LAW RULES, OF THE STATE OF
TEXAS.
27. This Agreement may be executed in several counterparts, each
of which shall be an original, and all of which shall constitute one and the
same instrument.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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28. This Agreement represents the entire agreement of the parties
hereto with respect to the subject matter hereof, and all prior negotiations,
understandings and agreements are merged herein. There are no understandings
or agreements relating hereto which are not fully expressed herein and no
change, waiver or discharge of this Agreement shall be valid unless in writing
and executed by the party against whom such change, waiver or discharge is
sought to be enforced.
IN WITNESS WHEREOF, the parties hereto have each executed this
Agreement.
First USA Merchant Services, Inc. First Virtual Holdings, Inc.
By: By:
----------------------- ------------------------
Title: Title: President
-------------------- --------------------
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EXHIBIT A
FACILITIES
1. The Existing Facilities consist of:
a. Access to First USA's office space located on the sixth floor
of 1601 Elm Street, Dallas, Texas, consisting of a computer room, lab and
adjoining conference rooms, and to First USA's office space located on the
seventh floor of 1601 Elm Street, Dallas, Texas, consisting of a break room, in
each case to which space First USA provided First Virtual access immediately
prior to the Agreement Date (the "Space").
b. The right to place a cabinet (containing computer equipment)
and a router, as provided by First Virtual immediately prior to the Agreement
Date, in the Space, as permitted by First USA immediately prior to the
Agreement Date.
c. Use of two (2) desks, communications lines and connector boxes
adjacent to such desks, all as provided by First USA immediately prior to the
Agreement Date, which communications lines connect such connector boxes with
the cabinet described above.
d. Use of a MCI T-1 internet communication line, as provided by
First USA immediately prior to the Agreement Date, which communication line
connects to the router described above.
e. Use of four (4) dial-up modem communication lines, as provided
by First USA immediately prior to the Agreement Date, which communication lines
run through First USA's PBX and connect to the cabinet described above.
f. Use of a fifty-six (56) KB communication line, as provided by
First USA immediately prior to the Agreement Date, which communication line
connects the data center with Electronic Data System Corporation's facility in
Westlake, Ohio.
Except as otherwise provided in this Agreement, or as otherwise agreed in
writing by the parties, First USA will furnish First Virtual the Existing
Facilities and First Virtual may use the Existing Facilities in the same manner
as existed immediately prior to the Agreement Date.
2. The Additional Facilities consist of:
a. First USA's sublease of a particular portion of the Space.
First USA hereby subleases to First Virtual, and First Virtual hereby accepts, a
portion of the Space, which shall consist of approximately sixty (60) square
feet of space
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as identified by First USA (the "Leased Premises"). First USA reserve the
right, in its sole discretion, to relocate within the Space the Leased
Premises, from time to time, so long as such relocation does not materially
adversely affect First Virtual's use thereof. As provided in Section 5 of this
Agreement, except as agreed in writing by the parties hereto, First USA shall
have no obligation, and First Virtual shall have no right, to make any
improvements or changes involving the Leased Premises. First Virtual may, at
its expense, enclose or otherwise demarcate the Leased Premises upon First
USA's written approval of such enclosure or demarcation (and, upon First USA's
request, First Virtual shall, at its expense, promptly remove such enclosure or
demarcation and return the Space to its condition prior to installation of such
enclosure or demarcation). In addition, as provided in Section 5 of this
Agreement, certain of the Facilities may be located within the Leased Premises
as designated by First USA. As provided in Section 1 of this Agreement, First
USA hereby subleases the Leased Premises to First Virtual to the extent
permitted by applicable agreements and laws and First Virtual shall be bound by
and comply with any primary leases or other agreements relating to the Lease
Premises. First USA shall have the right to access to the Leased Premises and
First Virtual shall provide First USA with keys or other items, if any,
necessary for such access. As part of the Additional Facilities, the Leased
Premises and First Virtual's access to and use thereof shall be subject to the
terms and conditions of this Agreement and either party may, upon at least
ninety (90) days prior written notice, discontinue such lease and First
Virtual's use of the Leased Premises as of a date specified in such notice,
b. The right to place a cabinet (containing computer equipment),
as provided by First Virtual, in the Space. Such cabinet and computer
equipment shall be substantially the same as the cabinet included in the
Existing Facilities.
C. The right to place a cabinet (for First Virtual's storage of
spare parts for computer equipment of First Virtual contained in the cabinets
described above), as provided by First Virtual, in a locked storage area in the
Space. Such cabinet shall not exceed six (6) feet in height, five (5) feet in
length and two (2) feet in depth.
d. Access to permit First Virtual's backup data cartridge
rotation by periodically removing First Virtual's data cartridge's used by
First Virtual with respect to the computer equipment described above and
storing such data cartridge's with a third party vendor of First Virtual at an
off-site facility.
e. First USA shall request Electronic Data Systems Corporation to
provide services reasonably requested by First Virtual and relating to First
Virtual's operations at the Space.
To the extend available, First Virtual may connect its equipment at the
Facilities to any uninterrupted power source utilized by First USA at the
Facilities.
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3. First Virtual shall pay the following:
a. For each month during the term of this Agreement, First
Virtual shall pay to First USA a monthly fee of $1,000.00. Each such monthly fee
shall be due and payable on the 10th day of the month for which such monthly fee
is payable. The monthly fee for any partial month shall be prorated on a per
diem basis. In the event any rent or other charges paid by First USA related to
the Space are increased during the term of this Agreement, First USA may, upon
written notice to First Virtual, increase such monthly fee by the same
percentage as such rent or other charges paid by First USA are increased.
b. With respect to (i) the MCI T-1 internet communications line
described above, (ii) the fifty-six (56) KB communications line described
above, (iii) services provided by Electronic Data Systems Corporation as
described above and (iv) the Facilities provided by First USA pursuant to
Section 8 of this Agreement, First Virtual shall, at First USA's option, pay or
reimburse First USA for any costs and expenses incurred in the provision
thereof.
c. There will be added to any amounts payable hereunder, and First
Virtual shall pay First USA, amounts equal to any taxes based thereon, or upon
this Agreement or the Facilities provided hereunder, or their use (including,
without limitation, state and local sales, use, privilege and excise taxes based
on gross revenues).
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EXHIBIT 10.24
WAIVER AND AGREEMENT
THIS WAIVER AND AGREEMENT (this "Waiver and Agreement"), effective as
of August 20, 1996 (the "Effective Date"), is entered into by and between First
Virtual Holdings Incorporated, a Delaware corporation (the "Company"), and
First USA Merchant Services, Inc., a Nevada corporation ("First USA").
WHEREAS, the Company and the First USA are parties to that certain
Amended and Restated Shareholder Rights Agreement, dated July 3, 1996 (the
"Agreement"), and
WHEREAS, the Company and First USA have agreed that the Company shall
make certain payments to First USA in consideration for First USA's waiver of
certain rights pursuant to Section 20 of the Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and First USA hereby
agree as follows:
1. Definitions. Any term defined in the Agreement will have the
same meaning when used in this Waiver and Agreement unless
otherwise expressly provided herein.
2. Waiver. Effective as of the Effective Date, First USA, on
behalf of itself and each of its successors and assigns,
(a) waives any and all rights it and each of its successors
and assigns may have pursuant to Section 20 of the Agreement
and (b) agrees that, upon the execution of the Series D
Preferred Stock Purchase Agreement by and between the Company
and First Data Corporation, First USA shall enter into an
Amended and Restated Shareholder Rights Agreement in form
and substance satisfactory to First USA, which will delete
Section 20 of the Agreement in its entirety.
3. Payment Schedule. The Company shall pay to First USA the
following fees in exchange for the waiver and agreement
discussed in Section 2 above:
(a) Within 10 days of the end of each calendar month
during the 40-month period commencing September 1, 1996,
the Company shall pay to First USA a transaction surcharge
fee equal to the greater of (i) $0.005 multiplied by the
number of payment transactions that the Company processed
during the preceding month through a provider of payment
processing services other than First USA Paymentech, Inc.
or its subsidiaries or affiliates and (ii) $12,500.
(b) The Company shall pay to First USA a facility fee
of $250,000 in cash on or before August 26, 1996.
<PAGE> 2
(c) The Company shall pay to First USA an additional
facility fee of $250,000 in cash upon the earlier of (i)
the consummation of the Company's initial public offering
and (ii) June 30, 1997.
4. Survival of Agreement Provisions. Except as otherwise set
forth in this Waiver and Agreement, the provisions of the
Agreement will remain in full force and effect.
5. Entire Agreement. The Agreement, as modified and supplemented
by this Waiver and Agreement, constitutes the entire
agreement and understanding by and among the parties with
respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Waiver and Agreement
as of the date first above written.
FIRST VIRTUAL HOLDINGS INCORPORATED
By: /s/ Lee H. Stein
-------------------------------
Lee H. Stein, Chief Executive Officer
FIRST USA MERCHANT SERVICES, INC.
By: /s/ Philip Taken
-------------------------------
Senior VP & General Counsel
-------------------------------
Name and Title of Signatory
<PAGE> 1
EXHIBIT 10.27
AGREEMENT
FOR
INFORMATION TECHNOLOGY SERVICES
THIS AGREEMENT, dated as of October 12, 1994, between FIRST VIRTUAL
HOLDINGS INCORPORATED, a Wyoming corporation (hereinafter referred to as
"FVH"), and ELECTRONIC DATA SYSTEMS CORPORATION, a Texas corporation
(hereinafter referred to as "EDS");
RECITALS
WHEREAS, EDS is in the business of providing information technology
services to entities who service and process financial transactions, including
credit card transactions; and
WHEREAS, FVH has developed a program (the "Program") and an
associated system for conducting financial commerce (that is, the buying and
selling of information, goods and/or services) over the Internet (as defined
below); and
WHEREAS, FVH desires to obtain, and EDS desires to furnish, information
technology services which could include card production, exception and
transaction processing associated with the FVII Program on the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements, covenants, representations, and warranties herein contained, the
parties hereto agree as follows:
ARTICLE I. DEFINITIONS
1.1 CERTAIN DEFINITIONS. As used in this Agreement:
(a) "Account Executives" shall mean the EDS Account Executive
and the FVH Account Executive.
(b) "Bank" shall mean the merchant settlement bank retained as
such by FVH, subject to change by FVH from time to time.
(c) "Base Services" shall mean the information technology
services and applications to be provided by EDS which are
generally described in Schedule A of this Agreement.
(d) "Business Day" shall mean any day that the Bank is open
for business.
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(e) "Data Center" shall mean the EDS data processing center selected by EDS
at which the Program transactions will be processed. The initial Data
Center is located Westlake, Ohio.
(f) "Documentation" shall mean documents, manuals (including user manuals),
and reference materials which collectively contain a description and/or
definition of basic or necessary operating conditions, characteristics,
capabilities, and specifications of the Base Services.
(g) "EDS" shall mean Electronic Data Systems Corporation, a Texas
corporation.
(h) "EDS Account Executive" shall mean an EDS account executive assigned
to act as FVH's primary point of contact regarding this Agreement.
(i) "EDS Equipment" shall mean the hardware to be purchased and installed
by EDS at the Data Center for the processing of the Program
transactions.
(j) "EDS Systems" shall mean any System provided by EDS to provide the Base
Services and Other Services under this Agreement.
(k) "Effective Date" shall mean the date this Agreement is executed and
delivered by EDS.
(l) "Expiration Date" shall mean the third anniversary of the
Implementation Date.
(m) "FVH" shall mean FIRST VIRTUAL HOLDINGS INCORPORATED, a Wyoming
corporation.
(n) "FVH Account Executive" shall mean a representative of FVH assigned
to work with the EDS Account Executive.
(o) "FVH Equipment" shall mean the hardware, to include operating systems,
FVH Systems and associated monitoring equipment, owned by FVH and to
be delivered to the Data Center by FVH and installed by EDS.
(p) "FVH Obligations" shall mean those obligations set out in Schedule B
to be performed by FVH relating to the conduct of the Program.
(q) "FVH Systems" shall mean Systems developed and owned by FVH to
interface with EDS Systems hereunder to support financial transaction
processing for the FVH Program.
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(r) "Implementation Date" shall mean the date on which FVH completes its
acceptance testing pursuant to Section 4.1(i) hereof and certifies its
acceptance of the EDS Systems and the FVH Systems in writing as being
capable of providing Base Services hereunder. In the event the systems
cannot be corrected to pass acceptance testing within 30 days after EDS
is provided written notice of deficiencies, this Agreement may be
terminated by FVH at no further expenses to FVH.
(s) "Internet" shall mean a global network of computer networks which permit
the exchange of electronic files using established protocols.
(t) "MasterCard" shall mean MasterCard International, Inc.
(u) "Other Services" shall mean all services other than Base Services, and
shall include without limitation (i) systems engineering services, (ii)
special computer runs or reports, and special accounting information
applications, (iii) data processing-related forms, supplies, and
equipment other than those provided by EDS to FVH as generic, and (iv)
custom or special enhancements to the EDS System made especially for FVH
or in support of the FVH Program which are outside the scope of this
Agreement.
(v) "Program" shall mean concepts, systems and procedures established by FVH
for the conduct of financial commerce on the Internet.
(w) "Services" shall mean Base Services and Other Services.
(x) "System" or "Systems" means and includes (i) computer programs,
including without limitation software, firmware, application programs,
operating systems, files and utilities, (ii) supporting documentation
for such computer programs, including without limitation input and
output formats, program listings, narrative descriptions, operating
instructions and programming instructions, and (iii) the tangible media
upon which such programs are recorded, including without limitation
chips, tapes, disks and diskettes.
(y) "VISA" shall mean Visa U.S.A., Inc.
(z) "Customer and Business Information" shall include all information
relating to the business of FVH and information relating to its
customers including, without limitation, customer lists, addresses,
demographics, profitability and account information, and all such other
information developed through the use of programs and provision of
services by FVII.
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ARTICLE II. AGREEMENT AND TERM
2.1 Agreement. Subject to the terms and upon the conditions specified in
this Agreement, during the term of this Agreement EDS will supply to
FVH, and FVH will purchase from EDS, all the requirements of FVH for
all information technology services and applications described herein.
It is the intention of the parties hereto that EDS will supply to FVH
all of the transaction processing requirements of FVH for the conduct
of the FVH Program. Notwithstanding the foregoing, during the term
hereof it is agreed that FVH shall have the right to negotiate and
contract for the securing of information technology services and
applications support for periods after the term hereof which are
comparable or competitive with those being provided hereunder.
2.2 Term. The term of this Agreement shall be for the period commencing on
the Effective Date and ending on the Expiration Date or on such earlier
date upon which this Agreement is terminated in accordance with the
provisions of Sections 7.2, 7.3, or 7.4 of this Agreement. The term of
this Agreement will automatically extend for a period of one (1) year
after the Expiration Date and each subsequent anniversary of the
Implementation Date, unless either party gives the other party notice
at least six (6) months prior to the date this Agreement would otherwise
terminate that it does not wish to extend the term of this Agreement
beyond the subsequent anniversary of the Implementation Date.
ARTICLE III. EDS OBLIGATIONS AND REPRESENTATIONS
3.1 Base Services. During the term of this Agreement, EDS will provide to
FVH Base Services for all of FVH's financial transactions processed
through the Program. In connection with the provision of Base Services
hereunder, EDS will:
(a) Provide, install, maintain and operate the appropriate
equipment, including the EDS Equipment, and EDS Systems so as to
provide Services hereunder and to furnish to FVH the daily and
other periodic reports listed in SCHEDULE A attached hereto;
(b) Through access to FVH's account at the Bank, settle on behalf of
FVH all credit card account transactions with the VISA and
MasterCard networks. On each day for which such settlement
results in a net surplus of funds, EDS shall, subject to the
requirements of the Bank, remit such surplus funds in
immediately available funds via the Federal Reserve System wire
facilities to FVH's account with the Bank, conditioned on timely
receipt of funds from the appropriate network. On each day for
which such settlement results in a net deficit of funds, EDS
shall withdraw from FVH's account at the Bank immediately
available funds in an amount equal to such deficit which EDS
shall remit via the Federal Reserve System wire facilities to
the
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appropriate network or networks not later than the close of
business on each Business Day;
(c) Maintain a merchant account processing relationship with the
Bank, it being recognized that the parties may mutually agree
to change the designated bank from time to time;
(d) Operate the FVH Equipment and the FVH Systems at the Data
Center,
(e) Store and safeguard magnetic tapes and disc packs containing
FVH's data in accordance with the data integrity safeguards
specified in Section 6.2;
(f) Provide FVH with a complete set of Documentation used by EDS in
performing the Base Services, together with updates as they are
developed by EDS. EDS will provide FVH with additional copies of
all user manuals upon request, at a mutually agreeable price
therefor;
(g) Provide customer support for participants in the FVH Program as
described in Schedule A;
(h) With the cooperation of FVH, develop, maintain and, as necessary
in the event of a disaster, execute a disaster recovery plan in
accordance with Section 6.7; and
(i) Have sole responsibility for the safekeeping of plastic cards on
behalf of FVH from the time each such card enters into EDS'
possession until such card is delivered to the United States
Postal Service or other common carrier for delivery to a
cardholder.
3.2 Other Services. FVH may from time to time request Other Services. All
Other Services provided to FVH will be billed at a mutually agreeable
price. To obtain Other Services, FVH shall present to EDS a written
proposal or inquiry. EDS shall submit a written bid in response to such
proposal or inquiry within ten (10) business days after receipt thereof.
If EDS indicates it is willing and able to undertake to provide such
Other Services, EDS and FVH shall specify in detail such Other Services
in one or more written addenda to this Agreement.
3.3 Training. EDS shall make EDS personnel available for training by FVH in
the proper use of the FVH System. Both parties shall provide competent
personnel for such training and shall cooperate in scheduling such
training in conjunction with the implementation of the Program.
3.4 Forms. EDS shall provide all forms requested by FVH in connection with
the Program as an Additional Service. Unless otherwise mutually agreed,
FVH shall provide all special, unique, or customized forms.
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3.5 System Implementation. EDS will, promptly after execution of
this Agreement but no later than October 14, 1994 implement
the Base Services, and provide updates and changes as they
occur. FVH shall pay the charges for such initial
implementation in accordance with Section 5.5 of this
Agreement.
3.6 Operating Instruction, System Changes. FVH agrees to comply
with all operating instructions pertaining to the Services as
issued by EDS from time to time. In order to continuously
improve the efficiency and quality of the Services, EDS
reserves the right to make such software, hardware, and
operational changes as it shall reasonably deem necessary and
FVH shall be notified in advance of any changes affecting the
Services to FVH. FVH acknowledges that EDS shall provide the
Services using such software, whether owned by EDS or others,
as EDS in its sole discretion determines appropriate for FVH's
business requirements. Implementation of any special
requirements of FVH not set forth in this Agreement shall be
as mutually agreed upon by EDS and FVH during the period
between the Effective Date and the Implementation Date.
3.7 Authorizations. EDS will provide authorization services to
VISA and MasterCard for FVH's accounts. Such authorization
expense is included in the pricing in Schedule C.
3.8 EDS Account Executive. EDS shall assign to FVH an EDS Account
Executive who shall be responsible for directing all EDS
activities affecting the provision of Services hereunder and
for working with FVH to establish priorities.
3.9 FVH's Rights to Use EDS Systems. EDS Systems (excluding the
specific code written for FVH by EDS hereunder and the
algorithms supplied to EDS by FVH) shall be and remain the
property of EDS, and FVH shall have no rights or interest
therein, except as set forth in this Agreement. Further, FVH
shall keep the EDS Systems confidential and shall not permit
them to be copied or reproduced, in whole or in part, by any
other person, firm, or corporation, at any time.
3.10 EDS' Rights to Use FVH Systems. FVH Systems shall be and
remain the property of FVH, and EDS shall have no rights or
interest therein, except as set forth in this Agreement.
Further, EDS shall keep the FVH Systems confidential and
shall not permit them to be copied or reproduced, in whole or
in part, by any other person, firm, or corporation, at any
time.
3.11 Warranties. EDS warrants that it shall provide the Services in
a professional, workmanlike and diligent manner. EDS further
represents that it shall operate the FVH System in accordance
with the documentation described in Section 4.1(g), and that
the EDS Systems and FVH System will operate together in
material compliance with VISA and MasterCard rules and ACH
clearinghouse procedures. EXCEPT AS SPECIFICALLY PROVIDED
HEREIN, EDS MAKES NO REPRESENTATIONS OR WARRANTIES EXPRESS OR
IMPLIED, TO FVH OR TO ANY OTHER PERSON OR ENTITY REGARDING THE
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MERCHANTABILITY, SUITABILITY, FITNESS FOR A PARTICULAR USE OR PURPOSE OR
OTHERWISE OF THE EDS SYSTEMS OR ANY OF THEM, OR OF ANY INFORMATION
TECHNOLOGY SERVICES OR MATERIALS PROVIDED HEREUNDER.
3.12 System Administration. EDS will insure that the EDS Systems is capable
of being administered in a manner compatible with the FVH System. EDS
will cooperate with FVH to accommodate any reasonable changes or
modifications to the FVH System which may occur from time to time due to
the necessities of business; EDS will perform, as Other Services, any
necessary maintenance and/or refreshment of the EDS Systems. EDS will
maintain the EDS Systems in compliance with applicable laws, regulations
and network rules, but shall rely on FVH to advise EDS of any necessary
changes that EDS would not otherwise be aware of.
3.13 Record Retention. EDS shall store all original data evidencing sales
data for at least six (6) months from the date of the transaction, and
shall retain computer data or a microfilm or microfiche copy of all
such data for at least three (3) years from the date of the transaction.
EDS shall be entitled to charge FVH for the creation or storage of such
copies. If FVH receives any request for retrieval of data, FVH shall
promptly transmit such request to EDS, and EDS shall promptly provide to
FVH (or to the card issuing financial institution if FVH so directs) a
copy of the requested data, all in compliance with the applicable
network rules and for EDS' standard charges therefor.
ARTICLE IV. FVH OBLIGATIONS AND REPRESENTATIONS
4.1 FVH Obligations. In connection with the services provided by EDS
hereunder, FVH will perform the obligations set forth in Schedule B
hereto. In addition, FVH will perform the following:
(a) FVH is solely responsible for providing, and shall bear the cost
of maintaining and insuring, the FVH Equipment and all
telecommunications lines and equipment, including terminals and
control units and data lines, as EDS may require to perform
Services hereunder. All equipment provided by FVH shall be
reasonably acceptable to EDS with regard to compatibility
with the EDS Systems.
(b) FVH will distribute, inspect, and review all reports created
from information transmitted or delivered by EDS and reject all
incorrect reports within thirty (30) days after receipt thereof
during the first six months after the Implementation Date, and
within seven (7) days after receipt thereafter.
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(c) FVH will insure that the FVH System is capable of being
administered in a manner compatible with the EDS Systems. FVH
will cooperate with EDS to accommodate any reasonable changes or
modifications to the EDS Systems which may occur from time to
time due to the necessities of business; FVH will be responsible
for any necessary maintenance and/or refreshment of the FVH
System;
(d) FVH will comply with (A) all state and federal laws and
regulations which affect the Program, (B) applicable by-laws and
regulations of VISA, Visa International and MasterCard, and (C)
EDS' operating policies and procedures set forth in the
Documentation.
(e) FVH is responsible for the quality and accuracy of all data
input to EDS and will use its best efforts to ensure that such
data are organized in the proper input sequence and format. Any
data submitted by FVH for processing which are incorrect,
illegible, or otherwise not in proper form may be, at EDS'
option, returned to FVH for correction before processing. In the
event FVH fails to furnish its data to EDS in the form and in
accordance with the schedule agreed upon, EDS will use all
reasonable efforts to reschedule and process the work as
promptly as possible, it being understood that all expenses to
EDS occasioned by such failure will be borne by FVH.
(f) FVH will maintain an account with the Bank and will make
sufficient funds available at all appropriate times to permit
EDS to fund settlement in accordance with Section 5.6(a).
(g) FVH will organize a training program to be conducted at EDS'
facilities for the purposes of training EDS' personnel in the
proper use of FVH's procedures and the FVH System. FVH will also
furnish any user manuals and/or documentation (which will be
developed jointly by EDS and FVH) necessary for EDS to operate
the FVH System; and
(h) During the term of this Agreement, FVH shall purchase from EDS
all Base Services relating to the Program, including but not
limited to, the Base Services specified herein. Notwithstanding
the foregoing, it is agreed that FVH shall have the right to
develop and test other systems during the term of this
Agreement.
(i) FVH shall be responsible for planning, scripting and conducting
acceptance testing of the FVH System and its operation with the
EDS Systems, and shall certify FVH's acceptance in writing upon
successful completion of all acceptance testing.
4.2 FVH Account Executive. FVH shall designate the FVH Account Executive who
shall be responsible for directing, insofar as EDS is concerned, all
activities of FVH affecting the provision of Services hereunder. The FVH
Account Executive shall also work with EDS to
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establish FVH priorities for the services provided hereunder and for
administration of the Program.
4.3 Representations and Warranties.
FVH hereby represents and warrants to EDS that:
(a) FVH is a corporation duly organized, validly existing and in
good standing under the laws of the State of Wyoming. It has all
requisite corporate power, franchises, licenses, permits, and
authority to own and license its properties (including the FVH
System).
(b) The execution, delivery, and performance of this Agreement by
FVH and the consummation by FVH of the transactions contemplated
hereby have been duly authorized by all requisite corporate
action.
(c) To the best of FVH's knowledge as of the Effective Date, no
consent, approval, order, or authorization of, or registration,
declaration, or filing with, any governmental or regulatory
authority is required to be made or obtained by FVH in
connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby.
EDS hereby represents and warrants to FVH that:
(d) EDS is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas. It has all
requisite corporate power, franchises, licenses, permits, and
authority to own and license its properties (including the EDS
Systems).
(e) The execution, delivery, and performance of this Agreement by
EDS and the consummation by EDS of the transactions contemplated
hereby have been duly authorized by all requisite corporate
action.
(f) To the best of EDS' knowledge as of the Effective Date, no
consent, approval, order, or authorization of, or registration,
declaration, or filing with, any governmental or regulatory
authority is required to be made or obtained by EDS in
connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby.
ARTICLE V. PAYMENTS TO EDS
5.1 Transaction Payments. For each month during the term of this Agreement,
FVH shall pay EDS the transaction charges for Base Services as specified
in Schedule C hereto. The
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minimum fee for Base Services is Five Thousand Dollars ($5,000.00) per
month (the "Monthly Minimum Charge"). The Monthly Minimum Charge is
deferred during the first two months following the Implementation Date.
5.2 Charges for Other Services. Upon receipt by EDS of a request by FVH for
Other Services, EDS shall advise FVH in writing of the charges therefor.
Upon FVH's written agreement (signed on its behalf by either Lee Stein
or Tawfiq Khoury) to pay such charges, EDS shall provide the requested
Other Services in accordance with Section 3.2 hereof, and FVH shall pay
for such Other Services at the times and in the amounts agreed. FVH
shall pay for all such Other Services on a calendar month basis.
5.3 Reruns. FVH shall pay the reasonable charges of EDS for reruns
necessitated by incorrect or incomplete data or erroneous instructions
supplied to EDS by FVH and for correction of programming, operator, and
other processing errors caused by FVH, its employees or agents.
5.4 Cost of Living Adjustment.
(a) If, after the first anniversary of the Implementation Date, the
Consumer Price Index for All Urban Consumers, All Cities
Average, 1982-84=100, as published by the Bureau of Labor
Statistics of the Department of Labor (the "CPI"), shall at any
anniversary of the first calendar day of the month in which the
Implementation Date occurs (the "Current Index") be higher than
the CPI one year prior thereto (the "Base Index"), then,
effective as of such anniversary, amounts payable from and after
such anniversary pursuant to Section 5.1 hereof shall be
increased thereafter by the percentage that the Current Index
shall have increased from the Base Index. In no event, however,
shall a price adjustment under this Section 5.4 exceed eight
percent (8%) for any twelve-month period.
(b) Until such time as the CPI for any anniversary of the Current
Index is announced, payments pursuant to Section 5.1 shall be
made in the amounts otherwise applicable. After the CPI is
published with respect to any anniversary of the Current Index,
EDS shall notify FVH of the increase, if any, of the percentage
that the Current Index shall have increased from the Base Index,
and shall provide a recalculation of the amounts payable (until
the next such increase) pursuant to Section 5.1. Within ten (10)
days thereafter, FVH shall pay to EDS all amounts owing as a
result of such increase with respect to all months during the
period commencing on such anniversary of the Current Index and
ending on the date of such payment.
(c) In the event that the Bureau of Labor Statistics shall stop
publishing the CPI or shall substantially change the content or
format thereof, the parties hereto shall substitute therefor
another comparable measure published by a mutually agreeable
source; provided, however, that if such change is merely to
redefine the base year for the CPI from 1982-84 to some other
year, the parties shall continue to use the CPI but shall,
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if necessary, convert either the Base Index or the Current Index
to the same basis as the other by multiplying such Index by the
appropriate conversion factor.
5.5 IMPLEMENTATION CHARGES. FVH shall pay to EDS an implementation charge of
One Hundred Fifty Thousand Dollars ($150,000.00), payable $50,000.00 on
the Effective Date and $100,000.00 on the Implementation Date.
5.6 PAYMENT.
(a) All amounts payable to EDS pursuant to this Agreement shall be
paid by electronic funds transfer to EDS from FVH's account at
the Bank, such transfers being hereby authorized by FVH. EDS
shall provide invoices for review and written approval by FVH
for all amounts due under this Agreement prior to any such
transfer.
(b) Any amount due EDS hereunder for which a time for payment is not
otherwise specified shall be due and payable within thirty (30)
days after receipt by FVH of an invoice therefor from EDS.
(c) Any undisputed amount due EDS hereunder that is not paid when
due shall thereafter bear interest until paid at a rate of
interest equal to the lesser of eighteen percent (18%) per annum
determined on a three hundred sixty (360) day year or the
maximum non-usurious rate of interest allowed by applicable law.
5.7 TAXES. There shall be added to any charges under this Agreement, and FVH
shall pay to EDS, amounts equal to any taxes, however designated or
levied, based upon such charges, or upon this Agreement or the Systems,
services, or materials provided hereunder, or their use, including state
and local privilege or excise taxes, sales and use taxes, and any taxes
or amounts in lieu thereof paid or payable by EDS in respect of the
foregoing, exclusive, however, of franchise taxes and federal or state
taxes based on the income of EDS.
5.8 TERMINATION FEE. In the event FVH desires to terminate this Agreement
prior to the normal expiration of its term for any reason other than an
uncured default on the part of EDS, FVH may so terminate by paying EDS
the transaction charges incurred through the effective date of
termination, together with a sum equal to (i) EDS' actual and direct
costs for disconnect fees and equipment relocation costs, and (ii) the
sum of $150,000.00 as liquidated damages. In no event shall the total
termination fee payable under this Section 5.8 (but excluding charges
for termination assistance requested by FVH) exceed the sum of
$150,000.00 plus (i) above.
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ARTICLE VI. SAFEGUARDING OF FVH DATA,
CONFIDENTIALITY, AND AUDIT RIGHTS
6.1 Ownership and Use of Data. FVH's data and Customer and Business
Information contain valuable and proprietary trade secrets and shall
remain FVH's property. Immediately upon written request by FVH (provided
that FVH shall have paid to EDS all undisputed amounts owing hereunder)
or, with respect to any particular data, on such earlier date that EDS
reasonable determines that it no longer requires the data in order to
render services hereunder, EDS shall, after obtaining written approval
from FVH, either erase such data from the data files maintained by EDS
or return the data to FVH. EDS shall not utilize FVH's data for any
purpose other than for rendering services to FVH under this Agreement.
6.2 Safeguarding Data Integrity. EDS will maintain internal computer data
integrity safeguards (such as access codes, passwords and anti-virus
programs) to protect against the deletion or alteration of FVH's data in
the possession of EDS consistent with those that are from time to time
generally applicable to EDS information processing centers. Upon payment
by FVH of any fees that EDS incurs, EDS shall provide such additional
internal computer data integrity safeguards as FVH reasonably requests.
6.3 System Ownership.
(a) FVH acknowledges that the EDS Systems, including computer
programs, documentation, forms, and other system materials used
by EDS to provide the Services (but excluding the specific code
written by EDS for FVH hereunder and the algorithms associated
therewith), are, subject to the limitations set out below, the
proprietary information of EDS or, with respect to Systems
licensed by third party licensors, such licensors, and any
disclosure thereof to third parties will result in substantial
monetary loss and irreparable damage to EDS. Accordingly, FVH
agrees not to disclose such materials to any third party, and to
treat the same confidentially and to safeguard them using the
same care and discretion which FVH uses with materials it
regards as confidential. Subject to the limitations set out
below, all computer tapes, disks, programs, specifications, and
enhancements developed in connection with the Services are and
shall remain at all times during and after the term of this
Agreement the exclusive property of EDS.
(b) EDS acknowledges that the FVH Systems, including computer
programs, documentation, forms, and other system materials
relating to the FVH System and used by EDS to provide the
Services, are the proprietary information and trade secrets of
FVH, and any disclosure thereof to third parties will result in
substantial monetary loss and irreparable damage to FVH.
Accordingly, EDS agrees not to disclose such materials to any
third party, or to use such materials for its own benefit, and
to treat the same confidentially and to safeguard them using the
same care and discretion which EDS uses with materials it
regards as confidential. Upon written
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request by FVH, EDS shall deliver a certificate signed by a
division officer stating that EDS has destroyed or returned all
FVH data and FVH Systems.
(c) By way of expansion of the foregoing, EDS agrees that the
specific code written by EDS for use in connection with the FVH
System or for interfacing the FVH System with the EDS System,
and the specific algorithms associated therewith, may not be
utilized by EDS for a period of five (5) years for any project
in direct competition with FVH in the conduct by FVH of the
Program. The EDS systems engineers employed directly and
substantially in connection with the aforementioned code
development may not be utilized by EDS for a period of one (1)
year for any project in direct competition with FVH in the
conduct by FVH of the Program.
6.4 Confidentially.
(a) Except as otherwise provided herein, EDS and FVH each agree that
all confidential information and trade secrets marked
proprietary and confidential and communicated to it by the
other, whether before or after the Effective Date, shall be and
were received in strict confidence, shall be used only for
purposes of this Agreement, and that no such information shall
be disclosed by the recipient party, its agents or employees
without the prior consent of the other party, except as may be
necessary by reason of legal, accounting, or regulatory
requirements beyond the reasonable control of the recipient
party, provided that the disclosing party shall give written
notice to the other party of such requirement to disclose. The
provisions of this Section 6.4 shall survive termination of this
Agreement for any reason, but shall have no application to any
information which is or becomes (through no fault of a party
hereto) public information, is obtained from a third party who
is not subject to any confidentiality obligations, is
independently developed, or is disclosed with the consent of the
party owning such information. In addition, FVH shall be
entitled to disclose to its agents and consultants such
information as may be necessary for the discussion of marketing
strategies or the exploration of business opportunities, so long
as such agents and consultants agree to hold such information in
confidence.
(b) In the event FVH's data or the EDS Systems or any part thereof
should come into the possession of one or more unauthorized
third parties as a result of a breach of this Article VI, the
breaching party shall, at its own expense, use its best efforts
to retrieve such data or systems and, in any event, shall
reimburse the non-breaching party for all reasonable expenses
incurred in connection with its retrieval efforts. In addition
to any remedies the non-breaching party may have, including
without limitation remedies set forth in this Agreement, the
non-breaching party shall be entitled to appropriate injunctive
relief against the breaching party and to prevent any other or
further unauthorized use or disclosure thereof or to require the
return thereof and shall be entitled to recover from the
breaching party reasonable attorney's fees
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and other costs of obtaining such injunctive relief, it being
stipulated that such breach would cause irreparable harm to the
non-breaching party for which no adequate remedy at law exists.
6.5 Security.
(a) EDS will employ controlled access systems, twenty-four hour
on-site personnel, and alarm systems in the Data Center and in
other locations in which Services are performed hereunder by EDS
for FVH.
(b) Except as provided in Section 6.6 hereof, without the prior
consent of EDS, no employee, agent, contractor, or invitee of
FVH shall operate or assist in operating equipment or Systems to
be utilized by EDS hereunder, or enter any room where any such
equipment or Systems are located. Employees, agents,
contractors, and invitees of EDS shall comply with the
reasonable rules of FVH with respect to access to FVH's offices,
data and data files.
6.6 Audit Rights. EDS shall provide FVH's internal and external auditors and
any inspectors or agents from any regulatory body exercising
jurisdiction over FVH's business reasonable access to visit the data
centers from which EDS provides services hereunder for the purpose of
performing audits or inspections of FVH. EDS will provide to such
auditors, inspectors, and agents all such assistance as they may
reasonably require of a routine nature, rendered in connection with any
such audit or inspection. For extraordinary assistance, including,
without limitation, preparation of reports and specially formatted data,
FVH shall pay EDS at EDS' then current commercial billing rates for
similar services.
6.7 Contingency Planning. The parties' responsibilities with respect to
contingency planning will be as follows:
(a) EDS will develop, maintain and, as necessary in the event of a
disaster, execute a disaster recovery plan (the "EDS Plan") for
the Data Center and will provide to FVH and its auditors and
inspectors such access to the EDS Plan as FVH may reasonably
request from time to time. EDS will not be required to provide
access to information of other EDS customers.
(b) FVH will develop, maintain and, as necessary in the event of a
disaster, execute a business resumption plan (the "FVH Plan")
for all FVH locations and the telecommunications links between
the FVH locations and the Data Center and will provide to EDS
such access to the FVH Plan as EDS may reasonably request from
time to time.
(c) EDS will provide to FVH such information as may be reasonably
required for FVH to assure that the FVH Plan is compatible with
the EDS Plan. Further, in the event
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of a disaster, EDS will provide access to all necessary and
relevant information for the adjustment, audit and processing of
insurance claims by FVH.
(d) Each party will be responsible for the training of its own
personnel as required in connection with all applicable
contingency planning activities.
(e) Each party's contingency planning activities will comply, as
appropriate, with such regulatory policies as may be applicable to
FVH's business, as the same may be amended or replaced from time
to time.
ARTICLE VII. TERMINATION
7.1 Arbitration. Any dispute, controversy, or claim arising out of, in
connection with, or relating to this Agreement, or the breach,
termination, validity, or enforceability of any provision of this
Agreement (except for termination by FVH upon payment of the applicable
termination fee as described above, which right shall be absolute) shall
be resolved by final and binding arbitration by a panel of three (3)
arbitrators in accordance with and subject to the Commercial Arbitration
Rules of the American Arbitration Association then in effect. Each party
shall promptly select one arbitrator and the two arbitrators so selected
shall promptly select the third arbitrator. Discovery in the forms
permitted by the Federal Rules of Civil Procedure then in effect shall be
allowed in connection with such arbitration to the extent consistent with
the purpose of the arbitration and as allowed by the arbitrators. Such
arbitrators are authorized to render awards of monetary damages,
direction to take or refrain from taking actions, or both. Judgment upon
the award rendered in any such arbitration may be entered in any court of
competent jurisdiction, or application may be made to such court for
judicial acceptance and enforcement of the award, as the law of such
jurisdiction may require or allow. EDS shall continue to provide services
hereunder during any such arbitration proceedings and FVH shall continue
to make payments, other than any disputed payments, to EDS in accordance
with this Agreement. The fact that arbitration has or may be allowed
shall not impair the exercise of any termination rights in accordance
with this Agreement.
7.2 Termination for Cause.
(a) Except as provided in Section 7.2(b) of this Agreement, FVH may
not terminate this Agreement prior to the third anniversary of the
Implementation Date unless it pays EDS the termination fee as
provided in this Agreement.
(b) In the event that EDS shall materially default in the performance
of any of its duties or obligations hereunder, which default shall
not be substantially cured within seven (7) Business Days after
notice is given to EDS specifying a default in its settlement or
reconciliation obligations, or within sixty (60) Business Days
after notice is given to EDS specifying any other default, then
FVH may, by giving notice
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thereof to EDS, terminate this Agreement for cause as of a date
specified in such notice of termination.
(c) In the event that FVH shall materially default in the
performance of any of its duties or obligations hereunder
(except for a default in payments to EDS), which default shall
not be substantially cured within sixty (60) Business Days
after notice is given to FVH specifying the default, then EDS
may, by giving notice thereof to FVH, terminate this Agreement
for cause as of a date specified in such notice of termination.
In the event that FVH materially defaults in performance of any
of its duty hereunder and EDS elects to terminate the Agreement
in accordance with the provisions hereof, EDS shall be entitled
to the same liquidated damages EDS would be entitled under
Section 5.8 if FVH had terminated this Agreement before the
Expiration Date. Notwithstanding the foregoing, FVH shall have
no liability if the unique nature of FVH's business is such
that it results in a failure or inability to comply with
applicable network rules or regulations of the networks used to
provide the services.
7.3 Termination for Nonpayment. In the event that FVH defaults in the
payment when due of any undisputed amount due to EDS hereunder and does
not cure such default within three (3) Business Days after being given
notice of such default, then EDS may, by giving notice thereof to FVH,
terminate this Agreement as of a date specified in such notice of
termination.
7.4 Rights Upon Termination. Within fifteen (15) days after notice of
termination of this Agreement and payment in full of all undisputed
amounts due EDS from FVH, EDS shall provide all of FVH's master files in
its possession to FVH in the machine-readable format and on media of
FVH's choice at the then current prices for time and materials. FVH
shall promptly return to EDS all copies of the EDS System and
documentation of the EDS System in FVH's possession and completely erase
the EDS System and all elements thereof from its computer system. EDS
shall make all of the FVH Equipment available for pickup by FVH at the
Data Center within fifteen (15) days after receipt of written notice
from FVH following termination of this Agreement.
ARTICLE VIII. INDEMNITIES AND LIABILITY
8.1 Cross Indemnity. EDS and FVH each agree to indemnify, defend and hold
harmless the other from any and all claims, actions, damages,
liabilities, costs, and expenses, including without limitation
reasonable attorneys' fees and expenses, arising out of (i) death or
bodily injury of any agent, employee, customer, business invitee or
business visitor of the indemnitor, or (ii) the damage, loss or
destruction of any property (other than FVH data or the FVH Equipment)
of the indemnitor, unless caused primarily as the result of EDS'
negligence or willful misconduct.
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8.2 Correcting Defects. In the event that any services provided to FVH are
inaccurate, incomplete, or otherwise defective due primarily to EDS'
fault or negligence, EDS shall correct such defect within a reasonable
time not to exceed thirty (30) days without charge to FVH.
8.3 Limitation of Liability. In the event EDS shall be liable to FVH on
account of EDS' performance or nonperformance of its obligations under
this Agreement, whether arising by negligence, willful misconduct, or
otherwise, (a) the amount of damages recoverable against EDS for all
events, acts, or omissions shall not exceed an amount equal to six (6)
times the aggregate monthly compensation payable by FVH to EDS pursuant
to Section 5.1 hereof for the month preceding the month in which such
damages first arose, plus the implementation fee set forth in Section
5.5, and (b) the measure of damages shall not include any amounts for
indirect, consequential, or punitive damages of any party, including
third parties. Further, no cause of action which accrued more than two
years prior to the filing of a suit alleging such cause of action may be
asserted against EDS. In connection with the conduct of any litigation
with third parties relating to any liability of EDS to FVH or to such
third parties, EDS shall have all rights (including the right to accept
or reject settlement offers and to participate in such litigation) which
are appropriate to its potential responsibilities or liabilities.
8.4 Patent Indemnity. Without limitation of liability, EDS and FVH each
shall indemnify, defend, and hold harmless the other from and against
any and all claims, actions, damages, liabilities, costs, and expenses,
including reasonable attorneys' fees and expenses, arising out of any
claim or claims of infringement by the indemnitor of any United States
letters patent, trade secret, copyright, trademark, service mark,
tradename, or similar proprietary right conferred by common law or any
law of the United States or any state alleged to have occurred because
of action taken or not taken by the indemnitor; provided, however, that
this indemnity shall not apply unless the indemnified party shall have
informed the other as soon as practicable of any claim or action
alleging such infringement and shall have given the indemnitor full
opportunity to control the response to such claim or action and the
defense thereof, including, without limitation any agreement relating to
the settlement thereof.
ARTICLE IX. MISCELLANEOUS
9.1 Right of EDS to Perform Services for Others. EDS may perform data
processing services for third parties at any EDS information processing
center that EDS may utilize for processing FVH's data, subject to
Sections 6.3(b) and 6.3(c).
9.2 Hiring of Employees. During the term of this Agreement and for a period
of twelve (12) months thereafter, neither party will, without the prior
written consent of the other, offer employment to or employ any person
employed then or within the preceding twelve (12) months by the other
party, if the person was involved in providing or receiving Services.
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9.3 Notices. Wherever under this Agreement one party is required or
permitted to give notices to the other, such notice shall be deemed
given when delivered in hand or by overnight courier service or when
mailed by United States mail, first class mail, postage prepaid, and
addressed as follows:
In the case of EDS:
Electronic Data Systems Corporation
5400 Legacy Drive
Plano, Texas 75024
Attn: President - Electronic Commerce Division
With a copy to:
Electronic Data Systems Corporation
5400 Legacy Drive
Plano, Texas 75024
Attn: EDS LEGAL AFFAIRS DEPARTMENT
In the case of FVH:
FIRST VIRTUAL HOLDINGS INCORPORATED
c/o Bob Kahan, Esq.
Stein, Kahan and Rosenberg
1299 Ocean Ave.
Santa Monica, California 91401
With a copy to:
William Bagley, Esq.
1720 Carey Ave.
P.O. Box 1436
Cheyenne, Wyoming 82003-1436
Either party hereto may from time to time change its address for
notification purposes by giving the other prior notice of the new
address and the date upon which it will become effective.
9.4 Counterparts. This Agreement may be executed in one or more counterparts
for the convenience of the parties hereto, all of which taken together
shall constitute one single agreement between the parties hereto.
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9.5 Relationship of Parties. EDS, in furnishing services to FVH
hereunder, is acting only as an independent contractor. EDS does not
undertake by this Agreement or otherwise to perform any obligation of
FVH, whether regulatory or contractual, or to assume any responsibility
for FVH's business or operations. EDS has the sole right and obligation
to supervise, manage, contract, direct, procure, perform or cause to be
performed, all work to be performed by EDS hereunder unless otherwise
provided herein.
9.6 Notices, Approvals and Similar Actions. Where notice, agreement,
approval, acceptance, consent or similar action by either party hereto
is permitted or required by any provision of this Agreement, such action
shall not be effective unless in writing signed by the party against
whom such action is sought to be enforced. All requests and designations
hereunder shall not be effective unless in writing. Any approval
required by any provision of this Agreement shall be readily
forthcoming unless the party whose consent is required shall state in
writing a valid business reason for withholding such consent.
9.7 Force Majeure. Each party hereto shall be excused from performance
hereunder for any period and to the extent that it is prevented from
performing any action pursuant hereto, in whole or in part, as a result
of delays caused by the other party or an act of God, war, civil
disturbance, court order, labor dispute, or other cause beyond its
reasonable control, including without limitation failures or
fluctuations in electrical power, heat, light, air conditioning or
telecommunications equipment. Such nonperformance shall not be a default
hereunder or a ground for termination hereof. Notwithstanding the
foregoing, during any period when EDS' performance is hindered or
precluded by reason of any of the aforesaid causes, FVH's obligations to
make payments hereunder shall be reduced on an equitable basis.
9.8 Waiver. A waiver by either of the parties hereto of any of the
covenants to be performed by the other or any breach thereof shall not
be construed to be a waiver of any succeeding breach thereof or of any
other covenant herein contained.
9.9 Media Releases. All media releases, public announcements and public
disclosures by any party hereto relating to the pricing terms contained
in this Agreement or promotional or marketing material using the name,
logo and/or service marks of the other party, but not including any
announcement intended solely for internal distribution or any disclosure
required by legal, accounting or regulatory requirements beyond the
reasonable control of such party, shall be coordinated with and approved
by the other party hereto prior to the release thereof, which approval
shall not be unreasonably withheld. Subject to the foregoing, FVH shall
have no restriction on its ability to market, advertise or promote its
business interests.
9.10 Entire Agreement. This Agreement, including any Schedules and Exhibits
referred to herein and attached hereto, each of which is incorporated
herein for all purposes, constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof as of
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the Effective Date and there are no representations, understandings or
agreements relative hereto which are not fully expressed herein.
9.11 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
9.12 Assignment. Neither party hereto may assign any rights or delegate its
obligations hereunder without consent from the other, which consent may
not be unreasonably withheld.
9.13 Amendment. This Agreement may be amended, supplemented, and terminated
only be a written instrument duly executed by both FVH and EDS.
IN WITNESS WHEREOF, EDS and FVH have each caused this Agreement to be
signed and delivered by its duly authorized officer, all as of the date first
set forth above.
ELECTRONIC DATA SYSTEMS FIRST VIRTUAL HOLDINGS
CORPORATION INCORPORATED
By: /s/ Thomas R. Malis III By: /s/ Lee H. Stein
------------------------- -------------------------
Name: Thomas R. Malis III Name: Lee H. Stein
------------------------- -------------------------
Title: Division Vice President Title: President
----------------------- -------------------------
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SCHEDULE A
EDS BASE SERVICES
OVERVIEW
First Virtual will be established to promote commerce over the Internet.
Commerce will be effected by facilitating the payment for information based
services between buyer and seller without disclosing marketable payment
information over the network (eg. actual commercially accepted account
numbers). First Virtual desires to out source the actual merchant and
cardholder accounting functions with said service.
EDS WILL:
Provide Account Access as follows:
- - Provide on-line viewing and updates capabilities to the below the line
system for authorized (by First Virtual or EDS) personnel on site at
EDS/Westlake;
- - Create Broker, Demographic, Buyer Settlement, and Seller Settlement
Accounts based on the demographic information provided during the
scheduled batch process;
- - Create a cross reference table of First Virtual Account Id, Buyer
Account and Seller Account;
- - Create a file of credit card information for Buyers;
- - Receive DDA numbers for Sellers, via check, and update the record
accordingly. This will be a manual process;
- - Receive credit card information and update the appropriate record
accordingly.
Support Transaction Processing as follows:
- - Define formats for communications between First Virtual and EDS;
- - Receive/send transactions, batched per EDS defined format, in regular
transmissions from/to First Virtual;
- - Retain transaction reference numbers for the life of the transaction
and provide archival access thereafter;
- - Buyer transaction will be held in suspense until a First Virtual
prescribed threshold is exceeded or the prescribed number of days has
elapsed. Threshold and number of elapsed days is controlled at the
Broker level;
- - Release payment to the seller based on a First Virtual prescribed time
table (established at the Broker level);
- - Payment to sellers will be net purchases and generated in the form of
ACH credit;
- - Calculate and create ACH transactions for collection of seller related
fees for payment transactions processed;
- - Maintain reference between First Virtual Account Id and seller/buyer
account;
- - Interface to a Federal Reserve Bank member for ACH transactions;
- - Interface to MasterCard and VISA for authorizations and settlement;
- - Provide non-payment information (chargeback) to First Virtual for
action deemed appropriate by First Virtual.
<PAGE> 22
EDS Statement of Work
First Virtual
Support Transaction Processing as follows: (continued)
- - Receive and process transactions from the originating bank (may be
presented via on-line entry or file transfer) to the below the line
system for disposition of returned/rejected Federal Reserve items
requirements definition to be completed by originating bank/First
Virtual;
- - Generate the appropriate reporting to meet management needs;
- - Automated handling of chargeback and retrieval from the bankcard
networks, install to be after live date; install to be no later than
four (4) weeks after definition document received;
- - Update the buyers' accounts with new add data from the ARU, minimum of
once a day;
- - Support updates to buyers' accounts with ARU data multiple times per day
or in real time after the live date (date to be mutually agreed to);
- - Retrieve mail from First Virtual P.O. Box;
- - Update seller account with demand deposit account information from
checks;
- - Stamp checks, 'for deposit only' and forward to First Virtual designated
bank for processing;
- - Payment from buyers will be via MasterCard or VISA, DDA as a vehicle for
payment to be later in the project;
- - Build and maintain a listing of bankcard account numbers, per
requirements specified by First Virtual, initially for reporting
purposes only;
- - Upon request from First Virtual, and authorization from the VISA and
MasterCard, block account numbers as payment mechanism. Based on
parameters defined by First Virtual.
Provide Customer Service as follows:
- - Provide 24-line Audio Response Unit for capture and reporting of credit
card information;
- - Support requests from First Virtual, to expand Audio Response Unit;
- - Assist with obtaining unique P.O. Box, all related fees will be passed
on to First Virtual;
- - Accumulate extraneous mail sent to First Virtual P.O. Box and forward to
First Virtual, weekly;
- - Provide support for an 800 customer number, recording only;
- - Assign a Business Analyst to the First Virtual account for the purpose
of supporting First Virtual in the terms of problem resolution, acting
as project leader for future development requests, and responding to day
to day inquiries.
Support Operations as follows:
- - Monitor the above the line hardware on a intermittent rather than a
continuous basis. Report outages to First Virtual and facilitate
maintenance/problem resolution by vendors;
- - Monitor the above the line software based on documentation and
instructions provided by First Virtual and report problems to First
Virtual.
2
<PAGE> 23
EDS Statement of Work
First Virtual
Support Operations as follows: (continued)
- -------------------------------------------
- - Monitor the above the line system connection to PSI, report outages to
PSI and advise First Virtual;
- - Back up data on the below the line system and store off site, back up
will be six days a week, Monday through Saturday as is EDS' standard
today;
- - Back up data on the above the line system and store off site, back up
will be six days a week, Monday through Saturday as is EDS' standard
today;
- - With First Virtual develop documentation for service and processing
provided to First Virtual including, but not limited to, on-line
access to account information, updates to accounts (adding DDA
information), monitoring the above the line system, backing up above
the line system data, problem resolution to the above the line system,
problem resolution to above the line communication network;
- - Maintain and update documentation on an ongoing basis;
- - Cost for tapes for back of above the line system will be passed through
to First Virtual;
- - Provide for 7x24 access to the above the line hardware for First Virtual
personnel and/or First Virtual designated authorized personnel;
- - Pass through the expense of the background check, when required for
individuals requiring 7x24 access.
Provide Settlement support as follows:
- --------------------------------------
- - Electronic statement (settlement summary) will be created for both
buyer and seller activity delivered through First Virtual;
- - Buyer will elect to have transactions settled via bankcard;
- - Sellers will elect to have transactions settled via ACH. EDS will,
at the time of generation, properly label items relative to their
origin for research purposes and return to originator (Federal Reserve
sponsor);
EDS will support an Environment as follows:
- -------------------------------------------
- - A new client server environment will be created to provide front end
processing to the cardholder and merchant legacy systems;
- - Front end system will maintain a number of tables that provide views
from a seller, buyer, broker and transaction perspective;
- - One merchant account, per type of product, (broker) will be established
on the Merchant System to represent the clearing entity of First
Virtual for cardholders wishing to settle their accounts via MasterCard
or VISA;
- - Clearing description will be maintained at the Broker level for all
First Virtual settlement (22 positions defined by First Virtual);
- - Seller charge options will include per item (sales/credit transaction)
and/or a percentage of volume and/or per ACH item generated;
- - Provide a secured environment with back up emergency power supply for
above the line systems at EDS/Westlake.
<PAGE> 24
SCHEDULE B
FVH OBLIGATIONS
FIRST VIRTUAL WILL:
Provide Account Access as follows:
- ----------------------------------
- - No support requirements
Support Transaction Processing as follows:
- ------------------------------------------
- - Subscribe to EDS defined formats for communications between First
Virtual and EDS;
- - Send/receive transactions, batched per EDS defined format, in regular
transmissions from/to EDS, minimum of once a day with increases to
mutually agreed to;
- - Prescribe dollar threshold or date trigger to release transactions for
payment by the buyer;
- - Prescribe time table to release payment to the seller;
- - Define seller related fees for payment transaction processed;
- - Acquire a relationship with a sponsoring Federal Reserve member;
- - Define requirements for below the line system to disposition
returned/rejected Federal Reserve items;
- - Ensure bank sponsoring Federal Reserve action will execute a remote
origination agreement with the Cleveland Federal Reserve if required;
- - Obtain sponsorship into MasterCard and/or VISA;
- - Accept and process non-payment information (chargeback);
- - Define report requirements with input from EDS;
- - Designate a bank for processing seller checks;
- - Provide definition document for automated handling of chargeback and
retrieval from the bankcard networks;
- - Provide the requirements for building and maintaining listing of
bankcard account numbers, per requirements specified by First Virtual,
initially for reporting purposes only;
- - Obtain authorization to block accounts as payment mechanism from VISA
and MasterCard, in writing. Forward a copy to EDS along with the
requirements for such blocking.
Provide the following Customer Service support
- ----------------------------------------------
- - Provide customer service support, via mail on the Net;
- - Pay for P.O. Box.
<PAGE> 25
First Virtual
Support Operations as follows:
- - Purchase and install and maintain ownership of hardware required to
support the above the line processing;
- - With EDS develop documentation for service and processing provided to
First Virtual including, but not limited to, on-line access to account
information, updates to accounts (adding DDA information), monitoring
the above the line system, backing up above the line system data,
problem resolution to the above the line system, problem resolution to
above the line communication network;
- - Cost for tapes for back of above the line system will be a pass through
to First Virtual;
- - Provide advance notices and comply with request for security/background
checks, in keeping with EDS' standard background investigation
procedures for individuals requiring 7x24 access to the above the line
hardware;
- - Make payment for standard background checks, when required.
Provide Settlement support as follows:
- - Determine and execute action to the buyer and/or seller for
transactions declined during the authorization cycle;
- - Provide buyer with details of items settled to the networks;
- - Provide seller with details of items submitted for payment;
- - Advise buyers that all transactions will be settled via bankcard;
- - Advise sellers that all transactions will be paid via ACH to DDA
(demand deposit account).
Environment
- - First Virtual will define the clearing description that will be
maintained at the Broker level for all First Virtual settlement (22
positions defined by First Virtual);
- - First Virtual will define seller charges, which can include per item
and/or a percentage of volume with pass through of interchange.
Outside the Scope
- - Automated handling of items returned from the Federal Reserve because
such items will be returned to the originating bank;
- - The ACH originating bank will be responsible for procedures to
disposition ACH returned items;
- - Conversion of network purchases from non US to US denomination of
currency - initial assumption is to lead off with a US based product,
however, a currency code field will be defined in the message formats;
- - EDS will not directly access the Internet (e.g. firewall development is
First Virtual responsibility);
- - Real time, continuous back up of the above the line data.
<PAGE> 26
SCHEDULE C
FIRST VIRTUAL
BUNDLED PRICING
MONTHLY TRANSACTION CHARGE - ASSESSED ON EACH INFO PURCHASE-"BEFORE THE TUBE"
TRANSACTIONS BETWEEN
0 - 5,000,000 0.08*
5,000,001 - 10,000,000 0.075
*NOTE-BUNDLE PRICING INCLUDE BATCH AUTHORIZATION FEE. FIRST VIRTUAL WILL NOT
RECEIVE A PASS THROUGH COST OF 5 CENTS FOR A BATCH. AUTHORIZATION FROM FIRST
USA VIA EDS. IT IS EDS' UNDERSTANDING THAT FIRST VIRTUAL'S TRANSACTION
PROCESSING FROM FIRST USA IS 7 CENTS PER TRANSACTION PLUS INTERCHANGE AND
QUARTERLY ASSESSMENTS. PLEASE REFERENCE "SCOPE OF SERVICES FOR BUNDLED PRICING."
ADDITIONAL CHARGES - NOT INCLUDED IN BUNDLED PRICING
BUYER ACCOUNT SET UP FEE 0.35
SELLER ACCOUNT SET UP FEE 3.50
PASS THROUGH EXPENSES
ACH ORGANIZATION
TELECOMMUNICATIONS
POSTAGE
CARD PLASTIC STOCK
NON-STANDARD STATIONARY STOCK
NETWORK ASSESSMENTS, INTERCHANGE AND OTHER CHARGES
TRAVEL AND LIVING EXPENSES INCURRED IN SUPPORT OF THE CUSTOMER
MONTHLY MINIMUM $5,000
ONE TIME DEVELOPMENT $150,000
6
<PAGE> 27
June 28, 1996 [EDS LETTERHEAD]
First Virtual Holdings Incorporated
11975 El Camino Real, Suite 300
San Diego, California 92130
Gentlemen:
Effective October 12, 1994, First Virtual Holdings Incorporated ("First
Virtual") and Electronic Data Systems Corporation ("EDS") entered into a certain
Agreement for Information Technology Services (the "Agreement"). On July 1,
1996, First Virtual plans to take responsibility for certain Base Services
under the Agreement from a computer facility different than the EDS facility
in Westlake, Ohio. Therefore, First Virtual and EDS now agree to compromise and
settle all outstanding issues between them relating to performance under the
Agreement, and continuation of certain services under the Agreement, all under
the terms and conditions set forth in this letter ("Amendment") which shall be
the sole agreement between the parties.
In consideration of the mutual obligations expressed herein, the parties agree
as follows:
Immediately upon execution of this letter, First Virtual shall pay to EDS the
sum of Two Hundred Twenty Thousand Three Hundred Seventy Eight Dollars
($220,378.00) ("Payment"). This payment and execution of the Amendment
represent full and final settlement of all obligations by and between both
parties relating to such matters under the Agreement, as follows:
- $120,378.00 represents all sums due and owing to EDS under the
Agreement for transaction processing through May 31, 1996; and
- $100,000.00 is an additional payment in satisfaction of any and all
other amounts that may be due and owing under the Agreement (except
as stated in the paragraph immediately below), to include
implementation and early termination payments;
- In addition, First Virtual agrees to pay, immediately upon receipt of
an invoice therefor, all charges for transaction processing
attributable to the period from June 1, 1996 through June 30, 1996,
upon which date all obligations of the parties under the Agreement
shall cease except as expressly set forth in this Amendment.
Upon execution of this Amendment, all obligations of the parties under the
Agreement are modified as follows:
<PAGE> 28
Commencing execution of this Amendment and continuing until either party
terminates the Agreement by providing sixty (60) days written notice to
the other, the Agreement shall remain in force and effect, except the
following sections are deleted, having no further force or effect:
Sections 2.1, 2.2, 3.2, 3.3, 3.5, 4.1(g, h and i), 5.2, 5.5, 5.8, 7.2
(a, b and c), and 9.2 of the Agreement and all exclusivity and
termination provisions wherever found in the Agreement; and
Minimum monthly charges shall no longer apply as set forth in the
Agreement. EDS shall continue to provide services to First Virtual as
provided in Schedules A and C to the Agreement until the earlier of (i)
August 1, 1996, or (ii) when First Virtual provides EDS written notice
that Amendment One to Schedule A and Amendment One to Schedule C (both
of which are attached hereto) are to take effect; and
Section 9.3 is hereby modified so that all notices to First Virtual
shall be made to John Donegan, Vice President Operations at Suite 300,
11975 El Camino Real, San Diego, California 92130 with a copy to:
Richard DeGolia, Esq., Wilson Sonsini Goodrich & Rosati, 650 Page Mill
Road, Palo Alto, California 94303-1050.
Except as expressly provided herein, the parties will have no further
obligation or responsibility to each other under the Agreement. Please indicate
your acceptance of and agreement to this Amendment by having an authorized
representative of First Virtual execute both of the enclosed copies of this
letter in the space provided below and return one copy to EDS.
Sincerely,
Electronic Data Systems
Corporation
By: /s/ Thomas R. Malin, III
-----------------------------------------------
Name: Thomas R. Malin, III
Title: Vice President, Card Processing Services
ACCEPTED AND AGREED:
First Virtual Holdings Incorporated
By: /s/ Lee Stein
- -----------------------------------
Name: Lee Stein
Title: President
<PAGE> 29
AMENDMENT ONE
SCHEDULE A
EDS BASE SERVICES
OVERVIEW
First Virtual will be established to promote commerce over the Internet.
Commerce will be effected by facilitating the payment for information based
services between buyer and seller without disclosing marketable payment
information over the network (e.g. actual commercially accepted account
numbers). First Virtual desires to out source the actual merchant and
cardholder accounting functions with said service.
EDS WILL:
Provide Account Maintenance as follows:
- - Receive DDA numbers for Sellers, via check, and send information to First
Virtual via Barr/RJE; This will be a manual process; (check data entry)
- - Receive credit card information from ARU and send to First Virtual:
Support Transaction Processing as follows:
- - Send/receive transactions, batched per EDS defined format, in regular
transmissions from/to EDS, minimum of once a day with increases as mutually
agreed to (per attached "File Exchange Schedule"), via Barr/RJE.
- - Retain transaction reference numbers 6 months after transaction and provide
archival access thereafter,
- - Payment to sellers will be generated in the form of ACH credit as directed by
batch file from First Virtual (via Barr/RJE)
- - Interface to a Federal Reserve Bank member for ACH transactions; to include
payments & credits
- - Interface to MasterCard and VISA for authorizations and settlement;
- - Provide non-payment information (chargeback) to First Virtual for action
deemed appropriate by First Virtual
- - Receive transactions from the originating bank (may be presented via on-line
entry or file transfer) and send to First Virtual (via Barr/RJE) for
disposition of returned/rejected Federal Reserve items,
- - Generate the appropriate reporting to meet management needs (monthly
accounting statements); as currently defined and supported,
- - Retrieve mail from established First Virtual P.O. Box;
- - Stamp checks "for deposit only" and forward to First Virtual designated bank
for processing;
<PAGE> 30
EDS Statement of Work
First Virtual
Provide Customer Service as follows:
- - Provide 24-line Audio Response Unit for capture and reporting of credit card
information;
- - Accumulate extraneous mail sent to First Virtual P.O. Box and forward to
First Virtual weekly;
- - Provide support for the current 800 customer number; recording only;
- - Assign a Business Analyst to the First Virtual account for the purpose of
supporting First Virtual in the terms of problem resolution, and responding to
day to day inquiries.
<PAGE> 31
EDS Statement of Work
First Virtual
AMENDMENT ONE
SCHEDULE B
FVH OBLIGATIONS
FIRST VIRTUAL WILL:
Support Transaction Processing as follows:
- - Subscribe to EDS defined formats for communications between First Virtual and
EDS:
- - Send/Receive transactions, batched per EDS defined format, in regular
transmissions from/to EDS, minimum of once a day with increases as mutually
agree to (per attached "File Exchange Schedule"), via Barr/RJE.
- - Continued current report requirements with input from EDS; (a monthly report);
Provide the following Customer Service support
- - Pay for P.O. Box
Provide Settlement Support as follows
- - Provide buyer with details of items settled to the networks;
- - Provide seller with details of items submitted for payment;
Outside the Scope
- - First Virtual will be responsible for procedures to disposition ACH returned
items;
Conversion of network purchases from non US to US denomination of currency -
initial assumption is to lead off with a US based product, however, a currency
code field will be defined in the message formats;
<PAGE> 32
FILE EXCHANGE SCHEDULE
EDS/FIRST VIRTUAL HOLDINGS INC.
EDS to First Virtual
<TABLE>
<CAPTION>
Production
Report Time Day(s)
- -----------------------------------------------------------------------------
<S> <C> <C>
DDA updates 11:00pm M-F
ARU updates every 2 hours M-Su
Chargebacks 9:30pm M-F
ACH returned between 3am and 5am M-F
Approved 9:45am and 4:45pm M-Su
Declines 9:45am and 4:45pm M-Su
TE400 11:30am and 7:30pm M-Su
</TABLE>
First Virtual to EDS
<TABLE>
<CAPTION>
Production
Report Time Day(s)
- -----------------------------------------------------------------------------
<S> <C> <C>
Bauths every hour M-Su
Deposits 11:00am and 7:00pm M-Su
ACH out 9:00am and 7:00pm M-F
</TABLE>
<PAGE> 33
AMENDMENT ONE
SCHEDULE C
FIRST VIRTUAL
PRICING
MONTHLY TRANSACTION CHARGE:
- ---------------------------
A1. ASSESSED ON EACH AUTHORIZATION/BETWEEN
0 - 5,000,000 0.04
5,000,001 - 10,000,000 0.04 OR LESS
A2. EACH SETTLEMENT
5,000,000 0.04
10,000,000 0.04 OR LESS
B. ELECTRONIC BATCH HEADER
1 PER FILE 0.10
C. ACH TAPE SETTLEMENT FEE/PER MONTH/PER TYPE OF FILE
250.00
D. ON-LINE MERCHANT STATEMENT FEE PER MONTH 0.025
E. MERCHANT ACCOUNT ON FILE PER MONTH 0.40
F. RETRIEVAL REQUEST 2.00
ADDITIONAL CHARGES
- ------------------
BUYER ACCOUNT SET UP FEE 0.46
SELLER CHECK HANDLING 0.50
NOTE: BUYER SETTLEMENT FEES INCLUDE THE 0.04 TRANSACTION PROCESSING FEE.
<PAGE> 34
PASS THROUGH EXPENSES
ACH ORIGINATION
TELECOMMUNICATIONS
POSTAGE
CARD PLASTIC STOCK
NON-STANDARD STATIONARY STOCK
NETWORK ASSESSMENTS, INTERCHANGE AND OTHER CHARGES
TRAVEL AND LIVING EXPENSES INCURRED IN SUPPORT OF THE
CUSTOMER
COURIER CHARGES
NO MONTHLY MINIMUM
<PAGE> 1
EXHIBIT 10.28
SYBASE PROFESSIONAL SERVICES CONTRACT
CONSULTING AND DEVELOPMENT AGREEMENT
THIS CONSULTING AGREEMENT entered into on the 16th day of August,
1996 between Sybase, Inc. ("Sybase"), a Delaware corporation with offices at 77
South Bedford Street, Burlington, MA 01803 and First Virtual Holdings Inc.
("Customer"), a Delaware corporation with offices at 11975 El Camino Real,
Suite 300, San Diego, CA 92130.
1. SERVICES TO BE PROVIDED
1.1 Sybase shall perform the consulting and/or development
services described in Schedule(s) mutually agreed upon, signed by both parties
and attached hereto (the "Services"). Customer may at any time request a
modification to the Services agreed to between the parties by written request
to Sybase specifying the desired modifications to the same degree of
specificity as in the original specifications. Sybase shall submit an estimate
of the cost for such modifications within seven (7) days of the receipt of such
request, and if accepted by Customer, such change in Services shall be
performed under the terms of this Agreement.
1.2 This Agreement shall commence as of the date set forth above
and shall continue, unless terminated as set forth herein. Customer may at any
time and for any reason terminate this Agreement or Schedule by providing at
least 7 days prior written notice to Sybase. Sybase may terminate this
Agreement upon written notice to Customer, if Customer breaches this Agreement
or any other agreement between Sybase and Customer and fails to correct the
breach within 7 days following written notice of such breach. Any termination
as contemplated above shall not affect the obligations of Customer to pay
Sybase for work performed prior to termination.
1.3 Sybase shall comply with all applicable laws in rendering the
Services.
2. FEES
2.1 As consideration for the performance of the Services, Customer
shall pay Sybase the fees set forth in the applicable Schedule attached hereto
plus expenses as provided in Section 2.2 below.
2.2 Customer will reimburse Sybase for (a) reasonable travel and
living expenses incurred by Sybase employees and subcontractors for travel from
Sybase's office in connection with the performance of this Agreement and (b)
any other expenses contemplated in the applicable Schedule.
2.3 With respect to software or other materials shipped by Sybase
to Customer hereunder, Customer shall pay all applicable shipping charges.
With respect to the Services (including any deliverables resulting from such
Services) Customer shall pay all applicable sales, use, personal property or
similar taxes, tariffs or governmental charges, exclusive of Sybase's net
income and corporate franchise taxes.
Page 1
<PAGE> 2
2.4 Sybase shall invoice the Customer on a periodic basis as shown
in the applicable Schedule. The fees owing hereunder shall be payable within
30 days from the date of Sybase's invoice, provided that the work being
invoiced was performed prior to the date of the invoice.
2.5 Past due amounts owing from Customer shall bear interest at
the rate of 1% per month. Customer will reimburse Sybase for all reasonable
costs incurred (including reasonable attorneys' fees) in collecting past due
amounts owed by Customer.
3. WARRANTY
3.1 Sybase warrants that the Services will be performed by
qualified personnel in a professional manner conforming to generally accepted
industry standards and practices.
3.2 If in the course of providing the Services, Sybase is to
create for Customer any software (the "Developed Software"), then upon delivery
to Customer of the Developed Software in a form declared by Sybase in writing
to be of production quality, Sybase warrants that (a) for a period of one year
from such delivery, the software will operate substantially in conformance with
the specifications for such Developed Software, as referenced in the applicable
Schedule and (b) the media on which the Developed Software resides will be free
of defects in materials under normal use for 90 days from such delivery.
3.3 EXCEPT AS EXPRESSLY PROVIDED IN SECTIONS 3.1 AND 3.2, NO
EXPRESS OR IMPLIED WARRANTY IS MADE WITH RESPECT TO THE SERVICES OR GOODS TO BE
SUPPLIED BY SYBASE HEREUNDER, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. SYBASE DOES NOT
WARRANT THE RESULTS OF ANY SERVICES OR ANY DEVELOPED SOFTWARE OR THAT ALL
ERRORS IN THE DEVELOPED SOFTWARE WILL BE CORRECTED.
3.4 Customer warrants that it has the funds to pay for the Services being
provided hereunder
Page 2
<PAGE> 3
4. CONFIDENTIALITY
4.1 "Confidential Information" includes all information identified
by legend as being proprietary or confidential or, if identified orally by the
disclosing party as proprietary or confidential and confirmed in writing within
30 days thereafter.
4.2 All Confidential Information shall remain the sole property of
the disclosing party.
4.3 Each party shall hold the Confidential Information of the
other in strict confidence, will not make any disclosures (including methods or
concepts utilized in the Confidential Information) without the express written
consent of the other, except to employees or consultants who agree to be bound
as Customer by the terms of this Section 4, and will take all reasonable steps
to maintain the confidentiality of all Confidential Information.
4.4 Items will not be considered to be Confidential Information if
(i) already available to the public other than by a breach of this Agreement;
(ii) rightfully received from a third party not in breach of any obligation of
confidentiality; (iii) independently developed by personnel or agents of one
party without access to the Confidential Information of the other; (iv) proven
to be already known to the recipient at the time of disclosure, or (v) produced
in compliance with applicable law or a court order, provided the receiving
party first gives the disclosing party reasonable notice of such law or order
and gives the disclosing party an opportunity to object to and/or attempt to
limit such production.
4.5 Each party shall treat the specific provisions of this
Agreement as Confidential Information.
4.6 This Section 4 shall survive any termination of this Agreement
and upon termination, at the written request of the disclosing party, the other
party shall return within 10 business days all originals and copies of
Confidential Information received from the disclosing party, except as provided
in Section 9.
5. INFRINGEMENT INDEMNITY
5.1 Subject to the limitations set forth below, Sybase at its own
expense shall (i) defend, or at its option settle, any claim, suit, or
proceeding against Customer on the basis of infringement of any United States
patent, trademark, copyright or trade secret by the Developed Software or use
thereof, and (ii) pay any final judgment entered against Customer or any
settlement agreed to in writing by Sybase on such issue in any such suit or
proceeding defended by Sybase.
Page 3
<PAGE> 4
5.2 The obligations of Sybase under Section 5.1 above are subject
to (i) Sybase having sole control of the defense and/or settlement of any such
claim, suit or proceeding; (ii) Customer notifying Sybase promptly in writing
of each such claim, suit or proceeding and giving Sybase authority to proceed
as stated in Section 5.1; and (iii) Customer, at Sybase's request, giving
Sybase all information known to Customer relating to such claim, suit or
proceeding and cooperating with Sybase to settle and/or defend any such claim,
suit or proceeding, provided that Sybase shall reimburse Customer for all
reasonable out-of-pocket expenses incurred by Customer in providing such
information and cooperating with Sybase.
5.3 If all or any part of the Developed Software is, or in the
opinion of Sybase may become, the subject of any claim, suit or proceeding for
infringement of any United States patent, trademark, copyright or trade secret,
Sybase may, and in the event of any adjudication that the Developed Software or
any part thereof infringes any United States patent, trademark, copyright or
trade secret, or if the licensing or use of the Developed Software or any part
thereof is enjoined, Sybase shall, at its expense do one of the following
things: (i) procure for Customer the right under such patent, trademark,
copyright or trade secret to use or sub-license, as appropriate, the Developed
Software or the affected part thereof; or (ii) replace the Developed Software
or affected part thereof with other non-infringing software; or (iii) suitably
modify the Developed Software or affected part thereof to make it
non-infringing; or (iv) if none of the foregoing remedies are commercially
feasible, refund the aggregate payments paid by Customer for the affected
Developed Software or the affected part thereof, less reasonable depreciation
for use.
5.4 Sybase shall not be liable for any costs or expenses incurred
by Customer with respect to any infringement claim without Sybase's prior
written authorization. Sybase shall have no obligations under this Section 5
with respect to any claim to the extent it is based upon (i) other than use of
any version of the Developed Software other than the version most recently
provided to Customer by Sybase, if such infringement would have been avoided by
the use of such most recent version; or (ii) the combination, operation or use
of the Developed Software with software which was not provided by Sybase, if
such infringement would have been avoided in the absence of such combination,
operation or use; or (iii) the use of the Developed Software on or in
connection with a computer system other than the hardware and the operating
system software for which it is specifically developed without Sybase's prior
written approval.
5.5 This Section 5 states the entire liability and obligation of
Sybase and the exclusive remedy of Customer with respect to any alleged
infringement of a patent, copyright, trademark or trade secret by the Developed
Software or any part thereof or use thereof.
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<PAGE> 5
6. INDEMNIFICATION
Subject to Section 11 below. Sybase agrees to indemnify Customer from
any and all losses, claims, damages and liability, including reasonable
attorneys' fees, arising out of injury to tangible personal property or persons
to the extent caused by the willful misconduct or negligent actions of Sybase's
employees and subcontractors while on Customer's premises. Customer agrees to
indemnify Sybase from any and all losses, claims, damages and liability,
including reasonable attorneys' fees, arising out of injury to tangible
personal property or persons to the extent caused by the willful misconduct or
negligent actions of Customer's employees and subcontractors while Sybase
employees and subcontractors are on Customer's premises.
7. INSURANCE
7.1 Sybase shall maintain, and shall require that its
subcontractors maintain, during the term of this Agreement, workers'
compensation coverage in compliance with the laws of the state in which the
Services are to be performed. Sybase also will maintain:
- Automobile Liability Insurance in the amount of $ 1,000,000 for each
occurrence, with respect to all vehicles used in connection with the Services;
and
- Comprehensive General Liability Insurance in the amount of
$2,000,000 for each occurrence.
7.2 At the request of Customer, Sybase shall provide Customer with
certificates of insurance showing the insurance specified in Section 7.1 to be
in effect.
8. PERSONNEL
8.1 Sybase shall assign employees with qualifications suitable for
the work described in an applicable Schedule. It may replace or change
employees as required.
8.2 For the term of each Schedule and for 12 months thereafter,
Customer agrees not to solicit or retain the services of any person who is an
employee of Sybase who was engaged in rendering services under such Schedule.
8.3 While on Customer's premises, Sybase's employees and
subcontractors will comply with all reasonable security practices and
procedures generally prescribed by Customer. Sybase employees will not be
required to sign any waivers, releases or other documents to gain access to
Customer's premises in connection with work performed under this Agreement and
any such waivers, releases, or other documents shall be invalid and have no
effect.
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9. DEVELOPED SOFTWARE AND DOCUMENTATION
9.1 Ownership of the Developed Software and/or related
documentation which Sybase develops pursuant to any Schedule shall be as
described in the applicable Schedule.
9.2 When Sybase owns the Developed Software, Sybase grants to
Customer a nonexclusive, perpetual, non-transferable royalty free license to
use the Developed Software internally. Customer may copy the Developed
Software and related documentation as required for internal use, provided that
any copies must contain Sybase's copyright and proprietary notices and may not
be provided to any third party, unless acting as Customer's agent or employee
and under agreement with Customer restricting the employee or agent from
providing the Developed Software or documentation to third parties. No title
shall pass to Customer with respect to any Developed Software, or
documentation. The license to Customer under this paragraph is subject to
payment in full, of all Services performed in creating the Developed Software
or portions thereof.
9.3 When Customer owns the Developed Software, it shall be
considered to be a "Work for Hire" and Customer shall have all rights of
ownership in the Developed Software, except to the extent that any of Sybase's
previously developed proprietary software ("Sybase's Proprietary Software"), is
embedded in the Developed Software, Sybase's Proprietary Software shall remain
the exclusive property of Sybase and Customer shall have no ownership interest
therein. Customer shall have a nonexclusive right to use Sybase's Proprietary
Software to the extent embedded in the Developed Software. Sybase shall
receive no rights in the Developed Software, except as otherwise agreed in the
applicable Schedule. The ownership and copyright provided under this
paragraph, is subject to payment in full of all Services performed in creating
the Developed Software or portions thereof
9.6 Nothing in this Agreement shall be deemed to expand or
otherwise modify Customer's rights or obligations under any existing Software
License Agreement with Sybase.
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9.7 Sybase may deem it necessary, in the course of performing the
Services, to use certain Sybase's proprietary software and accompanying
documentation the development of software on Customer's computer systems
("Sybase Tool Kit"). Sybase's Tool Kit will not be embedded in the Developed
Software. Except for the specific viewing and use as set forth in the next
sentence Customer will not use for any purpose, relicense copy in whole or in
part, except for an archival copy or copies made in the course of automatic
backups, modify, reverse engineer, decompile or disassemble the Sybase Tool
Kit. Customer shall restrict access by Customer's employees and agents to the
Sybase Tool Kit such that only those employees and agents who are authorized by
Sybase to view or use the Sybase Tool Kit are granted access. Any information
gained by such use shall be covered by the Confidentiality paragraph below.
The Sybase Tool Kit is owned by Sybase or its suppliers who shall at all times
retain all rights, title and interest therein. Upon termination of this
Agreement Sybase will remove the Sybase Tool Kit from Customer's system
including archival or automatic backup copies. Customer will certify in
writing to Sybase that no other copies of the Sybase Tool Kit remain in
Customer's possession.
10. ARCHIVAL COPY OF CUSTOMER-OWNED SOFTWARE
If Customer is to own the Developed Software, upon completion of the
Developed Software or termination of this Agreement, Sybase may, but is not
required to keep a copy of the Developed Software and any related materials.
Sybase warrants that the copy, and any additional copies Sybase makes, shall not
be sold, licensed, sublicensed or in any way disseminated to third parties.
11. LIMITATION OF LIABILITY
EXCEPT AS EXPRESSLY PROVIDED IN SECTION 5, THE TOTAL LIABILITY, IF
ANY, OF SYBASE INCLUDING BUT NOT LIMITED TO LIABILITY ARISING OUT OF CONTRACT,
TORT, BREACH OR FAILURE OF WARRANTY, OR OTHERWISE SHALL NOT IN ANY EVENT EXCEED
THE FEES PAID BY CUSTOMER UNDER THIS AGREEMENT OR $1,000,000, WHICHEVER IS
LESS. SYBASE, ITS SUBSIDIARIES AND ITS LICENSORS SHALL NOT BE LIABLE FOR LOSS
OF PROFITS, LOSS OR INACCURACY OF DATA, LOSS DUE TO DELAY IN PERFORMANCE OR
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF SUCH PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THIS SECTION 11 SHALL SURVIVE
TERMINATION OF THIS AGREEMENT.
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12. GENERAL
12.1 For the purposes of this Agreement, Sybase is an independent
contractor, and neither party shall be deemed the agent of the other. All
persons employed by Sybase shall be its employees or subcontractors and shall
not be deemed employees of Customer. Sybase assumes exclusive liability for
all contributions, taxes or payments required to be made because of such
employees or subcontractors by the federal and state Unemployment Compensation
Acts, Social Security Acts and all amendments thereto, and by all other current
and future acts, federal or state, requiring payment by Sybase on account of
such employees or subcontractors performing the Services under this Agreement.
12.2 This Agreement may not be assigned by either party without the
prior written consent of the other party, except that Sybase shall have the
right to assign its rights to payment hereunder.
12.3 This Agreement, together with the schedules and addenda
hereto, and purchase orders issued hereunder, constitute the entire agreement
of the parties and supersede all previous and contemporaneous communications,
representations, understandings or agreements with respect to the subject
matter hereof. This Agreement may be modified only in a writing designated as
an amendment and signed by both parties. In the event of any inconsistency
between this Agreement and a purchase order, this Agreement shall prevail
unless expressly otherwise agreed by the parties in writing. Purchase orders
shall be binding upon Sybase only if consistent with this Agreement and with
respect to: the designated services ordered and fees therefor; payment terms;
site for performance of services; and delivery dates set forth on the face side
of or a special attachment to the order. Printed terms on or attached to any
such purchase order shall be void and of no effect.
12.4 No delay, failure or default in performance of any obligation
of either party hereunder, excepting all obligations to make payments
hereunder, shall constitute a breach of this Agreement to the extent caused by
force majeure.
12.5 The failure or delay by either party to enforce the terms of
this Agreement shall not be deemed a waiver of such term.
12.6 All notices relating to this Agreement shall be in writing and
delivered by courier or hand or sent to the other party by first class prepaid
mail with return receipt requested, to the address of such party specified
above (addressed in the case of Sybase to the attention of its Legal
Department, 77 South Bedford Street, Burlington, MA 0 1 803) or specified by
such party in accordance with this Section, and shall be deemed received on
actual receipt.
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<PAGE> 9
12.7 This Agreement is subject to any governmental laws, orders or
other restrictions ("Export Requirements") on the export of Developed Software
and related information and documentation that may be imposed by the
governments of the United States. Customer will not commit any act or omission
which will result in a breach of any such Export Requirements and will not
export the Developed Software or any related information or documentation
outside the United States without prior written notice to Sybase.
12.8 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF
THE STATE OF CALIFORNIA EXCLUDING ITS CONFLICT OF LAWS RULES. CUSTOMER SUBMITS
TO THE JURISDICTION OF THE STATE OF CALIFORNIA AND THE STATE AND FEDERAL COURTS
LOCATED WITHIN THE COUNTY OF ALAMEDA AND/OR SAN FRANCISCO WITHIN THE STATE OF
CALIFORNIA. SERVICE OF PROCESS COMMENCING ANY SUIT RELATING TO THIS AGREEMENT
IN SUCH COURTS MAY BE MADE ON EITHER PARTY IN THE MANNER SPECIFIED IN SECTION
12.6 ABOVE FOR NOTICE. If any provision of this Agreement is held by a court
of competent jurisdiction to be unenforceable, such unenforceability shall not
affect the enforceability of the remaining provisions of this Agreement, and
the parties shall substitute for the affected provision an enforceable
provision which approximates the intent and economic effect of the affected
provision as closely as possible.
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ADDENDUM TO SYBASE PROFESSIONAL SERVICES CONTRACT
THIS ADDENDUM ("Addendum") entered into as of August 16, 1996, supplements
and amends the terms of the Sybase Consulting and Development Agreement
("Agreement") dated August 16, 1996 between Sybase, Inc. ("Sybase") and
First Virtual Holdings Inc. ("Customer"). Capitalized terms not otherwise
defined herein shall have the meaning set forth in the Agreement.
Customer and Sybase agree as follows:
1. SERVICES TO BE PROVIDED
(a) In Section 1.2, second sentence, line 4, delete after the word
"Agreement" the words "or any other agreement between Sybase and Customer".
(b) In Section 1.2, second sentence, line 5, delete and replace the term
"7 days" with "10 days".
2. FEES
(a) In Section 2.2, add the following sentence at the end of the first
sentence, line 3.
"Sybase shall secure Customer's oral consent prior to
assigning any Sybase personnel from outside California for
Rendering of Services."
(b) In Section 2.4, sentence 1, line 1, after the term "periodic basis"
insert the following words:
"..., but not more frequently than once a month, ..."
(c) In Section 2.4, second sentence, line 2, delete and replace the term
"30 days" with "45 days".
(d) In Section 2.5, sentence 1, line 1, delete after the term "rate of"
the words "1% per month Customer will reimburse Sybase for all reasonable
costs incurred (including reasonable attorneys' fees) in collecting past due
amounts owed by Customer" and insert the term "0.75% per month".
5. INFRINGEMENT INDEMNITY
(a) In Section 5.3, on line 13, delete after the term "part thereof" the
words "less reasonable depreciation for use".
6. INDEMNIFICATION
(a) In Section 6, sentences 1 and 2, lines 3 and 6, insert the term "or
gross negligence" after the term "willful misconduct".
Page 10
13
<PAGE> 11
7. DEVELOPED SOFTWARE AND DOCUMENTATION
(a) In Section 9.1, sentence 1, line 2, after the word "shall be" delete
the term "described in the applicable Schedule" and insert the term "as
determined by this Section 9".
(b) Renumber Section 9.4 to read 9.6.
(c) Renumber Section 9.5 to read 9.7.
(d) Insert a Section 9.4 in the Agreement and include the following
language:
"The parties agree that absent any notice from Sybase to the contrary
and prior to the development of any Developed Software, all Developed
Software is owned by Customer and is subject to the provisions of
Section 9.3 in the Agreement. Sybase must notify Customer prior to
the development of Developed Software that is to be owned by Sybase
and Customer has the right to terminate this Agreement as to the
project that would produce the Developed Software that Sybase intends
to own."
(e) Insert Section 9.5 in the Agreement and include the following
language:
"Sybase agrees that Customer owns all rights, title and interest,
including but not limited to copyrights, patents, trade secrets, and
all other intellectual property rights in the First Virtual Internet
Payment System ("FVIPS") and any changes, modifications or corrections
to FVIPS to include by way of definition and not limitation any
changes, modifications or derivative works created. If Sybase is ever
held or deemed to be the owner of any copyright rights in FVIPS, of,
any changes, modifications or corrections to FVIPS, then Sybase hereby
irrevocably assigns to Client all such rights, title and interest and
agrees to execute all documents necessary to implement and confirm the
letter and intent of this Section."
8. GENERAL
(a) In Section 12.6, sentence 1, line 4, insert the term "(all notices to
Customer must be directed to Lee H. Stein, Chairman and CEO with a copy to
Philip H. Bane, General Counsel)" before the term "or as specified by such
party".
(b) In Section 12.8, line 4, delete the words "ALAMEDA AND/OR SAN
FRANCISCO" and insert the term "SAN DIEGO".
[PAGE BREAK INTENTIONALLY INSERTED]
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(c) Add Section 12.9 and include the following language:
"Any controversy or claim arising out of or related to this Agreement,
with the exception of injunctive relief sought by either party, shall
be submitted to arbitration before an arbitrator sitting in San Diego,
CA. The arbitrator shall be mutually agreed upon by the parties, or
if the parties cannot agree upon an arbitrator within thirty (30) days,
to an arbitrator selected by Judicial Arbitration and Mediation
Services, Inc. ("JAMS"). The arbitration shall be conducted under the
rules then prevailing of JAMS. Each party shall pay its own
attorneys' fees and costs. The award of the arbitrators shall be
binding and may be entered as a judgement in any court of competent
jurisdiction. Each Party shall be responsible for their own expenses
associated with the arbitration or any dispute, to include attorneys
fees and arbitrator fees.
Except as amended above, the Agreement shall remain in full force and effect.
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
SYBASE, INC. First Virtual Holdings Inc.
("CUSTOMER")
BY: Robert Epstein BY: Lee H. Stein
-------------------- --------------------
TITLE: Practice Manner TITLE: President
DATE: 8/16/96 DATE: 8/16/96
------------------ ------------------
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SCHEDULE A
This Schedule A shall be governed by the terms and conditions of the Consulting
and Development Agreement between Sybase, Inc. ("Sybase") and First Virtual
Holdings Inc. ("Customer") dated August 16, 1996
PROJECT PLAN
STATEMENT OF WORK:
The following represents the work to be performed by Sybase relative to
Customer's Internet Payment System Version 3.0 project, including all Customer
requirements pertaining to such work.
Sybase Consultants will act as supplemental staffing to support FV's migration
to IPS Version 3.0. The scope of work we expect to be involved with is as
follows.
0.1. OUR UNDERSTANDING OF YOUR NEEDS
To support First Virtual's growth, the Internet Payment System
requires a more robust architecture. The current Internet Payment
System which exists on a Sun flat-file based system is inadequate to
support First Virtual's requirements in the areas of scalability,
automation, maintenance and reliability.
Sybase's proposal directly addresses the business need for a more
robust information technology architecture which will result in a
custom solution which delivering the required database access.
Business Requirements
The Internet Payment System tracks account information and credit card
data transaction status. This data must be available to both the
"Above the Line (ATL)" SGCS ("Simple Green" Commerce Server) and "Below
the Line (BTL)" Switch Server systems on a timely and reliable basis.
First Virtual's current system uses email to automatically authorize
new customers. For analysis and accounting reasons this information
must be 100% accurate and delivered within business cycle
requirements.
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TECHNICAL REQUIREMENTS
The solution must address the following technology issues:
o Integration of information from the TCL applications
o Port of TCL code which accesses flat files to utilize SYBTCL
o Scaleable database design to support the applications,
accounts, transactions and related SGCS entities currently
stored in Unix file systems.
o Scaleable database design to support accounts, pending
transactions, transfer/refund, bankcard transaction and the
us-ach transaction database and related SWITCH entities stored
in Unix file systems.
0.2. PROJECT SCOPE
For the scope of this project, we are proposing that we partner with
First Virtual Holdings Inc. to refine the requirements, analyze the
alternatives and port the existing application to support access to
Sybase dataservers for the Internet Payment System. We will proceed
to develop, test and deliver a set of applications which will access
dataservers in both the ATL and BTL systems.
0.3 THE SPS DEVELOPMENT APPROACH
This section summarizes the Development effort that Sybase and First
Virtual Holdings Inc. will execute for the Internet Payment System
Project.
First Virtual Holdings Inc.'s requirements can be summarized as
follows:
BUSINESS REQUIREMENTS
o Account information and credit card information
reliably distributed to the required systems
o Port of all code which currently accesses flat file
structures to use SYBTCL to access relational
structures on Sybase.
TECHNOLOGY REQUIREMENTS
o Platforms must be high reliability and low maintenance
o Integration of required application components (current
TCL applications)
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APPLICATION REQUIREMENTS
o TCL and SYBTCL
o Sybase SQL Server 11.01
o Sun Solaris 2.x
o Others to be determined during the project
DATA REQUIREMENTS
o Storage and retrieval API for persistent data entities
currently being stored as hierarchical Unix file system
structures
o Reliability, integrity and data maintenance management
o SUPPORT REQUIREMENTS
o Configuration management of software and technology components
o System monitoring, administration and management
0.4 SUMMARY OF TASKS AND DELIVERABLES
Project Management
o Project Plan - Prepare and maintain a current project plan.
o Project Manager will be responsible for managing time and
scheduling for the nine Sybase resources and one First Virtual
employee.
DELIVERABLES:
o Planned periodic status reviews which are focused on resolving
issues and reporting status.
o Cycle reviews designed to keep First Virtual sponsors involved
in the status, successes and issue resolution.
DATA ARCHITECTURE REQUIREMENTS
o Data Requirements and Options - Document the data distribution
requirements.
o Application Requirements and Options - Document specific
application technology constraints as specified by First
Virtual's requirements.
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<PAGE> 16
o Technology Requirements and Options - Document and diagram the
technology requirements for the SWITCH, the SGCS server and
interfaces.
o Support Requirements and Options - Document data, application
and technology support requirements such as configuration,
monitoring and maintenance.
DELIVERABLES:
o Application requirements document defining the results of the
above tasks.
PHYSICAL ARCHITECTURE
o Design of Physical Architectures - Physical database design,
physical application architecture and interfaces.
o Testing Plan - Outline the required tests to verify the
architecture compliance with the requirements.
DELIVERABLES:
o High level and detailed design documents defining the results
of the above tasks.
o Entity Relationship Diagrams (ERD's) of all ATL and BTL
databases.
o System Operations Guide to Sybase ATL and BTL interfaces and
production database operations.
APPLICATION/INTERFACES DEVELOPMENT
o Design of Applications - Design the program structure, define
functions and data to be accessed. Define and create SYBTCL
modules.
o Analysis of Interfaces Alternatives - Analysis of options
which meet the interface requirements.
o Design of Interfaces - Design the program structure, define
functions and other applications data to be accessed. Define
and create generic modules which can be re-used as objects
throughout interface development life cycle.
o Testing Plan - Outline the required tests to perform unit
testing.
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DELIVERABLES:
o Application design documents defining the results of the above
tasks and completed application.
o Completed application interface code using the SYBTCL API to
store and retrieve data from Sybase databases where data was
formerly stored and retrieved from Unix file system
structures. Also, completed coding of Sybase stored
procedures and an implemented database schema.
APPLICATION TESTING/BENCHMARKS
o Testing Plan - Outline the required tests to perform system
integration and functional testing.
o Integration of Applications/Interfaces - Create scripts and
perform system integration testing of all program modules and
interfaces.
o Benchmark tests - Create scripts to analyze performance based
upon key transactions of the application. Run benchmarks and
document results.
DELIVERABLES:
o Documents defining test and benchmark results.
o Scripts for benchmarking application performance.
o Scripts for integration testing of ATL and BTL applications.
QUALITY MANAGEMENT
o Quality Plan - Prepare and maintain a current quality plan.
o Define Code Change Control processes for the Version 3.0 team.
Sybase will not be responsible for integration of code changes
made by persons other than the ten members of the Version 3.0
team. In other words, the Management Change Control Process
will be administered by First Virtual.
o Project Review checklists and reports prepared at each project
milestone
DELIVERABLES:
o Quality plan defining the results of the above tasks.
o Change control mechanisms to identify, quantify prioritize and
track changes within the Version 2.0 to 3.0 migration process.
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The following represents the work to be performed by Sybase relative to
Customer's Internet Payment System Version 4.0 project
Sybase Consultants will act as supplemental staffing to support FV's migration
to IPS Version 4.0. The scope of work we expect to be defined by November
timeframe. We expect to begin working on this project in December and be
engaged for three months with five to six Sybase consultants working with FV
and SAIC.
Is software being developed by Sybase under this Project? YES X NO (If yes,
Paragraphs 1, 2, & 3 below apply)
OWNERSHIP OF DEVELOPED SOFTWARE/DOCUMENTATION
Description of Developed Software Owner
1. IPS V3.0 1. First Virtual Holdings Inc.
2. IPS V4.0 2. First Virtual Holdings Inc.
Description of Documentation Owner
1. IPS V3.0 1. First Virtual Holdings Inc.
2. IPS V4.0 2. First Virtual Holdings Inc.
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<PAGE> 19
STAFFING, FEES, EXPENSES AND PAYMENTS:
Resource Utilization estimates for IPS Version 3.0:
<TABLE>
<CAPTION>
ATL Develop- ATL Testing BTL Development and Testing Production
ment Deployment
T
o
t
a
A A A S S S S S O O O O N N N N l
u U u e e e e e c c c c o o o o
g g g p p p p p t t t t v V V V D
a
1 1 2 0 0 1 2 3 0 1 2 2 0 1 1 2 t
Project Resources 2 9 6 3 9 6 3 0 7 4 1 8 4 1 8 5 a
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Project Manager
5 5 5 4 5 5 5 0 5 5 5 5 5 5 5 3 72
SYBTCL Developer 1
5 5 5 4 5 5 5 5 5 5 2 2 2 2 2 2 61
SYBTCL Developer 2
5 5 5 4 5 5 5 5 5 5 49
SQL Developer
5 5 5 4 5 5 5 5 5 44
Sybase Tools
Developer/Tester 5 5 5 4 5 5 5 5 5 5 4 4 5 5 5 3 75
Internet Solutions
Specialist 2 2 2 2 8
Physical Design
Specialist 1 2 2 1 2 2 2 12
QA Manager
5 4 5 5 5 5 5 5 5 5 5 54
Documentation
Specialist 5 5 5 5 20
Production
Operations Specialist 5 4 5 5 5 5 5 5 5 5 5 5 5 3 67
Grand Total Days 462
</TABLE>
To assume 50-hr. work weeks, multiply by 1.25, therefore:
462 x 1.25 = 577.50 days
The resource estimates are based on the statement of work included in this
addendum. Each of these roles is required to complete the project defined. We
expect that some of the roles may be filled by SAIC or First Virtual. These
estimates may change based on a change in scope, changes in direction from
First Virtual, or modifications to the staffing assumptions. We will provide
First Virtual with weekly status report which will document any of the above
changes and their impact to these estimates.
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Resource Rate Estimates for IPS Version 3. 0:
<TABLE>
<CAPTION>
Standard Est. Cost at
Resource Rate Days Standard Rate FV Cost
-------- -------- ---- ------------- ---------
<S> <C> <C> <C> <C>
Project Manager $ 2,000 72 $144,000 $ 86,400
SYBTCL Developer 1 $ 1,600 61 97,600 73,200
SYBTCL Developer 2 $ 1,600 49 78,400 58,800
SQL Developer $ 1,600 44 70,400 52,800
Sybase Tools Developer, $ 1,250 75 93,750 67,500
Tester and Production
DBA
Internet Solutions $ 1,600 8 12,800 9,600
Specialist
Physical Design $ 2,000 12 24,000 14,400
Specialist
QA Manager $ 1,600 54 86,400 64,800
Documentation $ 700 20 14,000 11,200
Specialist
Production Operations $ 1,600 67 107,200 80,400
Specialist
Total Cost 462 $728,550 $519,100
</TABLE>
To assume a 50-hr. work week, multiply by 1.25, therefore:
$728,550 x 1.25 = $910,687 at standard rates
$519,100 x 1.25 = $648,875 at FVs discounted rates
Services will be performed on site at First Virtual in Del Mar unless otherwise
requested by the Customer.
AND
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For the Services. Sybase shall be compensated at the following rates:
Our consulting fees are based on an eight (8) hour workday, with
overtime billable at one-eighth (1/8) the daily rate noted below.
<TABLE>
<CAPTION>
Title Standard Rate Discount Discounted Rate
----- ------------- -------- ---------------
<S> <C> <C> <C>
Architect $2,500 52% $1,200
Principal Consultant $2,000 40% $1,200
Senior Consultant $1,600 25% $1,200
Consultant $1250 28% $ 900
Associate Consultant $ 700 20% $560
</TABLE>
Reasonable travel and lodging expenses will be billable at cost.
Expenses for materials purchased directly for First Virtual's benefit
will be pre-approved by First Virtual and billable at cost. All fees
and expenses will be billed on a monthly basis and such invoices
will be due and payable Net Forty Five (45) Days.
We are providing these discounted rates to First Virtual based on
their partnership relationship with Sybase and based on the commitment
of using 5-6 Sybase consultants for at least 6 months. The
approximate cost for this level of commitment is (6 consultants) x (26
weeks) x (5 days/wk) x ($1200/day) = $936,000.
Sybase shall commence performance of the Services on or before August 12, 1996.
If any dates are set forth above by which Sybase is to complete the Services or
certain aspects of the Services, the parties recognize that such dates are
target dates only and there is no assurance that such dates will be met.
Moreover, the parties recognize that Sybase's ability to meet any such dates
may be dependent upon Customer satisfying its obligations hereunder in a timely
manner.
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To the extent that the Services described above include Developed
Software, the following provisions will apply:
1. Sybase shall produce a detailed design specification to be
reviewed and approved by Customer. The design specification shall be based on
customer's requirements as outlined in the Statement of Work above. The first
draft of the design specifications shall be delivered to Customer on or before
September 30, 1996 (the "Delivery Date"). Customer shall have 5 days from the
Delivery Date to notify Sybase in writing of any changes to the design
specifications Customer believes are required to meet Customer's Requirements.
Failure to provide any such changes within the specified time period shall mean
that the design specifications as submitted by Sybase have been approved by
Customer. If changes are required by Customer, then the revised design
specifications shall be delivered to Customer as soon as reasonably possible,
taking into account the number of changes requested. Upon receipt of the
revised design specifications, Customer shall have another comparable period of
time to approve or disapprove the design specifications. If the design
specifications are disapproved, Sybase has the right to terminate this
Agreement.
2. Customer shall have 5 days from delivery of the version of the
Developed Software designated by Sybase as "Production" (the "Acceptance
Period") to undertake acceptance testing. If in the course of performing the
acceptance testing, Customer determines that the Developed Software does not
comply with the design specifications approved pursuant to the preceding
paragraph #1, it may deliver written notice to Sybase during the Acceptance
Period setting forth in detail the defects to be corrected, in which case
Sybase will undertake to correct the defects and redeliver the software to
Customer. Upon receipt of such corrected Developed Software, Customer shall
have another Acceptance Period as set forth above for further acceptance
testing. Failure by Customer to provide written notice of any defects within
any Acceptance Period shall mean that the Production version of the Developed
Software as delivered by Sybase has been accepted by Customer.
3. Sybase shall provide one copy of the production version of the
Developed Software (or the corrected version if necessary) to Customer together
with a copy of the source code therefor.
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
SYBASE, INC. First Virtual Holdings Inc.
("CUSTOMER")
BY: Robert Epstein BY: Lee H. Stein
------------------------- -------------------------
TITLE: Practice Manager TITLE: PRESIDENT
---------------------- ----------------------
DATE: 8/16/96 DATE: 8/16/96
---------------------- -----------------------
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Selected
Financial Data" and "Experts" and to the use of our report dated July 15, 1996
(except for Note 8, as to which the date is October 16, 1996), in the
Registration Statement (Form S-1) and related Prospectus of First Virtual
Holdings Incorporated for the registration of its common stock.
/s/ ERNST & YOUNG LLP
San Diego, California
October 17, 1996
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 3,287,616
<SECURITIES> 200,000
<RECEIVABLES> 89,966
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<CURRENT-LIABILITIES> 1,242,527
<BONDS> 0
0
1,943
<COMMON> 4,333
<OTHER-SE> 2,666,704
<TOTAL-LIABILITY-AND-EQUITY> 5,115,503
<SALES> 0
<TOTAL-REVENUES> 401,082
<CGS> 0
<TOTAL-COSTS> 2,929,574
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,505,834)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,505,834)
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<NET-INCOME> (2,505,834)
<EPS-PRIMARY> 0
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